A new, landmark report shows that hopes of a long-term golden era in American oil & gas production are unfounded.
America’s energy landscape has undergone a dramatic shift over the last decade—literally and figuratively—as a result of the widespread use of horizontal drilling and hydraulic fracturing (“fracking”). Whole areas of the country have been transformed in a matter of months, while the fossil fuel industry has reversed the decades-long decline in crude oil production and increased natural gas production to record highs. Thanks to shale gas and tight oil (“shale oil”), by 2013 annual crude oil production was 24% higher and natural gas was 20% higher compared to just ten years earlier.
While this achievement is impressive, it pales in comparison to the sea change that has been triggered in “conventional wisdom” about our energy future. In a few short years we have gone from President Bush warning that the U.S. was addicted to oil and dangerously reliant on Middle East imports to fears of a production glut, as a recent New York Times article stated:
With domestic oil production growing month after month, many oil experts predict that the country’s output will rise to as much as 12 million barrels a day over the next decade, which would mean the country will be swimming in oil the way it is currently dealing with a surplus of natural gas.
Analysts at Turner, Mason & Company, a Dallas engineering consulting firm, say the country could hit a saturation point when production hits 10 million to 10.5 million barrels a day, at which point large exports will become necessary or drilling and production may have to slow.
Running Down a Dream
While the so-called “shale revolution” came as a complete surprise to most analysts and government forecasters, the conventional wisdom now appears to be that this is the beginning of a long-term transformation. Production of shale gas and tight oil in the U.S. is expected to grow at breakneck speeds throughout the decade, with natural gas production increasing for the next 25 years while domestic oil production peaks by the end of this decade and slowly declines to near current levels by 2040. Not only will supplies expand, according to conventional wisdom, but oil and natural gas prices will remain stable and relatively low for decades to come.
Far from being an academic exercise, the implications of this shift in conventional wisdom are profound and far ranging—influencing geopolitics, climate policy, domestic manufacturing and jobs, investments in renewable energy, and the health and well-being being of communities across the country. In fact, the perception of a long-term oil and gas boom has led to: