Category Archives: Peak Oil

On July 30th, the U.S. government agency The Energy Information Administration (EIA) announced provisional U.S. crude oil production figures for May 2013. Key points:

• May crude oil production was 226.8 million barrels, equivalent to 7.3 million barrels per day (bpd)
• Change over May 2012 on a barrel-per-day basis: +15.4% y/y
• May total crude oil plus natural gas liquids 303.6 million barrels, equivalent to 9.8 bpd

As can be seen from the chart below (click for larger image, link to original data here), the fracking of tight oil formations in the U.S. has made a major impact on U.S. crude production. The critical question is whether the current large year-on-year percentage growth rates in oil production can be sustained.

The year-on-year increase in production peaked in October 2012 at 18.2%, but currently year-on-year oil production gains remain robust, with mid-teen growth rates being recorded. The situation for oil is in marked contrast to that of U.S. natural gas, where production growth has stopped.

The differentiator here is price. Both tight gas and tight oil are expensive to produce compared with the conventional alternatives. Accordingly, production investment requires a high product price to remain feasible. U.S. natural gas prices are down roughly by half from their average level in the 2005 to 2008 period (removing the temporary 2008 spike). By contrast, the price of West Texas Intermediate, the U.S. benchmark oil price, remains near all-time highs (again excluding the very short-term 2008 spike).

Given crude oil is a globally traded commodity, U.S. production numbers need to be placed in the context of world supply and demand. In its latest Oil Market Report dated 11 July 2013, the International Energy Agency (IEA) recorded global ‘all liquids’ production of 91.2 million bpd for June 2013, down 0.3 million pbd from the previous month.

Full quarterly IEA world supply-and-demand figures, including Q2 2013 estimates, can be found here. The preliminary estimate for Q2 2013, shows a 0.5% rise over Q2 2012. The lacklustre increase in supply accounts for why world oil prices remain strong despite a slowdown in global GDP growth.

The U.S. government agency The Energy Information Administration (EIA) issues data on U.S. natural gas production, including shale gas, on a monthly basis with a lag of roughly two months. The latest data release was made on May 31 and covers the period up until March 2013.

Data is reported in billion cubic feet (bcf). Key points:

• March 2013 natural gas dry production: 2,037 bcf,  plus 1.0% year-on-year
• Average monthly production for the 12 months to March 2013: 2,003 bcf, +2.5% over the same period the previous year

Since the end of 2011, the rate of production increase has levelled off (click chart below for larger image); March saw the year-on-year growth rate move back into positive territory (keeping in mind that negative number in February was distorted by the leap year in 2012), but the 12-month moving average growth rates continues to decline.

Much recent media attention has centred on a so-called shale-gas revolution in the United States and, in particular, the ability of shale gas to boost overall volume of natural gas production. Many claims are made with respect to the prospective expansion in shale gas production in the coming years including the following:

• Shale gas will provide a low-cost source of natural gas, and thus cheap energy, for decades to come. This, in turn, will boost the competitiveness of the U.S. economy.
• The U.S. will move toward an era of energy self-sufficiency, which will help buttress the country’s geopolitical security.
• The scale of shale gas production will be sufficient to allow the U.S. to commence natural gas exports, thus transforming energy markets outside of the U.S. such as those in Europe.
• Increased natural gas production in the U.S. will mitigate carbon emissions through displacing coal and so reduce the risk of dangerous climate change.

For these claims to be substantiated, significant year-on-year rises in U.S. natural  gas production will be required over an extended period. Through tracking monthly production of natural gas, a non-specialist can confirm or refute whether large rises in natural gas production are being achieved and, therefore, whether the claims associated with a shale-gas revolution are credible. In short, the monthly numbers allow you to evaluate the hype. Monthly data are currently not showing any material increase in production.