Massive seas of oil in places like California and Texas created the oil industry. From these fields, oil gushed with little effort. Shale deposits, long known by the industry, were smashed between layers of rock and sand. It took a lot more effort to get shale oil out of the ground. Shale was expensive.
In 1973, the first “Oil Shock” was, in part, caused by the depletion of America’s great oil seas. By 2006, increasing global oil demand combined with the decline of conventional oil fields across the rest of the planet, caused another price shock. For the first time in 2007, the price of oil reached a $100 a barrel, a $150 by the middle of 2008. New oil was increasingly hard to find, even more expensive to get out of the ground. Expensive enough, it was deemed, to launch the Great Shale Revolution.
From the beginning, the big shale question was how much oil could be economically (as always discounting environmental costs) pulled out of the ground, at what rate. This question of shale economics hasn't been settled for sixteen years. The shale industry has been mostly unprofitable the whole time, even at a $100 a barrel.
How much could be pumped out was the most interesting question. Certainly, the great shale decade from 2010-2020 proved impressive volumes of oil. In 2006, few had predicted that much oil at that speed. Shale was humanity’s last great industrial project.
A number of years back, there was a wonderful website called “The Oil Drum,” run by a bunch of oil industry types, many geologists, who tried to convince Americans oil limits were no fluke. Homo sapiens did, in fact, share a small planet with finite resources — a hard, but exquisitely important sell.
The Oil Drum pointed out shale's big problem. Unlike old conventional wells, a shale well's output started declining as soon as it was tapped. In a year, a shale well’s production declined 30-40%, after three years 80-90%. Meaning, you had to ceaselessly drill just to maintain what you already were producing, and drill that much more to increase production.
The geologists dubbed this shale's Red Queen problem, after Lewis Carroll's Through the Looking Glass. They loved pointing out Carroll was a mathematician. The Red Queen explained to Alice, "Now, here, you see, it takes all the running you can do to keep in the same place." The great question for shale was how long would it be before when no matter how much you drilled, you could no longer stay in place — that time has come.
The FT has a good piece reporting shale’s demise, with the boys sounding not unlike the Sauds, “Don't look here for more oil.” Most important is this chart,
US shale is no longer drilling enough to stay in place. During the great shale decade, they drilled most of the best areas, so now, each new well produces less than the old wells. You have to drill even more wells to just stay in place, making each well, thus each new barrel of oil ever more expensive.
Truth be told, I haven't been following oil numbers as closely as I once did, but I've been waiting for this chart for a number of years. Seeing it, I went back to check out the numbers for the Bakken field in North Dakota. The Bakken was the first shale play back in 2006. So, I turned to the North Dakota Department of Mineral Resources where the Bakken story is laid out in numbers.
At the beginning of 2006, the year of the shale revolution’s inception, North Dakota had only 200 wells after fifty years of oil drilling. Today, just sixteen years later, there's 15,000! Unfortunately, and this was little reported in shale’s halcyon days — the Obama and Trump presidencies — Bakken peak production per well occurred in 2012 — a 144 barrels per day with 3500 wells. Today, with 15,000 wells, average daily production per well is only 68 barrels a day. So, if I have my math right, that's almost five times as many wells producing half as great volume of oil per well. Shale has moved beyond even the Red Queen's higher math of, “If you want to get somewhere else, you must run at least twice as fast as that!”
Shale oil always received more attention than its long, but no longer dismissed stepchild, natural gas. Nonetheless, the same Red Queen math applies here. So, as America foolishly (and foolish is the operative word) tries to sell Europe on the idea they can supply the Europeans’ every energy need with shale Liquid Natural Gas (LNG), well, it ain't gonna happen. But to you Europeans who wanta believe, “Yo, I gotta bridge in Brooklyn!” And to my fellow Americans, wait for your heating bills this winter.
Nicely done.