Snake Oil: How Fracking's False Promise of Plenty Imperils Our Future by Richard Heinberg Page A
Authors: Richard Heinberg
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are deeper, requiring higher per-well investment in drilling. Compounding these problems, China lacks means for compiling, assessing, and sharing geological data comparable to those developed during the past century in the United States. 18
Financial factors also constrain non-US development of shale gas and tight oil. In the United States, the fracking boom was driven by small companies willing to take on substantial financial risk. The industry was also buoyed by investor capital funneled by Wall Street, which tirelessly hyped the nation’s prospects for a century’s worth of cheap gas and oil. In many other countries, state-owned companies do the drilling, and investment decisions are made by risk-averse bureaucrats rather than risk-seeking, hype-driven capitalists.
Altogether, the evidence suggests that other nations are working to develop the means to extract shale gas and tight oil resources, and that they will eventually have some success. But the process will take years, and there is no nation in which the oil and gas industry is likely to fully repeat the performance of the independent companies operating in Texas, North Dakota, Pennsylvania, Louisiana, and Arkansas.
Why Do Official Agencies So Often Get It Wrong?
The picture we’ve been painting in this chapter is radically different from the one that fracking boosters portray. But it differs also from the forecasts of official agencies—principally, the International Energy Agency and the US Energy Information Administration—and from those of oil industry sources such as BP’s annual “Statistical Review of World Energy.” Reading David Hughes’s “Drill, Baby, Drill” report, one encounters statements like these:
The IEA’s suggestion that these costs will not escalate further over the next 23 years, as assumed in its $10 trillion upstream oil forecast, seems wishful thinking indeed. (p. 26)
The growth in shale/tight oil production in this projection is very aggressive, requiring the consumption of 26 billion barrels, or 78%, of the EIA’s estimated unproved technically recoverable shale/tight oil resource by 2040. The likelihood of this happening is remote. (p. 34)
Why should we believe Hughes but not the EIA? Does the agency ever get its numbers wrong? Yes, as a matter of fact, it frequently does. Hughes provides a graphic of 12 EIA forecasts for world oil production going back to 2000, noting, “Compared to actual 2011 production, these projections invariably overestimated world oil production levels. The 2002 projection, for example, overestimated 2011 production by 13%, or 11 [million barrels per day]—and that was only nine years out.” 19
Figure 23. EIA World Oil Production Estimates Compared to Actual Production, 2000–2011. Most cases overestimated actual 2011 production.
Source: J. David Hughes, “Drill, Baby, Drill,” Figure 25. Data from Energy Information Administration.
In March 2012, the EIA published an “Annual Energy Outlook Retrospective Review: Evaluation of 2011 and Prior Reference Case Projections,” in which it found that during the past dozen years it had underestimated oil prices and overestimated oil production most of the time. (More specifically, the agency found that it had overestimated crude oil production 62% of the time and overestimated natural gas production 70.8% of the time.) 20
There is evidence to suggest that this pattern of poor forecasting is ongoing. Roger Blanchard, author of The Future of Global Oil Production: Facts, Figures, Trends and Projections by Region, notes that recent EIA reports assume that US offshore oil production will continue to increase over time. However, the agency’s own data show that total Gulf of Mexico oil production achieved its highest level in 2009 and has declined every year since then.
Table. U.S. Offshore Oil Production, Energy Information Administration Estimates Versus Actual, 2009–2012. Estimates are from Annual Energy Outlook 2010 .
Year
EIA
Financial factors also constrain non-US development of shale gas and tight oil. In the United States, the fracking boom was driven by small companies willing to take on substantial financial risk. The industry was also buoyed by investor capital funneled by Wall Street, which tirelessly hyped the nation’s prospects for a century’s worth of cheap gas and oil. In many other countries, state-owned companies do the drilling, and investment decisions are made by risk-averse bureaucrats rather than risk-seeking, hype-driven capitalists.
Altogether, the evidence suggests that other nations are working to develop the means to extract shale gas and tight oil resources, and that they will eventually have some success. But the process will take years, and there is no nation in which the oil and gas industry is likely to fully repeat the performance of the independent companies operating in Texas, North Dakota, Pennsylvania, Louisiana, and Arkansas.
Why Do Official Agencies So Often Get It Wrong?
The picture we’ve been painting in this chapter is radically different from the one that fracking boosters portray. But it differs also from the forecasts of official agencies—principally, the International Energy Agency and the US Energy Information Administration—and from those of oil industry sources such as BP’s annual “Statistical Review of World Energy.” Reading David Hughes’s “Drill, Baby, Drill” report, one encounters statements like these:
The IEA’s suggestion that these costs will not escalate further over the next 23 years, as assumed in its $10 trillion upstream oil forecast, seems wishful thinking indeed. (p. 26)
The growth in shale/tight oil production in this projection is very aggressive, requiring the consumption of 26 billion barrels, or 78%, of the EIA’s estimated unproved technically recoverable shale/tight oil resource by 2040. The likelihood of this happening is remote. (p. 34)
Why should we believe Hughes but not the EIA? Does the agency ever get its numbers wrong? Yes, as a matter of fact, it frequently does. Hughes provides a graphic of 12 EIA forecasts for world oil production going back to 2000, noting, “Compared to actual 2011 production, these projections invariably overestimated world oil production levels. The 2002 projection, for example, overestimated 2011 production by 13%, or 11 [million barrels per day]—and that was only nine years out.” 19
Figure 23. EIA World Oil Production Estimates Compared to Actual Production, 2000–2011. Most cases overestimated actual 2011 production.
Source: J. David Hughes, “Drill, Baby, Drill,” Figure 25. Data from Energy Information Administration.
In March 2012, the EIA published an “Annual Energy Outlook Retrospective Review: Evaluation of 2011 and Prior Reference Case Projections,” in which it found that during the past dozen years it had underestimated oil prices and overestimated oil production most of the time. (More specifically, the agency found that it had overestimated crude oil production 62% of the time and overestimated natural gas production 70.8% of the time.) 20
There is evidence to suggest that this pattern of poor forecasting is ongoing. Roger Blanchard, author of The Future of Global Oil Production: Facts, Figures, Trends and Projections by Region, notes that recent EIA reports assume that US offshore oil production will continue to increase over time. However, the agency’s own data show that total Gulf of Mexico oil production achieved its highest level in 2009 and has declined every year since then.
Table. U.S. Offshore Oil Production, Energy Information Administration Estimates Versus Actual, 2009–2012. Estimates are from Annual Energy Outlook 2010 .
Year
EIA
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