In 1956, the geologist M. King Hubbert wrote a paper that asserted that oil production in the USA will peak around 1970 and then decline. This is the theory of "peak oil" (production). Up until the 21st century, it seemed to hold true.
US oil production did peak in 1970 and declined for four decades. But in 2010, US oil production shot up.
Two things might be noted in relation to this graph of US oil production.
First, these two peaks may describe US oil production generally, but the types of oil differ. The first peak was of conventional oil, which tends to be cheaper, around $20 per barrel historically. The second peak describes unconventional oil extraction (fracking), which is much more expensive at around $60 per barrel. We are actually in an age of high oil prices, although we don't notice this because of the transition to natural gas.
Second, within the first peak, the rate of ascent and descent of prices is the same. From the 1920s to 1970, oil production ramped up gradually, and from 1970 oil production declined gradually. Since 2010, oil production has shot up dramatically. This might suggest that when the fracking boom ends, oil production will decline dramatically. The theory of peak oil does assign symmetrical bell-shaped curves to the rise and fall of oil prices.
The shale oil boom is now slowing.
Unlike several years ago, when shale production fell due to a global price collapse, the slowdown this year is driven partly by core operational issues, including wells producing less than expected after being drilled too close to one another, and sweet spots running out sooner than anticipated.
The challenges raise the prospect that the technological and engineering advances that have allowed shale companies to unlock record amounts of oil and gas from rock formations have begun to level off.
“We’re getting closer to peak production and we are reaching the peak of the general physics of these wells,” said James West, a managing director at Investment bank Evercore ISI.
The slower rate of new wells means companies will need to wring more out of each well just to sustain current production, let alone increase it. But a growing body of data indicates the production gains from technological advances that many drillers have touted are leveling off, and older shale fields may have less oil left than originally thought.
Gains in oil production from U.S. onshore drilling rigs are declining rapidly, federal data show. In December, drilling rigs helped extract 25% more oil than they had a year prior. In August, they were producing about 14% more than last year, according to the Energy Information Administration.
Meanwhile, production in the first 90 days of an average shale well, its most productive period, declined by 10% in the first half of the year compared to the 2018 average, according to research by Raymond James.
In North Dakota, newer shale wells drilled by Hess Corp. are producing less oil than their predecessors. The wells initially were prolific. Hess wells that began producing this year in North Dakota generated an average of about 19,600 barrels of oil each in their first month, a company record for the region, according to data from ShaleProfile, an industry analytics platform.
But as the 2019 wells aged, their average output eventually fell below that of the company’s 2017 and 2018 wells. This year’s wells generated an average of about 82,000 barrels of oil in their first five months, 12% below wells that began producing in 2018 and 16% below 2017 wells.
Across North Dakota’s Bakken Shale region, well productivity hasn’t improved since late 2017, according to ShaleProfile research.
In other mature shale regions, such as the Eagle Ford in South Texas, many operators also have seen productivity per horizontal foot decline as they have supersized their wells, according to ShaleProfile. That means some are drilling bigger and often more expensive wells to recover a similar amount of oil.
Among them is EOG Resources Inc. Its wells that began producing in the second quarter of 2017 have generated about 30 barrels of oil per horizontal foot on average, or roughly 198,000 barrels of oil each, after two years.
That is less per foot than EOG wells in the Eagle Ford that began producing in the second quarter of 2016, when the company’s oil output per foot peaked, ShaleProfile data show. Those wells, which were shorter, have produced roughly 38 barrels of oil per horizontal foot on average after two years, or about 194,000 barrels apiece.
The shale oil boom might be slowing, but it is still a boom. That is, although the rate of expansion of shale oil production is slowing, production is still expanding.
In terms of an S-curve in growth, however, the shale boom is now exiting the second stage of exponential growth. The shale boom is entering the third phase, in which growth still exists but begins to taper off. The peak of unconventional oil production is still off in the future. Nevertheless, slowing growth represents the beginning of the end.
The dramatic growth of the shale boom suggests that the future decline of US shale production will be equally steep. When production does fall, moreover, the world will already be well into a post-peak world in term of conventional oil production.
World production of conventional and unconventional oil:
US production of conventional and unconventional oil:
