Saturday, April 30, 2022

Oil And Energy Shortages May Just Be Starting (Part 1)

When it comes to rising prices people tend to focus on what is in their face. This translates into gas prices taking focus away from the more important fact that all forms of energy are likely to take big price jumps during the next few years. For a mental exercise, assume estimates of how much oil remains under the ground here in America are wrong. If it is not there, we are in for a rude awakening. 

Recently Kurt Cobb of Resource Insights, wrote an article noting a new skeptical report on the future of U.S. shale oil and gas. In the article, he keys in on a report by J. David Hughes that questions the U.S. Government's forecast for shale gas and tight oil production. Shale gas refers to natural gas that is trapped within dense shale formations and tight oil is the crude oil contained in these rock formations. 

Earth scientist David Hughes contends the data behind the U.S. Energy Information Administration’s latest projections for shale oil and gas output is massively flawed and its long-term outlook is so biased, that it borders on fibbing. If Hughes is correct America's path forward when it comes to energy is about to become much more challenging.

Already, the new global energy crisis is directly responsible for a tremendous amount of pain at the pump for millions of average Americans. Since virtually everything that we buy has to be transported it is also a major contributing factor to the current surge in inflation. The staggering rise in fertilizer prices that we are currently witnessing also is signaling future food prices are going to be drastically higher and may even result in food shortages.

 OH No! Problems Ahead
Economist contends the politics of bashing fossil fuels and demanding aggressive decarbonization has led to under-investment in carbon-based capacity before renewable energy sources have reached a scale sufficient to smooth the transition. He goes on to predict this will feed into more sharp energy-price spikes. Roubini expects that as the price of energy rises, “greenflation” will hit prices for the raw materials used in solar panels, batteries, electric vehicles, and other clean technologies. 

Roubini is not alone in thinking physics and geology are against us on this one, even if can make some improvements in technology. Wind and solar won’t save us either, it would require a larger investment of materials and energy than we have. It doesn't take an expert to predict this will result in us soon paying much more to heat our homes. It also means that we are going to be paying much more to fill up our vehicles at the gas station as well as paying a lot more for food.

Circling back to Hughes, his take on the current situation contradicts the broadly accepted consensus and was put forth only after painstaking research. In a previous report on the U.S. shale oil and gas industry entitled “Shale Reality Check 2021” Hughes assesses and seriously undermines rosy long-term forecasts of the U.S. Energy Information Administration’s (EIA) shale forecasts in its Annual Energy Outlook 2021, these are widely used by policymakers, industry, and investors to make long-term plans. His detailed analysis finds that the EIA’s forecasts of tight oil and shale gas production through 2050 are “highly to extremely optimistic.”

The cost of energy permeates through the economy making the EIA’s forecasts extremely important. America is counting on shale for 69 percent of all U.S. oil production from 2020 to 2050 and 77 percent of all U.S. natural gas production in the same period. And, it matters to the world because between 2008 and 2018, growth in U.S. oil production accounted for 73 percent of the entire growth in global supplies. Since oil and gas constitute 71 percent of the current U.S. energy supply, if future oil and gas production disappoints, as Hughes expects, it will create a situation with huge ramifications for our future. 

Hughes assessed Canada’s coal and unconventional natural gas resources during his previous 32-year tenure at the Geological Survey of Canada. During this time, he analyzed data for thousands of individual tight oil and shale gas wells to see how the U.S. industry has been doing. Hughes bases his belief the EIA has greatly overestimated recoverable U.S. tight oil and shale gas on several things.

His conclusions based on commercially available drilling and production data indicate future production in America will likely be much lower than the EIA projects. He thinks we will be hard hit particularly in the latter part of the 2020 to 2050 period as the "sweet spots" responsible for most of today’s production give up the ghost. Considering U.S. energy policy and planning in such key industries as transportation, utilities and chemicals are based on the EIA’s forecasts. If they are wrong, we will all pay for this mistake.

Government forecasts often prove unreliable, years ago Hughes released a damning and prescient analysis of the Monterey Shale, an underground formation in California that the EIA touted as containing 15.4 billion barrels of recoverable oil. The following year the EIA stunned the industry, investors, and California officials with a 96 percent reduction in estimated tight oil resources for Monterey. Before the downgrade, Monterey comprised 60 percent of all U.S. tight oil resources.

The Future Of Oil And Energy is also being greatly affected by what many of us consider misguided government and central bank policies pushing a new green agenda geared at addressing political and environmental concerns about global warming and climate change. Several examples of this exist. While the Biden administration is panicking in an attempt to keep energy prices down, the House has slapped a "fee" on methane that is being called a "stealth tax" on natural gas. It results in an "escalating tax on methane emissions by oil and gas producers."

An op-ed in the Wall Street Journal pointed out the tax will hit $1,500 per ton by 2025. This fee will get passed along to the consumer and result in even higher energy prices for consumers and industries that are already struggling. The Energy Information Administration (EIA) claims that half of U.S. households that heat with natural gas will pay 30% more this winter than they did last year and this methane tax could add another 17% to an average bill.

Another example of a misdirected policy that might add to our future energy woes is reflected in a recent New York City Council vote to ban the use of natural gas in new buildings as a way to reduce the city's carbon footprint. Once it goes into effect in 2027 all new buildings will be heated by fossil fuel alternatives, most likely electricity. Opponents to this plan point out that eliminating the direct use of natural gas in homes and businesses would simply shift the use of natural gas from inside the home to powering an already overburdened electric grid through natural gas and coal-fired power plants.

The crux of this article is that we should not rule out the possibility the U.S. Government's view of how much oil remains is far too optimistic. When this article became a bit long for my liking I divided it into two parts. The second part will expand on why Hughes may be right and the intrusions we are seeing on the energy complex by virtue signalers for what they call the greater good. The concern over such regulations flows more from unintended consequences and the agenda of those creating such policies. If those touting reform and re-configuring world global energy policies were sincere you would think they would occasionally utter the word conserve. 

The reality we face is that production from tight oil and shale gas wells falls quickly. Production from individual wells falls 75–90% in the first three years. This trend indicates a far different tale than the one the industry and the government are forecasting. This is not a prediction of doom but a warning of hard times and higher prices ahead. 


 (Republishing of this article welcomed with reference to Bruce Wilds/AdvancingTime Blog)

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