I love these energy flow diagrams from the Energy Information Administration. Below is the one for total energy sources and uses. EIA has others for crude oil, natural gas, coal and electricity. Click to enlarge.Here’s the flow chart for natural gas. Note how much US gas comes from shale gas wells and oil wells.
An article in the Harvard Business Review, Oil’s Boom-and-Bust Cycle May Be Over. Here’s Why, provides an excellent overview of how the global oil market has been changed fundamentally by development of shale oil resources. Excerpts:
- U.S. shale producers “now represent half of U.S. oil production, up from a mere 10% just seven years ago in 2011. In fact, 2018 may mark the first year shale producers will be able to fund future expansions of drilling programs through their own cash flow.”
- ” Oil companies will need to develop both new conventional and unconventional crude oil resources to keep up with current demand for roughly one million more barrels of oil every year in addition to replacing the approximately four million barrels lost annually as reservoirs are naturally depleted. In total, we estimate that the oil and gas industry will have to replace about 40% of today’s oil production over the next seven to nine years.”
I recently ran across an article on Investing.com, “The Problematic Truth About U.S. Shale Oil Production,” by Dr. Ellen Wald, who hosts a podcast about global energy. Dr. Wald reports on her recent podcast discussion with Art Berman, a geology consultant and frequent speaker and author. It reminded me that I wrote about Mr. Berman several years ago, when the shale gas plays in the Marcellus and Barnett were getting started. He told Dr. Wald that the Permian shale plays have much smaller reserves than others — including the Energy Information Administration — have estimated, as little as 3.8 billion barrels.
In 2010, I wrote about Mr. Berman’s attendance at a conference in Washington sponsored by the Association for the Study of Peak Oil & Gas – USA, of which he is a director. At that time he argued that the gas reserves in the Marcellus were much smaller than were being predicted. A year earlier, Mr. Berman created a stir when he published a gloomy analysis of the Barnett Shale. He was then a contributor to World Oil, a trade publication, and World Oil refused to publish one of his articles, causing him and his editor to resign and creating a stir.
Mr. Berman was on a panel hosted by Texas Monthly in 2013, along with Scott Tinker of the UT Bureau of Economic Geology, and Kenneth Medlock, then an energy fellow at the Baker Institute. He continued to question estimates of shale oil and gas reserves. (Dr. Tinker created a wonderful website for those wanting to know more about world energy, the Switch Energy Project, worth exploring.)
I have often received calls from clients who receive unsolicited offers to buy their minerals. In the past, mineral owners have generally ignored these offers, reminded of their grandmother’s admonition to “never sell your minerals.”
That has changed. The buying and selling of minerals has now become common. Investment monies have flowed into funds that acquire mineral interests. Companies have been founded with that objective. Some of the largest mineral portfolios have been assembled by purchase over the last decade. Black Stone Minerals, for example, has evolved from a family-owned East Texas lumber company into one of the largest mineral owners in the country. Energynet, founded in 1999, conducts online auctions of minerals and now handles more than $1 billion per year in transactions.
Investment in minerals, especially in Texas, has several advantages. Holding costs for minerals are minimal. Taxes are assessed only on producing minerals. Severed non-producing minerals cannot be adversely possessed. No liability risks attach to mineral and royalty interests.
Last year, the value of U.S. energy exports to Mexico was US$20.2 billion, while the value of U.S. energy imports from Mexico was only US$8.7 billion, according to the EIA.
On the other hand, Mexico’s oil and gas output is 40 percent off its peak levels, an S&P Global Platts report showed last week. Mexico’s crude oil output of 2 million bpd in June was far below the 2004 peak of 3.4 million bpd, while dry natural gas production is 3.2 Bcf/d this year, compared to a 2010 peak of 5.1 Bcf/d. Mexico, therefore, relies heavily on U.S. pipeline gas and LNG imports.
Here’s another great graph explaining US Energy production and consumption, from the Energy Information Administration. It’s called an Energy Flow Diagram. Numbers are in quadrillion BTU’s. Click on image to enlarge:
We still import 21.72 QBTU of petroleum, about 22% of our total consumption – about what we consume in residential uses. But we also export 13.86 QBTU.
With OPEC’s announced reduction in crude production, it might be good to take the long view. Below is chart of crude prices since 1985. The period between 2005 and today has seen a revival of the US oil industry. Companies have now bet that they can make money at $50/bbl, at least in the Permian. While significant, OPEC’s announced reduction (1) has not yet been realized and (2) is a small percentage of total world oil production. If drilling rigs return to the field in the numbers present in 2008-2014, Opec’s reduction can easily be made up by increased production from US fields. (click on charts to enlarge)
One of the speakers at our firm’s recent oil and gas seminar for land and mineral owners was Chris Atherton, President of EnergyNet, Inc. EnergyNet is an online auction site for oil and gas assets- mineral and leasehold interests. It now controls 75% of the online auction business for oil and gas assets in the U.S.; so far in 2016, it has sold 354 asset packages for $155 million. It makes its money by taking a commission on each sale. Properties are sold both in online auctions and in sealed-bid sales.
Recently, the Texas General Land Office began using EnergyNet for its auctions of oil and gas leases on state lands. It also auctions leases for Colorado, North Dakota, Utah and Wyoming, and it has recently signed up the Bureau of Land Management to conduct lease sales. An example of an EnergyNet offer for lease of a state tract in Loving County, Texas can be viewed here.
One of EnergyNet’s first big deals was sale of a package of 220,000 net mineral acres owned by Chevron in 2003, in dozens of counties in multiple estates. Chevron wanted at least $80 million. By breaking the assets down into smaller parcels, EnergyNet sold them for $120 million.
Here’s a great interactive graphic from Bloomberg, “Watch Five Years of Oil Drilling Collapse in Seconds,” that illustrates the relationship between oil price, rig count and U.S. oil production. The U.S. rig count has dropped from a high of 1930 in late 2014 to 502 last month. U.S. crude production continued to climb until mid-2015. Since then, it has dropped from 9.6 mmb/day to 9.2 mmb/day.
RigData provides another way to look at the market, in Texas (click to enlarge):
It may come as a surprise to some that the average daily oil production per well in Texas is only 16 barrels. There are a lot of wells in Texas that produce a barrel a day or less. The change in average daily oil production per well is a way to gauge the health of the industry. In Mary 2015, Texas average production per well reached a height of 19.6 bbl/day. Between October 2014 and October 2015, Texas oil production declined by 343,00 bbl/day, from 3.3 million to 2.9 million – a decline of 2.2 bbl/day/well.