Peak Shale Oil in 2024? Quotes from Goehring and Rozencwajg's research.
(This is a deepening of the blogpost The shale oil revolution is soon over. A global oil supply shortage in 2024?, on May 22, 2023 on this blog)
The following quotes come from Goehring and Rozencwajg's "Q4 2022 Research" letter "The End of Abundant Energy: Shale Production and Hubbert's Peak", posted on their homepage, here, May 25, 2023. You can download an own copy there, for free:
"In our 1Q19 letter, we explained how the Permian still had room to grow. We estimated that Permian production would peak at 6.5 m b/d – 900,000 b/d above current levels. Compared with the Bakken and Eagle Ford at nearly 50% Tier 1 development, we estimated the Permian still had 65% of its Tier 1 wells left to drill. According to our estimates, the Permian would reach maximum production sometime in 2024-2025 and then begin to peak and decline like the other two basins."
"Interestingly, the Permian has been the only basin to grow drilling activity since the end of 2019. In the Bakken and Eagle Ford, activity remains 10% below pre-COVID levels, whereas, in the Permian, activity is 5% above late-2019 levels. The answer is the superior inventory of remaining Tier 1 locations.
Unfortunately, this superior inventory is being drawn down. We estimate that closer to 45% of all Tier 1 Permian locations have been drilled. The Permian is quickly approaching the same level of development as the Bakken and Eagle Ford in 2019. Our models tell us the results will be similar: Permian production will peak, plateau, and decline much sooner than anyone expects."
"...we have mostly drilled out our best areas in the Permian, and once Permian production declines begin, shale growth will be difficult, if not impossible, to achieve from there. As shale growth slows, investors will be re-confronted with the concepts of depletion and Peak Oil. The development of the US shales has allowed us all to forget about these problems for over ten years. We urge investors to familiarize themselves with these topics because our models suggest they will be crucial in navigating markets in the future."
"In past letters, we extensively discussed how the other extensive shale basins—the Bakken and the Eagle Ford- peaked and were now in decline and how the Permian only had several years of production growth left. However, more evidence emerged that the Permian is nearing a production peak, possibly in 2024. Drilling productivity increases in the Permian have weakened considerably over the last two years—to the extent that several E&P analysts have commented on the trends. As our readers know, our research tells us that most of the productivity increases over the last decade have come from companies “high-grading” their drilling activity. Declining productivity strongly suggest that companies are running out of tier-one drilling inventory— a classic sign of field exhaustion and a precursor of future production declines. We are reaching a point where we believe almost all non-OPEC oil supply growth will come from just six counties in the Permian basin."
"We believe US shale oil production is nearing its peak. Given how dismal conventional oil discoveries have been over the last 20 years, we think it’s time to bring back the subject of peak oil. If you attended our recent investor day, we continuously stressed that this decade would be the “Decade of Shortages.” Hubbert’s peak is a perfect example of what we believe this decade will bring."
