The last time US oil production peaked, nobody believed it.
This time, the signs are just as clear and most still don’t want to see them.
(Thread)
This time, the signs are just as clear and most still don’t want to see them.
(Thread)
In 1956, geologist M. King Hubbert modeled how oil production in any given field peaks once ~50% of its reserves are depleted.
He predicted US conventional oil would peak in the late 60s/early 70s.
He was ridiculed.
He predicted US conventional oil would peak in the late 60s/early 70s.
He was ridiculed.
1970: Hubbert’s prediction comes true.
US production peaks at 9.64 Mb/d.
Even though he correctly predicted a peak in US oil production, every one thought this is temporary and production is set to increase once the oil price increases
US production peaks at 9.64 Mb/d.
Even though he correctly predicted a peak in US oil production, every one thought this is temporary and production is set to increase once the oil price increases
The OPEC embargo of 1973 4x'd oil prices (from $3 to ~$12 per barrel), creating the perfect test of Hubbert’s theory.
President Nixon launched Project Independence to boost domestic oil production.
As a result:
- Rig count increased by ~35%
- CapEx rose 40–50% in two years
- The oil sector’s share of national investment 2x'by ~1978
This was the largest CapEx boost since WWII, yet crude production fell
- From 9.64 Mb/d in 1970 to 8.77 Mb/d by late 1974.
- By 2009, production had dropped to 5 Mb/d.
Lesson: Geology > CapEx.
President Nixon launched Project Independence to boost domestic oil production.
As a result:
- Rig count increased by ~35%
- CapEx rose 40–50% in two years
- The oil sector’s share of national investment 2x'by ~1978
This was the largest CapEx boost since WWII, yet crude production fell
- From 9.64 Mb/d in 1970 to 8.77 Mb/d by late 1974.
- By 2009, production had dropped to 5 Mb/d.
Lesson: Geology > CapEx.
The shale boom
The US effectively added the equivalent of 2 Saudi Arabias in O&G output... ~90% of global production growth over the last decade
As impressive as this was, it now appears that ~50% of core shale reserves have been depleted
The US effectively added the equivalent of 2 Saudi Arabias in O&G output... ~90% of global production growth over the last decade
As impressive as this was, it now appears that ~50% of core shale reserves have been depleted
The big 3 shale plays
- Bakken -> production peaked
- Eagle Ford -> production peaked
- Permian -> production about to peak
According to Goehring & Rozencwajg, these basins follow the same pattern as conventional oil fields:
Once ~50% is produced, they peak and then decline.
- Bakken -> production peaked
- Eagle Ford -> production peaked
- Permian -> production about to peak
According to Goehring & Rozencwajg, these basins follow the same pattern as conventional oil fields:
Once ~50% is produced, they peak and then decline.
Shale growth is collapsing.
2023: +800 kb/d
2025: +80 kb/d
That’s a 90% drop in just 2 years.
Consensus is:
- At current prices, production will decline.
- Higher prices boost output
But that assumption mirrors the 1970s logic that proved wrong for conventional oil.
2023: +800 kb/d
2025: +80 kb/d
That’s a 90% drop in just 2 years.
Consensus is:
- At current prices, production will decline.
- Higher prices boost output
But that assumption mirrors the 1970s logic that proved wrong for conventional oil.
The plateau-decline pattern in shale basins is now mainstream knowledge.
The only debate is WHEN it will happen.
The prevailing belief is that higher prices will spark drilling and raise output.
But what if, like in the 1970s, more drilling doesn’t translate into more production?
The only debate is WHEN it will happen.
The prevailing belief is that higher prices will spark drilling and raise output.
But what if, like in the 1970s, more drilling doesn’t translate into more production?
If history is any guide, the next US oil peak isn’t decades away.
It’s already forming.
And just like last time, most will only believe it in hindsight.
It’s already forming.
And just like last time, most will only believe it in hindsight.
If you want more macro + commodities breakdowns like this one…
1. Follow me @ekwufinance
2. RT and share
3. Do you agree? Disagree? -> Comment
1. Follow me @ekwufinance
2. RT and share
3. Do you agree? Disagree? -> Comment
https://twitter.com/1554189979462557696/status/1992289065048199184
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