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.
By Dana M Bergstrom, Euan Ritchie, Lesley Hughes and Michael Depledge
In 1992, 1,700 scientists warned that human beings and the natural world were "on a collision course." Seventeen years later, scientists described planetary boundaries within which humans and other life could have a "safe space to operate." These are environmental thresholds, such as the amount of carbon dioxide in the atmosphere and changes in land use.
The Good and Bad News<p><span>Ecosystems consist of living and non-living components, and their interactions. They work like a super-complex engine: when some components are removed or stop working, knock-on consequences can lead to system failure.</span></p><p>Our study is based on measured data and observations, not modeling or predictions for the future. Encouragingly, not all ecosystems we examined have collapsed across their entire range. We still have, for instance, some intact reefs on the Great Barrier Reef, especially in deeper waters. And northern Australia has some of the most intact and least-modified stretches of savanna woodlands on Earth.</p><p><span>Still, collapses are happening, including in regions critical for growing food. This includes the </span><a href="https://www.mdba.gov.au/importance-murray-darling-basin/where-basin" target="_blank" rel="noopener noreferrer">Murray-Darling Basin</a><span>, which covers around 14% of Australia's landmass. Its rivers and other freshwater systems support more than </span><a href="https://www.abs.gov.au/ausstats/[email protected]/latestproducts/94F2007584736094CA2574A50014B1B6?opendocument" target="_blank" rel="noopener noreferrer">30% of Australia's food</a><span> production.</span></p><p><span></span><span>The effects of floods, fires, heatwaves and storms do not stop at farm gates; they're felt equally in agricultural areas and natural ecosystems. We shouldn't forget how towns ran out of </span><a href="https://www.mdba.gov.au/issues-murray-darling-basin/drought#effects" target="_blank" rel="noopener noreferrer">drinking water</a><span> during the recent drought.</span></p><p><span></span><span>Drinking water is also at risk when ecosystems collapse in our water catchments. In Victoria, for example, the degradation of giant </span><a href="https://theconversation.com/logging-must-stop-in-melbournes-biggest-water-supply-catchment-106922" target="_blank" rel="noopener noreferrer">Mountain Ash forests</a><span> greatly reduces the amount of water flowing through the Thompson catchment, threatening nearly five million people's drinking water in Melbourne.</span></p><p>This is a dire <em data-redactor-tag="em">wake-up</em> call — not just a <em data-redactor-tag="em">warning</em>. Put bluntly, current changes across the continent, and their potential outcomes, pose an existential threat to our survival, and other life we share environments with.</p><p><span>In investigating patterns of collapse, we found most ecosystems experience multiple, concurrent pressures from both global climate change and regional human impacts (such as land clearing). Pressures are often </span><a href="https://besjournals.onlinelibrary.wiley.com/doi/abs/10.1111/1365-2664.13427" target="_blank" rel="noopener noreferrer">additive and extreme</a><span>.</span></p><p>Take the last 11 years in Western Australia as an example.</p><p>In the summer of 2010 and 2011, a <a href="https://theconversation.com/marine-heatwaves-are-getting-hotter-lasting-longer-and-doing-more-damage-95637" target="_blank" rel="noopener noreferrer">heatwave</a> spanning more than 300,000 square kilometers ravaged both marine and land ecosystems. The extreme heat devastated forests and woodlands, kelp forests, seagrass meadows and coral reefs. This catastrophe was followed by two cyclones.</p><p>A record-breaking, marine heatwave in late 2019 dealt a further blow. And another marine heatwave is predicted for <a href="https://www.theguardian.com/environment/2020/dec/24/wa-coastline-facing-marine-heatwave-in-early-2021-csiro-predicts" target="_blank" rel="noopener noreferrer">this April</a>.</p>
What to Do About It?<p><span>Our brains trust comprises 38 experts from 21 universities, CSIRO and the federal Department of Agriculture Water and Environment. Beyond quantifying and reporting more doom and gloom, we asked the question: what can be done?</span></p><p>We devised a simple but tractable scheme called the 3As:</p><ul><li>Awareness of what is important</li><li>Anticipation of what is coming down the line</li><li>Action to stop the pressures or deal with impacts.</li></ul><p>In our paper, we identify positive actions to help protect or restore ecosystems. Many are already happening. In some cases, ecosystems might be better left to recover by themselves, such as coral after a cyclone.</p><p>In other cases, active human intervention will be required – for example, placing artificial nesting boxes for Carnaby's black cockatoos in areas where old trees have been <a href="https://www.environment.gov.au/biodiversity/threatened/publications/factsheet-carnabys-black-cockatoo-calyptorhynchus-latirostris" target="_blank" rel="noopener noreferrer">removed</a>.</p><p><span>"Future-ready" actions are also vital. This includes reinstating </span><a href="https://www.abc.net.au/gardening/factsheets/a-burning-question-fire/12395700" target="_blank" rel="noopener noreferrer">cultural burning practices</a><span>, which have </span><a href="https://theconversation.com/australia-you-have-unfinished-business-its-time-to-let-our-fire-people-care-for-this-land-135196" target="_blank" rel="noopener noreferrer">multiple values and benefits for Aboriginal communities</a><span> and can help minimize the risk and strength of bushfires.</span></p><p>It might also include replanting banks along the Murray River with species better suited to <a href="https://www.abc.net.au/gardening/factsheets/my-garden-path---matt-hansen/12322978" target="_blank" rel="noopener noreferrer">warmer conditions</a>.</p><p>Some actions may be small and localized, but have substantial positive benefits.</p><p>For example, billions of migrating Bogong moths, the main summer food for critically endangered mountain pygmy possums, have not arrived in their typical numbers in Australian alpine regions in recent years. This was further exacerbated by the <a href="https://theconversation.com/six-million-hectares-of-threatened-species-habitat-up-in-smoke-129438" target="_blank" rel="noopener noreferrer">2019-20</a> fires. Brilliantly, <a href="https://www.zoo.org.au/" target="_blank" rel="noopener noreferrer">Zoos Victoria</a> anticipated this pressure and developed supplementary food — <a href="https://theconversation.com/looks-like-an-anzac-biscuit-tastes-like-a-protein-bar-bogong-bikkies-help-mountain-pygmy-possums-after-fire-131045" target="_blank" rel="noopener noreferrer">Bogong bikkies</a>.</p><p><span>Other more challenging, global or large-scale actions must address the </span><a href="https://www.youtube.com/watch?v=iICpI9H0GkU&t=34s" target="_blank" rel="noopener noreferrer">root cause of environmental threats</a><span>, such as </span><a href="https://www.nature.com/articles/s41559-018-0504-8" target="_blank" rel="noopener noreferrer">human population growth and per-capita consumption</a><span> of environmental resources.</span><br></p><p>We must rapidly reduce greenhouse gas emissions to net-zero, remove or suppress invasive species such as <a href="https://onlinelibrary.wiley.com/doi/abs/10.1111/mam.12080" target="_blank" rel="noopener noreferrer">feral cats</a> and <a href="https://theconversation.com/the-buffel-kerfuffle-how-one-species-quietly-destroys-native-wildlife-and-cultural-sites-in-arid-australia-149456" target="_blank" rel="noopener noreferrer">buffel grass</a>, and stop widespread <a href="https://theconversation.com/to-reduce-fire-risk-and-meet-climate-targets-over-300-scientists-call-for-stronger-land-clearing-laws-113172" target="_blank" rel="noopener noreferrer">land clearing</a> and other forms of habitat destruction.</p>
Our Lives Depend On It<p>The multiple ecosystem collapses we have documented in Australia are a harbinger for <a href="https://www.iucn.org/news/protected-areas/202102/natures-future-our-future-world-speaks" target="_blank">environments globally</a>.</p><p>The simplicity of the 3As is to show people <em>can</em> do something positive, either at the local level of a landcare group, or at the level of government departments and conservation agencies.</p><p>Our lives and those of our <a href="https://theconversation.com/children-are-our-future-and-the-planets-heres-how-you-can-teach-them-to-take-care-of-it-113759" target="_blank">children</a>, as well as our <a href="https://theconversation.com/taking-care-of-business-the-private-sector-is-waking-up-to-natures-value-153786" target="_blank" rel="noopener noreferrer">economies</a>, societies and <a href="https://theconversation.com/to-address-the-ecological-crisis-aboriginal-peoples-must-be-restored-as-custodians-of-country-108594" target="_blank" rel="noopener noreferrer">cultures</a>, depend on it.</p><p>We simply cannot afford any further delay.</p><p><em><a rel="noopener noreferrer" href="https://theconversation.com/profiles/dana-m-bergstrom-1008495" target="_blank" style="">Dana M Bergstrom</a> is a principal research scientist at the University of Wollongong. <a rel="noopener noreferrer" href="https://theconversation.com/profiles/euan-ritchie-735" target="_blank" style="">Euan Ritchie</a> is a professor in Wildlife Ecology and Conservation, Centre for Integrative Ecology, School of Life & Environmental Sciences at Deakin University. <a rel="noopener noreferrer" href="https://theconversation.com/profiles/lesley-hughes-5823" target="_blank">Lesley Hughes</a> is a professor at the Department of Biological Sciences at Macquarie University. <a rel="noopener noreferrer" href="https://theconversation.com/profiles/michael-depledge-114659" target="_blank">Michael Depledge</a> is a professor and chair, Environment and Human Health, at the University of Exeter. </em></p><p><em>Disclosure statements: Dana Bergstrom works for the Australian Antarctic Division and is a Visiting Fellow at the University of Wollongong. Her research including fieldwork on Macquarie Island and in Antarctica was supported by the Australian Antarctic Division.</em></p><p><em>Euan Ritchie receives funding from the Australian Research Council, The Australia and Pacific Science Foundation, Australian Geographic, Parks Victoria, Department of Environment, Land, Water and Planning, and the Bushfire and Natural Hazards CRC. Euan Ritchie is a Director (Media Working Group) of the Ecological Society of Australia, and a member of the Australian Mammal Society.</em></p><p><em>Lesley Hughes receives funding from the Australian Research Council. She is a Councillor with the Climate Council of Australia, a member of the Wentworth Group of Concerned Scientists and a Director of WWF-Australia.</em></p><p><em>Michael Depledge does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</em></p><p><em>Reposted with permission from <a href="https://theconversation.com/existential-threat-to-our-survival-see-the-19-australian-ecosystems-already-collapsing-154077" target="_blank" style="">The Conversation</a>. </em></p>
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