Study forecasts strong growth of US shale oil output

10 July 2013

The dramatic surge in US shale oil production could more than triple the current American output of shale oil to five million barrels a day by 2017, which could make the United States the No. 1 oil producer in the world, according to a new study by a researcher at Harvard Kennedy School.

The paper—The Shale Oil Boom: A U.S. Phenomenon—is authored by Leonardo Maugeri, a former senior executive with Eni, the Italian oil conglomerate, who studied the performance of 4,000 American shale oil wells and the work of about 100 companies involved in shale oil production.

Maugeri concludes that the unique characteristics of shale oil production are ideal for the United States—and unlikely to be mirrored elsewhere in the world. These factors include the availability of drilling rigs, and the entrepreneurial nature of the American exploration and production industry, both critical for the thousands of wells required for shale oil exploitation.

Compared to conventional oil production, shale oil is characterized by very high drilling intensity, due to the dramatic decline in production that follows the early months of activity with each new well. For example, by December 2012 it took about 90 new producing wells per month just to maintain North Dakota’s Bakken-Three Forks (the largest shale oil field in the United States) oil production of 770,000 barrels per day.

In the short- to medium-term (3 to 5 years), the correlation between drilling intensity and shale oil production will shape the evolution of US oil production more than any other factor. Because shale oil wells cost far less to drill and bring online, it is easier to increase drilling when oil prices are high, but also easier to rapidly scale back production when prices drop. Therefore, a significant dip in oil price may trigger a rapid twist in the shale oil boom.

If oil prices remain close to today’s levels, total US production of all forms of oil is predicted grow from 11.3 million barrels per day to 16 million by 2017. The number of American shale oil wells in North Dakota and Texas could soar from the current 10,000 to more than 100,000 working wells by 2030.

The central role played by drilling intensity in the shale oil and gas development has a crucial implication for the possibility of replicating the American experience in other parts of the world. The drilling intensity required for shale oil will limit production in densely populated areas, especially in Europe.

Only the US oil industry is capable of such drilling intensity, wrote Maugeri. In 2012, the US completed 45,468 oil and gas wells and brought online 28,354 of them, compared with 3,921 wells completed in the rest of the world except Canada. The United States holds more than 60% of global drilling rigs, and 95% of American rigs can perform horizontal drilling, which along with hydraulic fracturing (fracking), is necessary to exploit shale oil.

Source: Harvard Kennedy School