No topic is more prone to fantastic projections than oil production. People want there to be more and more oil, and if they can't get it in the Real World, they try to get it through wishful thinking. The Financial Times' US oil production revives despite offshore disruption is a case in point.
... analysts believe the US was the largest contributor to the increase in global oil supplies last year over 2009, and is on track to increase domestic production by 25 per cent by the second half of the decade...
The revival of US production has been made possible by a rush of small and mid-sized companies into onshore regions such as the Bakken shale in North Dakota, the Permian Basin in west Texas and the Eagle Ford shale in south Texas.
North Dakota’s production has doubled since 2008, reaching 355,000 b/d in November. Extraction of oil reserves in these regions was thought to be uneconomic, but has been made commercially viable by the transfer of techniques successfully used to extract shale gas; in particular, long horizontal wells and “fracking”, pumping water under high pressure to crack the rock and enable the oil to flow...
According to analysts at Credit Suisse, by 2016 the US could be producing an additional 2.5m b/d more oil, with the increase divided equally between deep-water fields in the Gulf of Mexico and new onshore sources.
Note to analysts at Credit Suisse: lots of things could happen by 2016, but a 33% increase in U.S. oil production is not one of them. According to the EIA, we produced 7.50 million barrels per day last year, a modest increase of about 3% over 2009. (Crude oil production was 5.51 million barrels per day and natural gas liquids was 1.99 million.)
This is one of those Good News/Bad News situations. Most of the bad news is in the Gulf of Mexico, which I last discussed in Oil Production In the GOM — What's At Stake? This estimate is from the EIA's February Short-term Energy Outlook—
Domestic crude oil production, which increased by 150,000 bbl/d in 2010 to 5.51 million bbl/d, declines by 50,000 bbl/d in 2011 and by a further 190,000 bbl/d in 2012 (U.S. Crude Oil Production Chart).
The 2011 forecast includes production declines in Alaska of 60,000 bbl/d in 2011 and an additional decline of 20,000 bbl/d in 2012 because of the ongoing decline in production from the maturing Alaskan oil fields. EIA expects production from the Federal Gulf of Mexico (GOM) to fall by 250,000 bbl/d each year over the next 2 years. The production declines in Alaska and the GOM are partially offset by projected increases in lower-48 non-GOM production of 250,000-bbl/d in 2011 and 80,000 bbl/d in 2012.
The good news comes mostly in the Bakken Shale, where production in North Dakota exceeds my original estimate of peak production in the low hundred thousands. It seems impossible that I could make such an error, but there it is
The future looks bright to operators in the Bakken according to Investor's Business Daily—
Today, North Dakota produces over 400,000 barrels of oil per day. That's still far less than Alaska. It's also less than the workhorse fields of the Permian Basin in Texas and New Mexico, which produce roughly a million barrels a day. But as forecasts for the Bakken's recoverable reserves rise, so do estimates of its potential daily well output...
One factor limiting production expansion is pipeline capacity, says Mark Williams, senior vice president of exploration and development at Whiting Petroleum. But even if no improvements are made to current infrastructure, Bakken output could still rise to 600,000-800,000 barrels a day, he estimates.
However, there are designs for bolstering pipeline and rail infrastructure. "All current and planned projects could take us up to 1.1 million barrels a day," said Williams.
This, along with revived production from the Permian and newer fields like the Niobrara in Colorado and Wyoming, should help reverse declining U.S. oil output. Indeed, the EIA last year predicted a 14% rise in domestic oil production by 2020.
I don't know what the peak for Bakken production will be, so I don't know whether increases in lower-48 production will more than compensate for losses elsewhere (Alaska, the GOM) in future years. I do know that the normally optimistic EIA expects U.S. oil production to decrease over the next two years.
The longer term outcome depends in large part on the oil price. If we have another oil price shock now or later as I have predicted, and demand crashes & burns thereafter, relatively low oil prices ($50-$60) will significantly slow production increases in North Dakota, west Texas and the Eagle Ford shale. Right now, high prices are ideal for small or mid-sized operators in the Bakken and elsewhere. Finally, all EIA forecasts must be taken with a large grain of salt, but there was a similar (but temporary) bump up in the 1980s.
Regarding the Financial Times' claim that U.S. oil production could rise 25% (let alone Credit Suisse's 33%) by the second half of this decade, you can forget about it. If we had all the oil produced by wishful thinking, we'd be in pretty good shape.