Why the New EIA Forecast Is Unrealistic
The Energy Information Administration (EIA) of the U.S. Department of Energy has just released its Annual Energy Outlook (AEO) 2018, with forecasts for American oil, gas and other forms of energy production through mid-century. As usual, energy journalists and policy makers will probably take the document as gospel.
That's despite the fact that past AEO reports have regularly delivered forecasts that were seriously flawed, as the EIA itself has acknowledged. Further, there are analysts inside and outside the oil and gas industry who crunch the same data the EIA does, but arrive at very different conclusions.
The last few EIA reports have displayed stunning optimism regarding future U.S. shale gas and tight oil production, helping stoke the notion of U.S. "energy dominance." No one doubts that fracking has unleashed a gusher of North American oil and gas on world markets in the past decade. But where we go from here is both crucial and controversial.
The most comprehensive critiques of past AEO forecasts have come from earth scientist David Hughes, a Fellow of Post Carbon Institute (note: I, too, am a Post Carbon Institute Fellow). Since 2013, Hughes and PCI have produced annual studies questioning EIA forecasts, based on an analysis of comprehensive play-level well production data. Their latest report, a critical look at AEO2017, is just out.
"Shale Reality Check: Drilling Into the U.S. Government's Rosy Projections for Shale Gas & Tight Oil Production Through 2050" explores four big questions crucial to the realization of the EIA's forecasts:
1. How much of the industry's recent per-well drilling productivity improvement is a result of better technology, and how much is due to high-grading the best-quality parts of individual plays? Over the past few years, industry has shown the ability to extract increased amounts of oil and/or gas from each well. This has been achieved in part by drilling longer horizontal laterals, tripling the amount of water and proppant (usually sand) used per unit of well length, and increasing the number of fracking stages. It is also in part a result of "high-grading," or focusing drilling on the best-quality parts of each play (termed "sweet spots" or "core areas"). The decline in average well productivity observed in parts of some plays, despite the application of enhanced technology, suggests that sweet spots there are becoming saturated with wells. When this happens, drillers must either move to lower-quality rock outside of sweet spots, or drill wells too close together, which results in well interference or "frac hits" and reduced well production.
2. Can technological advancement in the industry continue to raise productivity indefinitely? If, as the EIA suggests, improved technology will continue to increase well production, then perhaps per-well productivity can continue to grow for some time. However, based on the analysis of recent data, Hughes questions this (as does a team of MIT researchers). Well productivity is already declining in some plays, despite the application of enhanced technology, indicating that technology and high-grading have reached limits. Given uniform reservoir quality, improved technology allows the resource to be extracted more quickly with fewer wells, but it does not necessarily increase the overall amount of resource that can be recovered.
3. What will be the ultimate cumulative production from all U.S. tight oil and shale gas wells? Taking the above points into account, Hughes concludes from a detailed analysis of production data that the EIA is making extremely optimistic assumptions about ultimate production and long-term production rates in most shale plays.
Production over the long term is likely to be fraction of what the EIA is forecasting.
4. What about profitability? So far, overall, the industry has lost money on tight oil production, and shale gas has done little better. That's even with most recent drilling being focused in core areas. The industry and its investors assume that if productivity continues to increase, and oil prices rise, profitability will eventually materialize. But what levels of oil and gas prices would be required to profitably extract fuels in the large non-core areas that the EIA assumes will eventually be tapped after "sweet spots" are drilled and exhausted? The AEO offers little in the way of realistic analysis on this point.
Let's approach this subject another way. If you were an EIA analyst and you wanted to produce the most optimistic estimate possible of future U.S. oil and gas production, how might you go about it? You might do the following:
- Mischaracterize the source of recent productivity improvements (assume it's mostly technology, not high-grading);
- Extrapolate recent well productivity improvements far into the future, even though evidence suggests this is unwise;
- Assume that large areas that are not currently being drilled will be highly productive; and
- Ignore price and profitability.
Check, check, check and check.
Hughes figures, using EIA assumptions, that meeting the agency's projections for shale gas and tight oil through 2050 for the 88 percent of production that would come from major plays would require drilling and fracking over 1 million wells at a cost of $5.7 trillion (the remaining 12 percent would require .68 million wells at a cost of $4.1 trillion). The EIA's own estimate for all oil and gas (conventional, shale and offshore) is 1.3 million wells at a cost of $7.7 trillion. It would also consume countless billions of gallons of water and millions of tons of sand and chemicals. One might question the plausibility of this scale of expenditure of capital and physical resources. But even if the project were practically feasible, would it represent the best use of money in securing our energy future? And would the inevitable near- and long-term health and environmental impacts be somehow justified?
The EIA seems to assume that its audience consists of potential investors in struggling tight oil and shale gas companies, and that it speaks on behalf of those companies. That's not the proper role of a government agency. Taxpayers who fund AEO reports deserve realistic estimates of future production, costs of production and prices needed for profitable production. Otherwise, the agency's pronouncements will continue to resemble those of the Wizard of Oz: Be amazed! Be awed! But pay no attention to the man behind the curtain.
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By D. André Green II
One of nature's epic events is underway: Monarch butterflies' fall migration. Departing from all across the United States and Canada, the butterflies travel up to 2,500 miles to cluster at the same locations in Mexico or along the Pacific Coast where their great-grandparents spent the previous winter.
Millions of People Care About Monarchs<p>I will never forget the sights and sounds the first time I visited monarchs' overwintering sites in Mexico. Our guide pointed in the distance to what looked like hanging branches covered with dead leaves. But then I saw the leaves flash orange every so often, revealing what were actually thousands of tightly packed butterflies. The monarchs made their most striking sounds in the Sun, when they burst from the trees in massive fluttering plumes or landed on the ground in the tussle of mating.</p><p>Decades of educational outreach by teachers, researchers and hobbyists has cultivated a generation of monarch admirers who want to help preserve this phenomenon. This global network has helped restore not only monarchs' summer breeding habitat by planting milkweed, but also general pollinator habitat by planting nectaring flowers across North America.</p><p>Scientists have calculated that restoring the monarch population to a stable level of about 120 million butterflies will require <a href="https://doi.org/10.1111/icad.12198" target="_blank">planting 1.6 billion new milkweed stems</a>. And they need them fast. This is too large a target to achieve through grassroots efforts alone. A <a href="https://www.fws.gov/savethemonarch/CCAA.html" target="_blank" rel="noopener noreferrer">new plan</a>, announced in the spring of 2020, is designed to help fill the gap.</p>
Pros and Cons of Regulation<p>The top-down strategy for saving monarchs gained energy in 2014, when the U.S. Fish and Wildlife Service <a href="https://www.fws.gov/southeast/pdf/petition/monarch.pdf" target="_blank">proposed</a> listing them as threatened under the Endangered Species Act. A decision is expected in December 2020.</p><p>Listing a species as endangered or threatened <a href="https://www.fws.gov/endangered/esa-library/pdf/listing.pdf" target="_blank">triggers restrictions</a> on "taking" (hunting, collecting or killing), transporting or selling it, and on activities that negatively affect its habitat. Listing monarchs would impose restrictions on landowners in areas where monarchs are found, over vast swaths of land in the U.S.</p><p>In my opinion, this is not a reason to avoid a listing. However, a "threatened" listing might inadvertently threaten one of the best conservation tools that we have: public education.</p><p>It would severely restrict common practices, such as rearing monarchs in classrooms and back yards, as well as scientific research. Anyone who wants to take monarchs and milkweed for these purposes would have to apply for special permits. But these efforts have had a multigenerational educational impact, and they should be protected. Few public campaigns have been more successful at raising awareness of conservation issues.</p>
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The Rescue Attempt<p>To preempt the need for this kind of regulation, the U.S. Fish and Wildlife Service approved a <a href="https://www.fws.gov/savethemonarch/pdfs/Monarch%20CCAA-CCA%20Public%20Comment%20Documents/Monarch-Nationwide_CCAA-CCA_Draft.pdf" target="_blank">Nationwide Candidate Conservation Agreement for Monarch Butterflies</a>. Under this plan, "rights-of-way" landowners – energy and transportation companies and private owners – commit to restoring and creating millions of acres of pollinator habitat that have been decimated by land development and herbicide use in the past half-century.</p><p>The agreement was spearheaded by the <a href="http://rightofway.erc.uic.edu/" target="_blank">Rights-of-Way Habitat Working Group</a>, a collaboration between the University of Illinois Chicago's <a href="https://erc.uic.edu/" target="_blank" rel="noopener noreferrer">Energy Resources Center</a>, the Fish and Wildlife Service and over 40 organizations from the energy and transportation sectors. These sectors control "rights-of-way" corridors such as lands near power lines, oil pipelines, railroad tracks and interstates, all valuable to monarch habitat restoration.</p><p>Under the plan, partners voluntarily agree to commit a percentage of their land to host protected monarch habitat. In exchange, general operations on their land that might directly harm monarchs or destroy milkweed will not be subject to the enhanced regulation of the Endangered Species Act – protection that would last for 25 years if monarchs are listed as threatened. The agreement is expected to create up to 2.3 million acres of new protected habitat, which ideally would avoid the need for a "threatened" listing.</p>
A Model for Collaboration<p>This agreement could be one of the few specific interventions that is big enough to allow researchers to quantify its impact on the size of the monarch population. Even if the agreement produces only 20% of its 2.3 million acre goal, this would still yield nearly half a million acres of new protected habitat. This would provide a powerful test of the role of declining breeding and nectaring habitat compared to other challenges to monarchs, such as climate change or pollution.</p><p>Scientists hope that data from this agreement will be made publicly available, like projects in the <a href="https://www.fws.gov/savethemonarch/MCD.html" target="_blank">Monarch Conservation Database</a>, which has tracked smaller on-the-ground conservation efforts since 2014. With this information we can continue to develop powerful new models with better accuracy for determining how different habitat factors, such as the number of milkweed stems or nectaring flowers on a landscape scale, affect the monarch population.</p><p>North America's monarch butterfly migration is one of the most awe-inspiring feats in the natural world. If this rescue plan succeeds, it could become a model for bridging different interests to achieve a common conservation goal.</p>
The annual Ig Nobel prizes were awarded Thursday by the science humor magazine Annals of Improbable Research for scientific experiments that seem somewhat absurd, but are also thought-provoking. This was the 30th year the awards have been presented, but the first time they were not presented at Harvard University. Instead, they were delivered in a 75-minute pre-recorded ceremony.