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The United States may overtake Russia as the world’s largest producer of oil and natural gas this year, according to the Wall Street Journal. But it’s unclear whether the U.S. can maintain this unbridled growth, especially on the oil side, or even reach its elusive goal of energy security without help from the oil sands.
The International Energy Agency, which advises Western oil-consuming countries on energy policy, has also gushed about “supply shock” from U.S. shale, or tight oil, that will ripple across global markets, but believes the U.S. will be a formidable force only if backed by crude from Canada. U.S. oil production will reach about 10 million barrels per day by 2015, just behind Russia’s estimated 10.5-million bpd, according to the IEA. However, include projected imports of 4.3-million bpd from Canada, and the scales tilt decisively in favour of the Americans.
It’s true that the mighty Eagle Ford and Bakken shale plays have led America’s oil and gas resurgence, but other shale deposits have not enjoyed similar successes to date. Even developed plays may not always be lucrative, as Royal Dutch Shell Plc. recently discovered. The Hague-based company announced this week it is placing its Eagle Ford shale assets on the market.
Shell is exiting because it’s not in the best part of the play, said Jesse Jones, an analyst at Wood Mackenzie, an energy consultancy. “They entered a little bit late, and they missed out on the prime acreage.”
Still, the move certainly tempers some of the optimism surrounding U.S. shale oil.
Over the past five years, high crude oil prices have made expensive propositions such as horizontal drilling and hydraulic fracturing in shale formations worthwhile, and taken production to a 22-year high of 7.48 million bpd this year compared to slightly more than five million bpd in 2008.
“However, the current surge in U.S. crude oil production is expected to be relatively short-lived, lasting roughly 10 years, from 2007 to 2017,” HSBC said in a report. “After that, the exploitation of new shale oil deposits is expected to just replace the depletion of previously developed deposits.”
The Energy Information Administration, the U.S. Department of Energy’s statistical arm, estimates U.S. tight oil production will peak at 2.8 million bpd by 2020 and then continue to decline to two million bpd as “sweet spots are depleted”.
“Tight oil development is still at an early stage, and the outlook is highly uncertain,” said the EIA in its 2013 outlook, although technological innovation could uncover acres of new fields.
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