U.S. Government Oil Forecasts “Wildly Optimistic” – Shale Revolution a Short-Term Bubble

We would do well to pause, and ponder both the data and implications presented in the Post Carbon Institute’s latest report, released a few days before Halloween, Drilling Deeper: A Reality Check On U.S. Government Forecasts for a Lasting Tight Oil & Shale Gas Boom.

The PCI’s new report exposes current oil industry & Energy Department oil production forecasts as wildly exaggerated. Further, it makes a compelling cast that production of “U.S. shale gas and tight oil reserves will peak and drop off swiftly, long before officially predicted by the U.S. Energy Information Administration.”

The report was written by PCI Fellow and geoscientist David Hughes, who previously predicted the vast downgrade of available oil resources in California’s Monterey Shale.

According to PCI Executive Director Asher Miller, “based on our analysis, the reality is far different from what the industry is telling the Energy Department, and the Energy Department is, in turn, telling the public and the Congress.”

Looking at the actual well production data, the Hughes report concludes that,

Although shale gas production will rise in the short term, until the 2020 timeframe, the DOE’s assumption that growth will continue to levels more than 100 percent higher than today by 2040 is not supported by the data. An analysis of seven major shale gas plays comprising 88 percent of DOE’s forecast production through 2040 suggests production rates will be about one-third of the DOE’s forecast in 2040 for these plays, and that production from these plays will peak as early as 2016.

In a press release accompanying the report, PCI’s Miller suggested a possible source for the Department of Energy’s apparently faulty and overly optimistic data – the oil and gas industry itself, and its insatiable need for more well-drilling investment and love of rising stock prices. Wrote Miller,

Last summer Adam Sieminski, administrator of the U.S. Energy Information Administration, the Energy Department’s statistical arm, said in a briefing, ‘We want to be able to tell, in a sense, the industry story. This is a huge success story in many ways for the companies and the nation, and having that kind of lag in such a rapidly moving area just simply isn’t allowing that full story to be told.’

Miller concluded, “As a citizen I’m not sure I want the government to be telling the oil industry’s story. The industry seems to be doing a great job of that all by itself. Instead, I would expect the EIA to act as an independent source of unbiased information upon which we as a nation can depend in formulating our energy policy.”

The Energy Information Agency has revealed a tendency toward industry-friendly, outlandish optimism before.

On May 20 of this year the L.A. Times reported that the EIA had drastically reduced the amount of recoverable oil contained in California’s Monterey Shale, from “13.7 billion barrels once thought recoverable from the jumbled layers of subterranean rock spread across much of Central California,” according to the Times, to just 600 million barrels recoverable by existing technology – a whopping reduction of 96%.  It was as if 13 billion barrels of oil had simply vanished.

The EIA’s embarrassing admission followed by five months a previous report by the PCI’s David Hughes – Drilling California: A Reality Check on the Monterey ShaleDrilling California provided “the first publicly available empirical analysis of actual oil production data from the Monterey Formation,” and raised serious doubts about the quality and reliability of the data the EIA was presenting to the public.

The EIA’s exaggerated estimates of recoverable oil in the Monterey Shale were widely repeated in mainstream media outlets, and were used to inform academic studies which projected millions of new jobs and billions of dollars of tax revenue would flow into California as a result of developing those energy resources. Author Hughes stated at the time of the EIA’s mea culpa that “left out of all the hoopla was the fact that the EIA’s estimate was little more than a back-of-the-envelope calculation.”

Alarming Implications

Writing at Common Dreams about the Drilling Deeper report and its implications, PCI’s Asher Miller noted that “the so-called ‘shale revolution’ has more in common with the California Gold Rush and the Dot-Com Bubble than a new golden age of energy abundance.” He concludes,

The implications of this are profound. If the “shale revolution” is nothing more than a temporary respite from the inevitable decline in US oil and gas production, then why are we rushing to rewrite our domestic and foreign policy as if we’re going to be “Saudi America” for the rest of the century?

He noted that faulty forecasts are influencing investments in renewable energy, foreign policy, and action on climate change.

The Post Carbon Institute suggests citizens “Arm yourselves with the facts to counter this information.”

 

 

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