Sunday, January 29, 2012

Chart of the Day: America's Energy Revolution

The U.S. Energy Information Administration just released December 2011 data for U.S. petroleum trade. The EIA reports that net oil imports fell last year to 45.2% (lower even than previously reported based on data that didn't include year-end figures), which is the lowest level for net oil imports in 16 years, going back to a 44.5% share in 1995.  Part of this 16-year low for net oil imports is because of the domestic shale oil revolution that allowed North Dakota to surpass the daily oil production of OPEC-member Ecuador last year.  

At the current pace of monthly increases, North Dakota will be producing oil later this year at a level that could displace imports from Venezuela or Nigeria, and it will also likely surpass Alaska and California this year to become the No. 2 oil-producing state in the U.S.  This year will also likely be the seventh consecutive year of falling U.S. net oil imports, and if net oil imports fall below 44% (which is likely), it will be the lowest level in 20 years.  

Update: The new EIA data also show that U.S. petroleum production reached an 8-year high in 2011 (highest since 2003) and oil from the lower 48 states reached a 14-year high (highest since 1997), see chart below.  Since the lows in 2008, total U.S. oil production has increased by 14.6% overall and by almost 20% in the lower 48 states. 



11 Comments:

At 1/29/2012 2:25 PM, Blogger Benjamin said...

Next up, Ohio. Some say the huge central valley of CA too.

 
At 1/29/2012 4:26 PM, Blogger jd said...

Mark:

Loved your latest editorial regarding energy production in the GR Press.

If I remember correctly, GW Bush relaxed some of the rules or opened up new venues for oil drilling. So I'm sure it's just coincidence that the upturn in oil production occurred during his admin. I know that when he did it, the price of oil and then (lagging) the price of gasoline dropped tremendously. Remember that the next time some idiot says that drilling for oil won't affect prices for about 10 years.

 
At 1/29/2012 5:21 PM, Blogger Benjamin said...

Marmico-

Not necessarily. There is such a thing as energy efficiency, and when the price signal tells consumers to use less, they will use less.

Oil is becoming a dinosaur industry, right before out eyes.

 
At 1/29/2012 9:55 PM, Blogger Rufus II said...

Gasoline Demand is down 6.4%, YOY (demand has been negative yoy for over a year, I believe,) but

the Price of Gasoline is UP 10%, YOY.

With flat global supplies, and increasing demand from an emerging Non-OECD middle class, the lower quintiles earners in the U.S. are in for a hard slog, I'm afraid.

 
At 1/29/2012 10:08 PM, Blogger VangelV said...

Gasoline Demand is down 6.4%, YOY (demand has been negative yoy for over a year, I believe,) but

the Price of Gasoline is UP 10%, YOY.


Mark is confusing collapsing demand for an energy revolution. Yes, there is more oil being produced because of shale drilling. But shale wells have huge depletion rates, are very expensive to drill and produce very little oil per well. A horizontal well that we are drilling for $5 million today winds up producing less than 100 bpd in less than two years. As one of the geologists that I talked to pointed out, that same well drilled in a conventional reservoir would produce more than 10,000 bpd without spending a fortune for fracking.

What Mark fails to mention is that not all that long ago everyone was using Montana's production growth profile to show a large increase in total output. What they did not count on was reality. Once the core areas of the good formations were drilled production peaked and has been going down. Exactly the same thing will happen in the shale areas that are being hyped up today. And as Rome burns the fools will fiddle and concern themselves with mythology and trivia. Sadly, that will make the necessary and inevitable transition much worse in the future.

 
At 1/30/2012 8:35 AM, Blogger jd said...

It appears that the reports of the death of the oil industry have been greatly exaggerated. And we've been hearing those same reports for over 30 years now.

 
At 1/30/2012 10:14 AM, Blogger VangelV said...

It appears that the reports of the death of the oil industry have been greatly exaggerated. And we've been hearing those same reports for over 30 years now.

The energy industry has notorious booms and busts. Right now we have a boom in shale gas and oil. The problem is that they are not very economical except in some very limited core areas. I do not think that anyone is saying that the energy industry is dying. It can't die because it is essential to our standard of living and there is no cheap alternative anywhere on the horizon at this time.

In this discussion we need to stick to the facts. And there is no better place to find those facts but in the SEC filings. By now it is clear that the shale gas hype has turned out badly for investors. That only leaves us shale liquids for now. I am suggesting that the real production data is not very promising for shale liquids in most of the formations. Yes, you can make money if you limit your operations to the best locations in the best formations. But the industry can't make money as a whole. That means that we are going to see peak shale oil production within two to three years. To see what that looks like turn to Montana oil production plummeted from 100,000 barrels per day in 2006 to less than 65,000 barrels per day in the middle of 2011.

 
At 1/31/2012 1:35 AM, Blogger Northern Plains said...

Vangel, the decline in MT production from 2006 to 2011 is a direct result of lack of new drilling activity. You are essentially seeing the natural decline rates from pre 2006 wells. The discovery of the Sanish & Parshall fields sucked every available rig & crew into ND and out of MT. Oil companies will naturally chase the "sweet spots".

Though lately there is a slight uptick in drilling on the Montana side of the line. This should increase further as they begin to develop the full potential of this play beyond the sweet spots. As a result I suspect you'll see MT 2012 production higher than 2011 numbers. Yes horizontal drilling is more expensive than vertical wells. Yet there is still a vast amount of oil which is economical to recover. The game is far from over, if anything we've just begun the second quarter.

 
At 1/31/2012 8:39 AM, Blogger VangelV said...

Vangel, the decline in MT production from 2006 to 2011 is a direct result of lack of new drilling activity. You are essentially seeing the natural decline rates from pre 2006 wells. The discovery of the Sanish & Parshall fields sucked every available rig & crew into ND and out of MT. Oil companies will naturally chase the "sweet spots".

Though lately there is a slight uptick in drilling on the Montana side of the line. This should increase further as they begin to develop the full potential of this play beyond the sweet spots. As a result I suspect you'll see MT 2012 production higher than 2011 numbers. Yes horizontal drilling is more expensive than vertical wells. Yet there is still a vast amount of oil which is economical to recover. The game is far from over, if anything we've just begun the second quarter.


There is no evidence that (if you do the accounting properly) the areas outside of the sweet spots are economic. Not all that long ago we had CEOs saying that they needed $65-$70 oil to break even but that was with unrealistic EURs and activity that was confined to the best areas. While I have no doubt that there are still a few economic areas to be found by some companies the industry as a whole is in trouble because the low hanging fruit is almost gone.

And keep in mind that drilling will help increase production but it does not necessarily generate any profits. When you see companies like Continental selling for more than 30 times earnings there is no way to be positive about returns going forward AND to expect abundant supply.

 
At 1/31/2012 9:17 AM, Blogger jd said...

Vangel:

In your second comment you wrote, "I do not think that anyone is saying that the energy industry is dying."

In your last comment you wrote, "While I have no doubt that there are still a few economic areas to be found by some companies the industry as a whole is in trouble because the low hanging fruit is almost gone."

In between you've given us lots of facts which make you sound like an expert but in the end have led you to contradict yourself.

 
At 1/31/2012 3:42 PM, Blogger VangelV said...

In your second comment you wrote, "I do not think that anyone is saying that the energy industry is dying."

In your last comment you wrote, "While I have no doubt that there are still a few economic areas to be found by some companies the industry as a whole is in trouble because the low hanging fruit is almost gone."

In between you've given us lots of facts which make you sound like an expert but in the end have led you to contradict yourself.


I am talking about the shale industry, not the conventional producers, the tar sands or other heavy oil producers, coal, or even off shore producers. It is not a contradiction to say that the shale industry can't survive at current prices because the only profit to be had is in very limited core areas of good formations.

 

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