U.S. shale is growing at a scorching rate, but will the shale industry be around for the long haul? A new study calls into question the heady projections for shale oil and gas, arguing that expectations of huge levels of production for decades to come are based on shaky assumptions.

The Post Carbon Institute’s report argues that the EIA is overstating the potential of U.S. shale, calling the projections “highly to extremely optimistic, and are therefore very unlikely to be realized.”

The report argues that while U.S. oil production has doubled from 2005 levels, and shale gas has also exploded over the same timeframe, there are underlying problems that will always bedevil shale production. For instance, shale wells typically see production deplete by 70 to 90 percent in the first three years, while fields see output drop off by about 20 to 40 percent per year without new drilling.

That means that the industry has to constantly plough more money back into production, just to keep output flat.

At the same time, not every shale well is the same. The core areas, or “sweet spots,” typically make up just 20 percent of a given shale play. When shale drillers move beyond the core, they tend to post less impressive production figures.

The shocking ramp up in production over the past decade has mostly occurred in these sweet spots, a trend that was accentuated during the market downturn beginning in 2014.

Still, vast improvements in drilling technology and techniques have more than compensated for the depletion. Shale drillers can access a greater portion of a reservoir than just a few years ago. While shale wells have always suffered from steep declines in their production profiles, overall output has trended up over the past few years, aside from the drop off after the market meltdown in 2014. Related: The Shale Driller's Dilemma

More growth is ahead. The EIA sees the U.S. topping 11 million barrels per day by the end of 2019, which means the addition of another 1 mb/d from today’s levels. It is hard to overstate the significance of this, and the output gains could yet lead to another price downturn.

But the long-term is another question. The Post Carbon Institute says that the EIA’s assumption of strong growth for the next several decades assumes that the industry will produce all proven oil and gas reserves, “plus a high percentage of unproven resources — in some cases over 100% — by 2050.” Shale oil production, according to the EIA’s 2017 Annual Energy Outlook, won’t peak until the 2040s.

The report says that scenario is extremely optimistic, and as such, probably won’t happen. The report breaks down the major shale plays to explain why. The Bakken, for instance, is already showing some signs of wear. “Well productivity improvements have flat-lined or decreased in all but two counties, indicating available well locations are running out,” the Post Carbon Institute report argues.

The Eagle Ford is also strained. The report says that the EIA is overstating its potential, with high well density and high depletion rates likely to limit the region’s ability to keep production elevated through the 2040s. “The EIA has overestimated play area by 65% compared to the current prospective drilled area,” the report says.

While the Permian is prolific, the report says that the EIA’s long-term assumptions for the Wolfcamp, for instance, rest on “vast additional, as-yet-unknown, resources” to be recovered. Related: Higher Oil Prices Are Bad News For India

In other words, drilling techniques continue to improve, but it may simply become too costly to produce as much oil as the EIA assumes will be produced. When the industry says that it can produce a lot more oil from an average shale well (higher well productivity), that may be true, but it doesn’t necessarily mean that the total volume of oil and gas that is ultimately recovered is larger. Shale firms might just end up extracting the same volume of resources from fewer wells.

The implications, if true, are profound. “The very high to extremely optimistic EIA AEO2017 projections impart an unjustified level of comfort for long-term energy sustainability,” the Post Carbon Institute wrote. “As sweet spots are exhausted, the reality is likely to be much higher costs and higher drilling rates to maintain production and/or stem declines.”

Ultimately, the report argues, rosy forecasts undercut the urgency for investment in renewable energy, EVs and efficiency, since policymakers hold an overly confident view of the country’s energy predicament. The Trump administration has discarded calls for “energy independence” in favor of “energy dominance.” This kind of triumphalism is wrongheaded and misinformed, according to the Post Carbon Institute report.

By Nick Cunningham of Oilprice.com

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