In the early 2000s, the outlook for energy security in the US was bleak. Domestic oil production had been in steady decline since 1985 and gas production was also well past its peak in the 1970s. M. King Hubbert’s concept of peak oil led to fears of an eventual energy shortage. Given the ubiquity of fossil fuels underlying our entire Western economic and industrial structure, it’s no wonder people were worried. But then the shale revolution changed everything. It has often been said that necessity is the mother of invention, and after much trial and considerable ingenuity, American producers learned to extract massive volumes of previously trapped hydrocarbons from shale and breathed new life into the US energy industry. But there are still limits on how much crude oil, natural gas and NGLs can be produced economically, and there are recent concerns that the best of US shale resources have already been tapped. In today’s RBN blog, we examine oil and gas reserves: how they are estimated and what they tell us about the longevity of US production.
One of the most pressing questions in the energy space lately is how long the major US producing regions will hold on to the ground. Many producers have talked in their recent investor presentations about the fact that the opportunities for new prolific wells are diminishing in some regions, which is commonly known as surface degradation. This should concern everyone from consumers to policy makers. Upstream investors want to ensure that producers have adequate acreage inventory to sustain production, while downstream companies and intermediates want to know that their assets will not run out of supply.
One way to assess surface longevity is to calculate a producer’s reserve life in terms of years remaining. And we can do the same calculation at the basin level. In Figure 1 below, we show, for the major basins, EIA’s proved crude oil and condensate reserves (blue bars and left axis in the left graph) and gas reserves (blue bars and left axis in the right graph). US proved crude oil and natural gas reserves report, published December 2022. If we divide these numbers by 2021 production (orange bars), we see that crude oil and condensate reserves for the selected basins are generally around 10x production (green dots and right axis in the left graph), implying about 10 years of remaining reserves, while gas reserves are implied between 10x and 10x of remaining reserves, depending on remaining reserves. basin (green dots and right axis in right graph).
