2016 Shale Reality Check:

Revisiting U.S. Department of Energy

Forecasts through 2040 in Annual
Energy Outlook 2016
Web Briefing
December 20, 2016

J. David Hughes
Post Carbon Institute
Global Sustainability Research Inc.

Key Findings:
- The EIA AEO2016 forecasts are extremely optimistic:
shale gas production is projected to grow 136% and
tight oil 65% over 2014 levels by 2040.
- This is projected by EIA to require drilling over one
million wells by 2040 which, at $6 million each, would
mean $6 trillion in capital outlay between 2014-2040.

- Forecasts become evermore optimistic year after year

with AEO2016 up 19% for tight oil and 31% for shale gas
over AEO2015.
- This production growth is projected by EIA to occur
while prices remain below its last years estimates and
drilling rates remain below 2014 levels through 2040. 2

Key Findings:
- Play level forecasts, which make up the overall
projections, are very volatile between years, usually on
the upside, and often recover more unproved resources
than the EIAs own estimates say are known to exist.
- Production in all major plays reviewed has peaked with
the exception of two Permian Basin tight oil plays. Tight
oil is down 13% and shale gas is down 5% overall.
- Production through 2040 is highly weighted to a few
key plays eg. half of shale gas production comes from
the Marcellus (36%) and Haynesville (15%), and half of
tight oil production comes from the Bakken (33%) and
Eagle Ford (15%).

A complete list of Key Findings and the

reports, as well earlier shale reports
such as Drilling Deeper and Drilling
California, are available at:
www.shalebubble.org

The Shale Play Life Cycle

Discovery followed by leasing frenzy.
Drilling boom follows to meet held-by-production lease
requirements.
Sweet spots are identified, targeted and drilled off. Companies
always drill their best locations first.

Production rises rapidly and is maintained for cash-flow despite

potentially uneconomic full-cycle costs.
Wells decline quickly (75%-85% in 3 years) and drilling must be
maintained to overcome field production decline (30-45% per year)
Sweet spots become saturated and well quality and field production
decline.

Plays like the Haynesville become middle aged after just five years.
Hughes GSR Inc, 2016

SHALE PLAY LIFE CYCLE - Haynesville Gas Production

and Number of Producing Wells, 2007-2015
4000

Peak November 2011

7

3500
Gas Production
Number of Wells

Decline

3000
2500

Drilling Boom
4

2000

Production
Down 50%

Leasing Boom
2

1500
1000

Discovery
1

500

0
2007

0
2008

2009

2010

2011

Year
Hughes GSR Inc, 2015

2012

2013

2014

Number of Producing Wells

Gas Production (Billion cubic feet per day)

2015
6

(data from Drillinginfo, October, 2015)

Barnett Play Well Quality by Initial Gas Production

7
Hughes GSR Inc, 2014

(map by John Van Hoesen based on data from Drillinginfo, August, 2014)

Tarrant County Well Footprint

1 Mile

8
Hughes GSR Inc, 2014

(data from Drillinginfo, February, 2014)

U.S. Natural Gas Supply Projection by Source, 2012-2040,

EIA Reference Case AEO2016
45

Trillion Cubic Feet per Year

64% increase in production by 2040

Canada Imports
Alaska
Tight Gas
Offshore
Price (Henry Hub)

9
8

Exports in 2040
(18% of Production)

35

7
6

30
69% of 2040
Production

25
20

Shale Gas
(+136% 2014-2040)

15

Coalbed Methane

10

Tight Gas

Offshore

2012

Conventional/Other

2016

2020

2024

2028

2032

2036

Price at Henry Hub $2015 per MMbtu

40

LNG Imports
Shale Gas
Coalbed Methane
Conventional
Domestic Consumption

0
2040

Year
9
Hughes GSR Inc, 2016

(data from EIA Annual Energy Outlook 2016, Tables 13 and 14, http://www.eia.gov/forecasts/aeo/er/excel/yearbyyear.xlsx)

U.S. Shale Gas Production by Play, 2000-2040

EIA Reference Case AEO2016 compared 2014 and 2015

Gas Production (Billion Cubic Feet per Day)

90
80
70
60

50

Other
Antrim
Bakken
Woodford
Fayetteville
Eagle Ford
Barnett
Haynesville/Bossier
Utica
Marcellus
AEO2014
AEO2015

AEO2016 Recovery
2014-2040 = 603 Tcf

AEO2015 Recovery
2014-2040 = 459 Tcf

Other

AEO2014 Recovery
2014-2040 = 423 Tcf

40

Haynesville

30

Utica

20
Percent of 2014-2040 Production:
Marcellus = 36%
Top 2 Plays = 51%
Top 3 Plays = 65%

2000-2013 = 51 Tcf

Marcellus

10
0
2000

2005

2010

2015

2020

Year
Hughes GSR Inc, 2016

2025

2030

2035

2040

10
(data from EIA AEO2014, AEO2015 and AEO2016)

U.S. Shale Gas Production by Play, 2000-2015

Gas Production (Billion cubic feet per day)

50

45
40
35
30
25

Rest of US
Woodford
Utica
Marcellus
Eagle Ford
Antrim
Bakken
Fayetteville
Barnett
Haynesville

Peak February 2016

Current Production
Top Play = 39%
Top 2 Plays = 49%
Top 5 Plays = 74%

5 legacy plays
collectively peaked in
August 2012 and
were down 37%
as of August 2016

Marcellus

20
15
10
Barnett

Haynesville
0
2000

2002

2004

2006

2008

Year
Hughes GSR Inc, 2016

2010

2012

2014

2016

11
(data from EIA Natural Gas Weekly Update, October, 2016 )

Marcellus Gas Production in Drilling Deeper Most Likely Rate

Scenario through 2040 compared to EIA AEO 2014, 2015 and 2016
50000
AEO2016
"Most Likely" Recovery

25

45000
AEO2015 Recovery
2014-2040 = 147 Tcf

AEO2014
AEO2015
Actual Production

AEO2016 Recovery
2014-2040 = 215 Tcf

"Most Likely" Wells

20

40000

Actual Producing Wells

35000
30000

Peak February 2016

15

25000
AEO2014 Recovery
2014-2040 = 122 Tcf

20000

10

Drilling Deeper
Most Likely Wells

2004

2008

2012

2016

2020

2024

2028

5000

2032

2036

0
2040

12
(data from Drillinginfo, October 2016 (historical production
and wells); EIA AEO2014, AEO2015 and AEO2016; February 2016 peak from EIA natural gas weekly)

Year

Hughes GSR Inc, 2016

10000

Drilling Deeper
Most Likely Recovery
2014-2040 = 120 Tcf

2000-2016
= 21.3 Tcf

0
2000

15000

Number of Producing Wells

Gas Production (Billion cubic feet per day)

30

Marcellus Cumulative Gas Production by County

4500
4000

Billion Cubic Feet

3500

Top 2 counties = 37%

Top 5 counties = 65%

3000
Cumulative
production to date =
21.3 Tcf

2500

2000
1500
1000

500
0

County
Hughes GSR Inc, 2016

13
(data from Drillinginfo October, 2016)

Percentage Difference AEO2016 vs AEO2015

Percentage Change in Shale Gas Production by Year

Comparing the EIAs AEO2016 to AEO2015
180
150
120

2020
2025
2030
2035
2040

90

60
30
0

-30
-60

Shale Gas Play

Hughes GSR Inc, 2016

14
(data from EIA AEO2015 and AEO2016)

U.S. Crude Oil Price and Production by Source and Region

2012-2040 (EIA AEO 2016 Reference Case)
16

12

Onshore EOR
Lower-48 Onshore Conventional
AEO2015 recovery
WTI price

160
140

120

AEO2015 Peak 2020

10

100
Alaska

80

65% of U.S. crude oil

demand in 2040

Shale/Tight Oil

60
40

Lower-48 Onshore Conventional

Price $2015 per Barrel

Million Barrels per Day

14

Alaska
Onshore Shale/Tight Oil
Lower-48 Offshore
Brent price

20

Lower-48 Offshore

0
2012

2016

2020

2024

2028

Year
Hughes GSR Inc, 2016

2032

2036

0
2040

15
(data from EIA Annual Energy Outlook 2016)

Tight Oil Production by Play, 2010-2016

5000

Thousand Barrels per Day

4500
4000
3500
3000

EIA-Other
Spraberry
Wolfcamp
Bone Spring
Niobrara
Austin Chalk
Bakken
Eagle Ford

Peak March 2015

5 legacy plays
collectively peaked
March 2015 and
were down 24%
by June 2016

EIA Other (-36%)

17%

17%
8%

2500

5%

2000
23%

Bakken (-18%)

1500

1000
500
0
2010

2011

2012

2013

Year

Hughes GSR Inc, 2016

26%

Eagle Ford (-31%)

2014

2015

2016

16
(data from Drillinginfo, October, 2016; Production for Other from EIA AEO2016)

U.S. Tight Oil Production by Play, 2000-2040

EIA Reference Case AEO2016 compared to AEO2014 and AEO2015
Oil Production (Million Barrels per Day)

7
6

3
2

Other

AEO2014 Recovery
2014-2040 = 41.5 Bbbl

5
4

AEO2016 Recovery
2014-2040 = 56.2 Bbbl

AEO2015 Recovery
2014-2040 = 47.7 Bbbl

Other
Woodford
Monterey
Austin Chalk
Niobrara
Bone Spring
Spraberry
Wolfcamp
Eagle Ford
Bakken
AEO2014
AEO2015

Spraberry

Eagle Ford
% of 2014-2040 Recovery:
Bakken = 33%
Top 2 Plays = 48%
Top 3 Plays = 59%

1
0
2000

2005

2010

2015

2020

Year
Hughes GSR Inc, 2016

Wolfcamp

2025

2030

Bakken

2035

2040

17
(data from EIA AEO2014, AEO2015 and AEO2016)

Bakken Oil Production in Drilling Deeper Most Likely Rate Scenario

through 2040 compared to EIA AEO 2014, 2015 and 2016
2.5

40000
"Most Likely" Recovery

AEO2016 Recovery
2014-2040 = 18.7 Bbbl

AEO2014

2.0

AEO2015
Actual Production

AEO2015
Recovery 2014-2040 =
14.5 Bbbl

"Most Likely" Wells

Actual Wells

30000

1.5
Peak December 2014

1.0

20000
AEO2014
Recovery 2014-2040 =
7.9 Bbbl

Drilling Deeper
Most Likely Wells

10000
0.5

0.0
2000

Recovery
2000-2016 =
2 Bbbl

2004

Drilling Deeper
Most Likely Recovery
2014-2040 = 5.7 Bbbl

2008

2012

2016

2020

Year

Hughes GSR Inc, 2016

Number of Producing Wells

Oil Production (Million barrels per day)

AEO2016

2024

2028

2032

2036

0
2040

18
(data from Drillinginfo, October, 2016; Drilling Deeper, 2014; EIA AEO2014, EIA AEO2015 and EIA AEO2016)

Bakken Cumulative Oil Production by County

600

500

Million Barrels

Top 2 counties = 54%

Top 5 counties = 92%
400
Cumulative
production to date =
2 billion barrels

300

200

100

County
Hughes GSR Inc, 2016

19
(data from Drillinginfo October, 2016)

Percentage Change in Tight Oil Production by Year

Comparing the EIAs AEO2016 to AEO2015
Difference AEO2016 vs. AEO2015
(Percentage)

150%
>270%
120%
90%

2020
2025
2030
2035
2040

60%
30%
0%
-30%
-60%

Tight Oil Play

Hughes GSR Inc, 2016

20
(data from EIA AEO2015 and EIA AEO2016)

U.S. Oil and Gas Production compared to projected drilling

rates, 2012-2040, EIA Reference Case AEO2016
18
16
14

50

Drilling Rate doesnt recover

to 2014 levels until 2040

Shale gas
Tight Oil
Other gas
Conventional Oil
Wells

45
40
35

Shale Gas

12

30
Unconventional Oil and Gas
Production Grows 88%, 2014-2040,
Other Oil and Gas declines 5%,
Drilling rate remains below 2014 levels
through 2040

10
Tight Oil
8
6

25
20
15

Other Gas
4

10

0
2012

Thousands of Wells per Year

Million Barrels Oil Equivalent per Day

20

Conventional Oil

0
2015

2018

2021

2024

2027

2030

2033

2036

2039

Year
21
Hughes GSR Inc, 2016

(data from EIA Annual Energy Outlook 2016, Tables 13 and 14, http://www.eia.gov/forecasts/aeo/er/excel/yearbyyear.xlsx)

Implications:
- EIA projections of long term growth in tight oil and shale
gas at low prices are extremely optimistic and highly
questionable.
- Investments in infrastructure, power generation, and export
facilities are based on the belief that EIA forecasts provide a
realistic view of future prices and supply. Incorrect
projections result in wasted capital and lost opportunity and
put long-term energy security at risk.
- Americans need to be certain that U.S. energy policy is
based on realistic, independently-sourced and transparent
analysis rather than wishful thinking.
- This is especially important given the views expressed by
the transition team of the incoming Trump Administration,
who have suggested that the EIAs forecasts are far too
conservative.
22