Energy and Innovation Drive Surging U.S. Production Growth

Mark Green
Posted November 7, 2013

U.S. Energy Information Administration (EIA) chief Adam Sieminski recently gave a presentation at Columbia University on the agency’s new drilling productivity report, and the takeaways are significant:

• The U.S. is in the midst of a remarkable surge in oil and natural gas production from shale and other tight resources.
• Higher drilling efficiency and new well productivity are the main drivers of production growth.
• EIA is confident the United States has ample reserves to sustain production growth for the foreseeable future.

Sieminski said U.S. shale reserves, unlocked by hydraulic fracturing and horizontal drilling, are the reason for skyrocketing oil and natural gas production – since 2007 for natural gas, 2009 for oil. EIA’s chart:

Sieminski:

“… one of the questions I think that’s coming up, is oil going to follow a path similar to what we have been seeing on natural gas, and in fact, can both of these fuels continue to grow in the U.S.? I think the answer is, for the near term, very little question about that. For natural gas, EIA has no doubt at all that production can continue to grow all the way out to 2040. Right now tight gas is a little over a third of U.S. production. We think it’ll be close to half of U.S. production in 2040. For oil, it’s a little bit different. … but we think oil production can continue to grow quite a bit from where we are now.”

EIA’s report shows that industry is tapping accessible reserves with far greater efficiency, which is a credit to innovation and advanced technologies, including advanced fracking techniques. Fewer wells are being drilled, yet production continues to grow.

EIA found that the number of shale wells that are producing both oil and natural gas has risen dramatically, from about one-third in 2007 to more than 50 percent in 2012.

Sieminski:

“Higher drilling efficiency and new well productivity are really the main drivers of what’s happening, not the rig count itself, when you think about production growth. The six plays that we are looking at … that do have steep legacy production declines, but nevertheless the growth that’s taking place across the board in those six plays is beating productivity declines by almost 70 percent for oil and almost three-quarters for natural gas.”

Two factors have contributed to production growth despite the widespread belief that the U.S. had reached a production peak, Sieminski said, technology and price:

“One of the things we’re learning in the drilling productivity report is that technology really, really matters. … The peak oil hypothesis was largely based on two large assumptions: that technology didn’t matter and prices didn’t matter. And the reason they didn’t matter was because the resource base was well known, and once half of the resource base was actually developed the inevitable declines in production would follow.”

Sieminski continues:

“One of the things that has clearly been learned over the course of the past few years and is shown in this drilling productivity report is the importance of technology and the importance of price in helping to drive that technology is absolutely critical to understanding this. … In the near term there is more room for growth in both oil and natural gas production in the United States, and probably a lot more.”

Past often is prologue: Given increased access to domestic reserves, a sensible regulatory climate and an environment that encourages investment, industry will continue to innovate and it will continue to develop advanced technologies that make energy development safer and more efficient and America more energy secure.