The commentary below is shared with permission of the author. It originated in private discussions on the listserv of the advisory board of the ASPO-USA (Association for the Study of Peak Oil). It is not cornucopian news. It is further indication of a serious price hike looming for natural gas. It is good news for everyone who is selling natural gas. Bad news for anyone buying natural gas. AFAIK, the gas buyers far outnumber the gas sellers.
So as you may be deciding, reluctantly, but under the force of circumstances, to draw down your savings to install a tornado shelter, you should extend your investment and do a super-insulation job on your dwelling and update your HVAC systems for efficiency. That might involved dumping your central unit and going to zone cooling and heating, depending on how big your place is and how good a job you do on weatherization and insulation. Unlike anything you might put into the stock or bond market, this investment will pay you tax free dividends for the life of the dwelling, in the form of money you won’t have to spend on energy. Insulation is not an expense, it is an investment. It is one of the very few guaranteed investments on the table right now.
In just a few years, we here in Oklahoma City will be devoutly wishing that we had a real bus system. That will likely be true for most of my readers elsewhere too. We Oklahoma City-ians will wish we hadn’t squandered a hundred million on a couple of miles of street car line. We will wish we had spent that money instead getting ourselves a real bus system.
One result of the misallocation of public transit resources here in OKC may be the degentrification of the entire area outside of the roughly quandrangle shaped area formed by I-40, I-44, and I-35. Within that quadrangle, it will be gentrification everywhere all the time. That process is already in its initial stages. My house tripled in value, according to the county assessor, since 1999. Meanwhile, The 73132 zip code, where I work, long a haven for up-income households, located well outside of the “Urban Quadrangle”, has increasing numbers of people on Section 8 and food stamps. We are noticing this demographic change at Epiphany Church, in discussions with other staff members.
If you look at Europe and South America, the slums are in the suburbs, on the edges of the cities. Our tax-subsidized freeway system and cheap gasoline permitted the US of A to buck that trend and made the suburbs “the most desirable” places to live for families. But as the decline years come upon us, that will change.
What are our political leaders saying here in OKC? They say we need to reduce the area of transit service, cutting entire sections of the City off of the transit grid. Police response times outside of the Urban Quadrangle already are nothing to brag about, according to stories I hear from other Epiphany parishioners.
Actions have consequences. The consequences of investing a billion dollars inside of the OKC Urban Quadrangle formed by the interstate highways, and reducing civic investment in the rest of the City, will become crystal clear as time passes. We can no longer afford to support a sprawling Oklahoma City metropolis, so abandonment of the suburbs will become the political reality of the energy and resource-constrained future.
The Outlook for Future US Oil & Gas Production, Given High Decline Rates From Existing Wells And a Summary of Recent Global Net Oil Export Data
By: Jeffrey J. Brown
Independent Petroleum Geologist
Member, Advisory Board, Association for the Study of Peak Oil, USA
ExxonMobil put the annual decline rate from existing wellbores in the 4%/year to 6%/year range a few years ago. For the sake of argument, let’s assume that the decline rate from existing US oil wells was about 5%/year in 2008, when the US hit the post-hurricane low production point of 5.0 mbpd (Crude + Condensate, EIA).
Let’s assume that US Crude + Condensate production averages 7.5 mbpd in 2013, and let’s make (in my opinion a conservative) assumption that the decline rate from existing US wellbores is about 10%/year this year, as an increasing percentage of US production comes from high decline rate shale/tight plays.
At a 10%/year decline rate, in order to simply maintain a production rate of 7.5 mbpd out to 2023, the US oil industry would have to replace the productive equivalent of every single oil field in the United States of America–everything from Thunder Horse in the Gulf of Mexico, to the Eagle Ford Play, to the Permian Basin, to the Bakken Play to the North Slope of Alaska.
Or let me put it this way, at 5%/year decline rate, in 2008 the US lost 250,000 bpd per year due to declining production. At a 10%/year decline rate and a production rate of 7.5 mbpd, we would lose 750,000 bpd this year due to declining production.
In other words, a 50% increase in net production + an increase in the decline rate from 5%/year to 10%/year would lead to a 200% increase in annual volume of oil lost to declining production from existing wellbores.
Assuming an annual loss about 750,000 bpd from existing wellbores, the gross increase in production would have to exceed 750,000 bpd in order to show a net increase in production. For example, let’s assume that we average 7.5 mbpd in 2013, and let’s assume that we lose 750,000 bpd (0.75 mbpd) from existing wellbores this year. In order to show a net increase of 0.25 mbpd from 2013 to 2014 (from 7.5 to 7.75 mbpd), the industry would have to show a gross increase in production of one mbpd, which would be the production from new wells in 2014 that were not producing in 2013.
If you add it all up, assuming a 10%/year decline rate from existing wellbores, in order to show a significant net increase in production, the US oil industry would have to put on line, over a 10 year period, the productive equivalent Saudi Arabia’s 2005 crude + condensate production of 9.6 mbpd, which is also the US production peak that we saw in 1970.
This is why Peaks Happen, and it’s why production declines are inevitable. On the upslope, new oil wells can offset the declines from existing wellbores, but with time, new oil wells can no longer offset the increasing volume of oil lost to production declines And of course the overall decline rate from existing US gas wells is almost certainly even higher than for oil wells.
We are currently averaging about 66 BCF/day in dry natural gas (NG) production in the US (EIA). If we assume a 20%/year decline rate per year from existing NG wellbores, the industry would have to put online the productive equivalent of current US dry NG production over the next five years, in order to maintain a production rate of 66 BCF/day.
So, based on a 10%/year decline rate for oil wells and a 20%/year decline rate for gas wells, in order to maintain a crude oil production rate of about 7.5 mbpd and a NG production rate of 66 BCF/day, in round numbers the industry would have to add the productive oil equivalent of one new Bakken play every year and the productive gas equivalent of 2.3 Barnett Shale plays–every single year, year after year.
Globally, the dominant trend we are seeing is a post-2005 decline in Global Net Exports of oil (GNE), as the developing countries, led by China, so far at least have consumed an increasing share of a post-2005 declining volume of Global Net (oil) Exports. Of course, this means that developed net oil importing countries like the US have to make do with a declining share of a declining volume of Global Net (Oil) Exports. And the US is still dependent on imports for the majority of crude oil processed in US refineries. The post-2005 decline in GNE, combined with increasing demand from developing countries were the primary factors that contributed to global (Brent) crude oil prices more than quadrupling from $25 in 2002 to $112 in 2012.
For more information on global oil exports, you can search for: ASPO + Export Capacity Index.
For a concrete example of the Export Capacity Index (ECI) concept works, consider two countries that are widely considered to be critically important sources of future crude oil production: Brazil and Iraq.
If we extrapolate the 2008 to 2012 rate of decline in Brazil + Iraq’s combined ECI ratio (the ratio of liquids production* to consumption), they would collectively approach zero net oil exports in about 10 years. Note that their combined net exports fell from 2.0 mbpd (million barrels per day) in 2008 to 1.8 mbpd in 2012 (EIA).
Or in other words, the increase in Iraq’s net oil exports from 2008 to 2012 could not even offset the decline in net exports from Brazil (as Brazil slipped into net importer status, even if we count biofuels as “oil” production).
*EIA data, production = total petroleum liquids + other liquids (mostly biofuels in the other liquids category)