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2015 Shale Gas Reality Check

July 22, 2015

In October 2014, Post Carbon Institute published the results of what likely remains the most thorough independent analysis of U.S. shale gas and tight oil production ever conducted. The process of drilling for shale gas and tight oil is known colloquially as “fracking” and has drawn a great deal of controversy—considered by some as an energy revolution and others as an environmental and human health catastrophe.

Much of the cost-benefit debate over fracking has come down to the perception of just how much domestic oil and gas it can produce and at what cost. To answer this question, policymakers, the media, and the general public have typically turned to the U.S. Department of Energy’s Energy Information Administration (EIA), which every year publishes its Annual Energy Outlook (AEO).

In Drilling Deeper, PCI Fellow David Hughes took a hard look at the EIA’s AEO2014 and found that its projections for future production and prices suffered from a worrisome level of optimism. This led us and others to raise important questions about the wisdom of some energy policies and infrastructure projects (for example, the approval of Liquified Natural Gas export terminals and the lifting of the crude oil export ban) that have been pursued largely on the basis of the EIA’s rosy forecasts.

Recently, the EIA released its Annual Energy Outlook 2015 and so we asked David Hughes to see how the EIA’s projections and assumptions have changed over the last year, and to assess the AEO2015 against both Drilling Deeper and up-to-date production data from key shale gas and tight oil plays. What follows are Hughes’s findings regarding shale gas. The AEO2015’s tight oil projections will be reviewed in early September 2015.

Key Conclusions

  • The EIA’s Annual Energy Outlook 2015 is even more optimistic than the AEO2014, which we showed in Drilling Deeper suffered from a great deal of questionable optimism. The AEO2015 reference case projection of total shale gas production from 2014 through 2040 is 9%, or 36 tcf, greater than AEO2014. Cumulative production from the major plays in AEO2015, which account for 80% of this production, is 50% higher than Hughes’s “Most Likely” case in Drilling Deeper, and the projected production rate in 2040 is 170% greater. In AEO2015, the EIA is counting much more on unnamed plays or ones—like the Utica Shale—that aren’t as yet producing very much shale gas.
  • The only way to meet projections for most of these plays would be for production to ramp up massively years from now. But because the best wells are drilled first, and decline rates are so steep, this means that the EIA is likely counting on new technologies that aren’t yet proven or even developed.
  • It’s very difficult to see how unknown new technologies would be brought online, and be sufficient to overcome poorer and poorer quality drilling locations, without the price of natural gas going up well beyond what the EIA forecasts.
  • As it has acknowledged, the EIA’s track record in estimating resources and projecting future production and prices has historically been poor. Admittedly, forecasting such things is very challenging, especially as it relates to shifting economic and technological realities. But the below-ground fundamentals— the geology of these plays and how well they are understood—don’t change wildly from year to year. And yet the AEO2015 and AEO2014 reference cases have major differences between them; production rates have been revised both down and up by amounts exceeding 40% in some plays.

After closely reviewing the Annual Energy Outlook 2015, David Hughes raises some important, substantive questions: Why is there so much difference at the play level between AEO2014 and AEO2015? Why does Marcellus production surge post-2025, rising to a new all-time high by 2040? Why does Haynesville production surge beginning in 2016, rising to a new high that is triple current production rates in 2038? How can Eagle Ford production reach a plateau in 2021 and remain on it for the next two decades?

America’s energy future is largely determined by the assumptions and expectations we have today. And because energy plays such a critical role in the health of our economy, environment, and people, the importance of getting it right on energy can’t be overstated.

It’s for this reason that we encourage everyone—citizens, policymakers, and the media—to not take the EIA’s rosy projections at face value but rather to drill deeper.

image credit: Richard Thornton / Shutterstock.com

3 Comments, RSS

  • Not a word here about natural gas emissions increasing global warming. It’s like discussing how much arsenic we have in the cupboard to put in our soup.

  • Hi Louise, take a look at Dave Hughes’ previous natural gas report, “Will Natural Gas Fuel America in the 21st Century?” (http://www.postcarbon.org/publications/will-natural-gas-fuel-america/) and the supplemental comparison of the Cornell and NTWL studies analyzing the greenhouse gas impacts of shale gas as compared to coal (https://www.scribd.com/doc/59385475/PCI-Hughes-NETL-Cornell-Comparison).

  • As Gail Tverberg writes strongly about in ourfiniteworld.com, who is going to pay the high prices? Where are all the workers with such high wages that they can afford to pay? Somehow the net EROI-like of the whole system is declining. The financial system and net production system needs cheap energy. This is a real train grind to a halt wreck, as the fossil energy feeding engine declines to a halt, and the carriages drag behind. The strategy is to disconnect the dependents, or more crudely, throw more ballast out of the deflating and descending balloon. Out goes the workers with incomes. Equilibrium is approached only if we thow out enough of them, and decrease total energy demand. So this expensive stuff gets left in the ground. Is not that what we all should want?

    System negative feedbacks, include decline in demand, and decline in the investment in jobs for the specialization in civilization, health, education, welfare. We are losing their affordability. The realistic extraction model assumes “other things being optimal” It it is too hard to model the dependency system collapse. Competition from cheaper clean energy may favor more of remaining resources going into that, but these also need the fossil fuel resources. It is a corporate war, a competition for investment by alternative energy industries. The clean energy systems are an added complexity, and the payback time longer, a lot of clean energy systems still need to be built , and a longish time passes before their investment is financially justified.

    Carbon tracker reports, says high costs, is high carbon emissions, and cannot therefore be burned, for climate change, or for investor return. This depends on where the dangerous climate change line is drawn, and not where it actually will have turned out to have been. It lies somewhere in total emissions already committed, and the amounts we are still to add. The delusions of corporate and financiers cannot keep demand and prices up, not to 2025, and impossibly 2040, with evidence of system deflation in progress.