Saturday, August 15, 2015

Unpeak Oil? "SHALE 2.0: Technology and the Coming Big-Data Revolution in America’s Shale Oil Fields" by Mark P. Mills

This is a new essay [pdf] by Mark P. Mills of the Manhattan Institute. He wrote The Bottomless Well: The Twilight of Fuel, the Virtue of Waste, and Why We Will Never Run Out of Energy in 2005, which I had thought was ridiculous, but has turned out to be more accurate than Twilight in the Desert (also from 2005).

  • The time it takes to drill wells is a critical component of cost. On this front, the speed of improvement has been remarkable: with virtually no increase in capital costs (in some cases, costs are down), the three key measures of drilling—time to drill, wells per rig, and total distance drilled—have improved by 50–150 percent in less than five years
  • The number of feet of shale rock tapped is the first order determinant of how much oil and gas are produced. Here, the net result of technology and operational innovation is clearly visible: total footage drilled grows faster than the growth in rig count. The inverse is true as well: a forecasted 40 percent drop in rig count will have a more modest (35 percent) decline in total new footage drilled. 
  • The “walking rig” is one technological advance that has contributed greatly to gains in rig productivity. Rather than drill a single well from a well-pad, a walking rig can move around the pad, drilling multiple wells (sometimes dozens). Since 2006, the use of such so-called pad drilling has grown dramatically, from a few percent to over 50 percent of new wells, with the potential to rise higher.
  • The consequences of a price and rig-count collapse have played out before. The shale revolution, in fact, began with the extraction of natural gas in the Texas Barnett shale. In 2008, after natural gas from this abundant new source flooded the U.S. market, gas prices plunged threefold. The gas rig count fell; but gas production kept rising and has been growing ever since
  • The U.S. currently has roughly 3,000 drilled wells awaiting completion—likely rising by the end of 2015, to more than 5,000. Given current market realities, many—if not most—such wells will remain idle. The amount of ready-to-flow oil stored in those 5,000 wells is at least four times greater than all the oil stored in steel tanks around the country. Because it takes only a few months to complete a well, such wells, once completed, could swiftly add 2–3 MMbd to U.S. supply.


John said...

The thesis sounds incredible and compelling.

But I've taken Taleb's advice by heart. Sometimes a publication reveals more about the author than the topic. I noticed the study is published by Manhattan Institute. A bit of google legwork showed it's a right-wing/conservative organisation.


Nothing intrinsically wrong with that. But one gotta question if the essay is tainted with political motives and, thus, distorting the science and the reality.

A couple more observations. 1. His endnotes refer to a couple of seekingalpha writeups. That's unusual for something written by a scientist. 2. His emphasis on the power of big-data seems a bit over the top. If you just quoted that bit, I would have mistaken it's a sales pitch by Oracle.

I'm skeptical but keep an open mind. His book "The Bottomless Well" looks interesting. I'm tempted to get a copy. Have you read it? Do you think his science is credible?

Anonymous said...

Hybrid cars (those with both a gasoline engine and electric motors) will become the common vehicle for the future. But different from the hybrids today, these vehicles will use electric motors to drive the wheels all the time (one at each wheel) and no longer contain a traditional drive train. When the battery is low, the engine will come on and generate electricity, but not drive the wheels directly. Not only does this reduce a lot of weight from the car, it also increases its reliability – electric motors and solid state components are significantly more reliable than the mechanical solutions we have today. And also different from today – these cars will support being plugged in at night charging the battery from the power grid rather than from the engine. Why? Because the power from the grid is one-third the cost of charging from the gasoline engine, and the power plants we have in place are more efficient and less polluting than the cars engine as well (especially if the power is from a nuclear plant, but even coal plants put less into the atmosphere than cars do.)

Anonymous said...

Mills is too clueless to get that “today’s low levels” were considered sky high in 2004/2005.
And that fracking is decades old.

Tripling the frack proppant only adds 2% cost to the well? Dream on.
An extra 5,000 tons at $100/ton delivered (cheap price!) is a half million dollars, or 5% of a $10 million dollar well (old cost), and more of the newer 7 to 8 million dollar wells.
Don’t worry though, big data will solve all. That, and high-powered lasers. /sarc

If you look at figure 4 in Rune’s

you’ll see that LTO didn’t really take off until the $100/bbl prices of 2010/2011.

Mills is co-author of:
The Bottomless Well: The Twilight of Fuel, the Virtue of Waste, and Why We Will Never Run Out of Energy
in which they claim that energy price doesn’t matter very much.
(the reprint was in 2006 – before oil spiked to $147 and destroyed the world’s economy).

I agree with a one-star reviewer on Amazon: “insane and sad”.

I note a 5 star reviewer glowing about abiotic oil.

Anonymous said...

That "fractional flow" link is a joke.

Poor bastard thinks that QE lowers interest rates!

eah said...

Have you looked at PVA? Equity is trading like BK is a near certainty in the not too distant future.

Anonymous said...

It easy to make that mistake. Japan has been in QE for decades and interest rates are at a half!