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IEA Report Implies US Crude Manufacturing Might Start to Peak 2017

The Medium Term Oil Market Report of the Worldwide Power Agency (IEA, Paris), revealed in June 2014, comprises a graph which implies that US crude manufacturing will start to peak in 2016. Few took discover though the world is constantly occupied with oil and power associated conflicts and wars in Ukraine, Libya and Iraq. Up to now, oil prices increased only shortly when fights flared up. Apparently oil markets are at ease whereas the US tight oil “revolution” is underway. But for the way lengthy

Global state of affairs
Fig 1: US tight oil and crude oil in relaxation of world vs oil costs

The graph shows that US tight (shale) oil sits on prime of a bumpy crude manufacturing plateau in the rest of the world which clearly began in 2005 (average of seventy three.Four mb/d since Jan 2005). Regardless of rising tight oil production oil prices did not go down however stayed at a level of around US$ a hundred a barrel. We can safely say that without US tight oil – in May 2014 around 2.9 mb/d – the world could be in a deep oil crisis. Folks obtained accustomed to the next oil consumption level which will be arduous to return down from. Between 2005 and 2007, oil manufacturing declined by round 2 mb/d (supply shock) and oil costs doubled. That gives us an thought what will happen when tight oil begins to decline. So it is very important know when tight oil reaches its tipping point.

When will the US reach its 2nd (and last) crude oil peak
The IEA’s Medium Term Oil Market Report accommodates following US oil manufacturing profile for the US:

Fig 2: US oil production approaching a peak at the end of the decade

Fig 2 exhibits US oil manufacturing approaching a peak by the top of this decade. Note that “oil” includes natural gas liquids (NGLs) which are not as versatile as crude oil which is crucial refinery feedstock to supply gasoline, diesel and jet-gas. In the graph, NGLs are sandwiched between layers of crude oil thereby obscuring what is occurring to crude oil alone. So Fig 2.28 must be re-stacked:

Fig three: Restacked Fig 2.28
Conventional oil (blue and red areas), mainly flat since 2011, will begin to decline in 2016. Growing gentle tight oil, much of which is definitely condensate (the reason for the tanker practice fires), offsets this decline and retains crude oil at 9.2 mb/d for the 2nd a part of this decade, almost at 1970 peak levels (9.6 mb/d). As a way to examine the numbers the purple line uses EIA data which match these from the IEA.

The green area is pure fuel liquids (ethane, propane, butane, pure gasoline) coming from each oil and gas fields. They don’t seem to be as versatile as crude oil. More, recent particulars on NGLs may be found in this text: id=16191

In December 2013, the Energy Information Administration published new zealand energy group a similar crude graph with a peak plateau reached within the 2nd half of this decade.

Fig four: EIA graph from the Annual Power Outlook 2014 showing US manufacturing profile

The question of course is whether tight oil decline rates – for two a long time – will probably be as moderate as depicted in this graph.

US crude manufacturing (May 2014 knowledge)
Fig 5: US crude manufacturing by area

Information are from right here:
Please word that EIA’s current tight oil production data are estimates beginning in June 2013, assuming that Texas production elevated by forty four kb/d per thirty days, giving a linear growth. It isn’t clear how these preliminary statistics will likely be corrected in future.

Does EIA Drilling Productiveness Report Reflect Actual World

“Every month confirmed a projected output increase. Given what we knew concerning the production output throughout the winter months obtained straight from the North Dakota Department of Mineral Assets (DMR) that confirmed a major drop in manufacturing, and especially Bakken output, which is what dominates the state’s oil production, we wondered in regards to the EIA’s forecasts.” all=HG2

Influence on US crude imports
We stack US crude oil import knowledge on the crude oil production curve.

Fig 6: new zealand energy group US crude imports stacked on crude production
Data from

Fig 6 exhibits that the tight oil wedge allowed the US to cut back crude imports from Nigeria, Angola, Algeria, Russia, Brazil and many smaller exporters. Imports from the neighbouring nations Canada, Mexico, Venezuela, Colombia and Ecuador remained unchanged at around four.8 mb/d whereby growth from Canada offset decline in Mexico.

Most notably, imports from the Persian Gulf have hardly changed in 7 years, mainly impacted by the financial disaster in 2009, with a slow recovery.

Fig 7: US crude imports from Persian Gulf international locations
US gentle tight oil (with a high proportion of condensate) will not be essentially a substitute for all kinds of crude imports which should match US refinery necessities traditionally geared for heavier crude oil. Fig 6 suggests there can be problems in the following years easy methods to accommodate 1 – 1.5 mb/d of tight oil as already mentioned in the next article:

Absorbing Will increase in U.S. Crude Oil Manufacturing

Fig 8: US Gulf coast crude imports by typ

An update of this analysis may be present in:
U.S. Crude oil production forecast
Evaluation of crude varieties

Fig 9: US crude oil manufacturing by crude kind. Condensate has API >47

In any case, gross US refinery inputs must be maintained at round 15 mb/d which is the long term degree as could be seen in this EIA graph:

Fig 10: US gross inputs to refineries n=pet&s=mgirius2&f=a

US crude exports
There’s a ban on exporting US crude oil since 1970, the 1st US oil peak. Exports to Canada are often allowed as fuels refined in Canada would flow back into the US.

In 2013 crude exports to Canada were 120 kb/d but elevated to 288 kb/d in Might 2014

Gentle tight oil is used in Canada as a diluent for bitumen from tar sands.
Mechanics of tight oil decline

The state of affairs is greatest described within the EIA drilling productiveness studies. Taking the instance of Bakken in August 2014, net production growth of 20 kb/d per month is the end result of recent wells production of +ninety four kb/d minus a decline in outdated wells of seventy four kb/d.

Fig eleven: Bakken progress and decline

In order to appreciate the big drilling effort of ninety four kb/d x 12 months = 1.1 mb/d pa with a really modest net result of 240 kb/d pa allow us to compare that with Iran’s oil increase 12 months 1972/seventy three in which oil manufacturing (in standard fields) elevated by 850 kb/d pa.

Systems wherein web outcomes are the difference between 2 high numbers are numerically very sensitive to modifications of parameters and assumptions.

Fig 12: Bakken pattern strains of development and decline
Utilizing drilling productiveness reports from Oct 2013 to Aug 2014, we see that both monthly progress and decline charges have been rising, but at a different tempo. Decline is rising sooner than new capacity may be added. Therefore there will probably be a degree have been developments intersect and internet progress will likely be zero, a while by mid 2016, incidentally. After that, things will turn into very irritating. The drilling effort should be maintained but net decline sets in.

As EIA’s estimates go back virtually one yr the inflection point may not be found statistically until after it has happened. We will expect a lack of the public’s confidence within the rosy power revolution predictions of the oil and gas trade

An evaluation of all tight oil fields in the US goes beyond the scope of this text. A website which monitors tight oil within the US in additional element is

Fig thirteen: North Dakota manufacturing profile by 12 months of wells

What Fig 13 reveals: the extra wells are added, the steeper future decline charges of the whole system.
How the peaking of US tight oil manufacturing will affect on the ability to finance drilling when the tip result is decline is but unknown. What is thought, nevertheless, is that oil firms are already struggling now, as described on this EIA article:

As cash move flattens, major vitality firms improve debt, promote property

Fig 14: Main Energy Companies’ cash from operations and use of money
“Based on knowledge compiled from quarterly stories, for the year ending March 31, 2014, cash from operations for 127 major oil and pure gas firms totaled $568 billion, and major uses of cash totaled $677 billion, a distinction of nearly $one hundred ten billion. This shortfall was crammed by way of a $106 billion web increase in debt and $seventy three billion from gross sales of belongings, which elevated the overall money balance” id=17311
For argument sake, in the next credit crunch finance for these expensive tight oil wells could dry up, leading to an instantaneous drop of production.

Clearly, the world depends on a harmful drug referred to as tight oil.

Assuming current US refinery inputs stay at round 15 mb/d the US will all the time must import round 6 mb/d of crude oil, eighty% of which comes from neighbouring countries. Other than high decline charges, tight oil production could even be limited by how these light oils and condensates will be accommodated by US refineries.

When it becomes apparent that US tight (shale) oil has peaked, there will be a public confidence disaster because the media are parroting the oil and gas industry’s declare that shale oil is an power revolution and sport changer. Certainly, the game will change, however in unexpected ways.