Sunday, June 20, 2021

Shale oil and gas fraud: A sign of a peak in oil supplies?

Those of us who watched incredulously as investors shovelled more and more money into what we were sure were money-losing shale oil and gas drillers do not find the current spate of fraud lawsuits against these drillers surprising.

The gargantuan claims about shale hydrocarbon reserves—which were compared more than once to those in Saudi Arabia—were clearly designed to woo investors into bidding up the stock price and/or hoovering up the constant stream of junk bonds emitted by the shale oil and gas drillers. The hype succeeded for a long time, even during the crash in oil prices in 2015 and beyond when investors convinced themselves that they were picking up "bargains."

It wasn't until the pandemic-induced plunge in oil prices that the reality of those outlandish claims was revealed, and many companies disappeared.

But this story of fraud and exaggerated claims is much more than a legal story. The large production gains that did take place in American oil fields had people believing America would be or already was "energy-independent," a phrase that meant the country would not be a net importer of energy resources. Though U.S. dependence on imported energy resources did decline, it didn't reach zero until the pandemic dramatically crashed U.S. oil demand below U.S. production. But as the world and U.S. economies rebound, that dependence is almost certain to return as the so-called "shale miracle" turns out to be something less than miraculous, bankruptcies continue and reserve estimates come back into line with reality.

But the fallout extends even further. The U.S. oil boom was the principal source of increased world production for most of the last 15 years. Without that boom and the boom in the Canadian tar sands, world oil production would have grown little or even declined. Now that U.S. shale oil production is receding—from an estimated 8.3 million barrels per day (mbpd) in November 2019 to 6.9 mbpd as of February 2021—it is unlikely that U.S. producers could pull off a similar feat again.

The recent rise in oil prices against a backdrop of a still recovering economy suggests that the shale miracle is not returning any time soon, if ever. For those who scoffed at the idea that world oil production would peak in the near term, the test is just ahead. World production of crude oil including lease condensate (which is the definition of oil) peaked at 84.6 mbpd in November 2018 (well before the pandemic) and has yet to touch that peak again. In fact, the latest monthly production figures available from the U.S. Energy Information Administration show oil production in February still more than 10 million barrels below its November 2018 peak.

No one can say for certain whether we have seen the all-time high in world production. But I am personally on "peak watch" and have been since the middle of 2019. The implications for the world will be even greater than those of the pandemic if it turns out we are now past the peak in world oil production.

Kurt Cobb is a freelance writer and communications consultant who writes frequently about energy and environment. His work has appeared in The Christian Science Monitor, Resilience, Common Dreams, Naked Capitalism, Le Monde Diplomatique,, OilVoice, TalkMarkets,, Business Insider and many other places. He is the author of an oil-themed novel entitled Prelude and has a widely followed blog called Resource Insights. He can be contacted at


Don19 said...

The next decade is going to be very bumpy. We've had drama documentaries and Economists warning for years about peak oil - now the reality is here. Good luck everyone

Unknown said...

Speaking as one retired from oil exploration I can honestly say there is still plenty of oil out there, only its more difficult and expensive to utilise. I am not complacent but I am not too worried.

Don19 said...

But if oil costs extra to extract - those costs will have to be passed on. EROEI

Kurt Cobb said...

The issue is not how much oil is left. The question is the rate at which we can get it out of the ground and process it for use by society. The rate will determine the peak no matter how much is left. If the remaining oil is more difficult and expensive to get, that will hinder the rate at which it can be extracted. We must always keep in mind that existing well production worldwide continuously declines. We are trying to run up a down escalator. At some point will be make no more upward progress and even fail to match the speed of decline in production with new production.

JJ said...

The escalator is a good analogy. Can nuclear power save us with new projects and designs that will come online later this decade? How fast could we ramp up nuclear if we had to? Are the resources (plutonium, etc.) even available to do that on a massive scale?

Kurt Cobb said...

JJ, it's important to remember that we face crises across the board in climate change, soil depletion, deforestation, drinkable water depletion and toxic chemicals everywhere in the environment and our bodies. I don't think nuclear power or extra energy of any kind can solve all those by itself.

As for the timelines for nuclear development, I was on a radio show several years ago during which the host told me that the Chinese were planning to have molten salt reactors ready-to-go by 2020. (The host had recently read Peter Diamandis' book "Abundance.") I told him that the timeline for such developments and deployments were likely to be 20 years, the first 10 of which are spent just on making the thing work to standards that are allowable under existing regulations. The next 10 would be field testing, pilot plants and then a demonstration plant at commercial scale that would allow utility executives to see actual cost numbers to make sure the technology will be profitable. (That would take us in the mid 2030s.) I'm still waiting for those ready-to-deploy MSRs to appear and I don't yet see any demonstration plants which tells me we are many, many years away from deployment.

As for other designs, I think they have no hope of changing the contribution of nuclear to world electricity production. A "nuclear renaissance" using "light-water" reactor technology is likely only to hold nuclear generation steady as old plants are decommissioned. The uranium-fueled reactors will run up against resource restraints unless they are breeders. And, that is a whole set of problems all by itself.

If MSRs use thorium, they can be breeders and create a very long-lived fuel supply. No one knows for sure, but I'm convinced it would last thousands of years at current rates of consumption (which is always a moving target so you have to be careful). Who knows whether we will have a society stable enough to manage nuclear technology of any kind over the next 50 years, let alone the next 500 or 5,000?

Radu Diaconu said...

The issue is not how much oil is left. The question is the rate at which we can get it out of the ground and process it for use by society. The rate will determine the peak no matter how much is left. If the remaining oil is more difficult and expensive to get, that will hinder the rate at which it can be extracted.
Well said, mr Cobb!!
Example: I live in a contry called Romania. The world of oil is in debt to romania because a lot of pioneering oil and natural gas technology was discovered and pantented in my contry. Maybe the name Ion Bazgan rings a bell. Romanian cities were among the first in europe and the world to be illuminated at naight with kerosene and natural gas later.
Romania was awash in oil up until 1945. we were the oil source for the german blitzkrieg and our refineries were heavily bombed by the americans, killing a lot of civilians in the process, together with many romanian, germans, british and american aviators.
In the beginning oil was found in Romania so close to the surface, it was actually MINED or HAND collected, not extracted. Our peak in conventional oil came in 1970. Onshore oil exploration and exploatation continues even today at a furios pace. We went even in offshore oil extraction in the shallow waters of the Black Sea in the '80s to increase production. Nothing stalled the decline.
Lately however we got the offshore deep oil and natural gas fever. The new frontier of romanian oil (and european, for a while) is the Black Sea. Huge numbers in barrels of oil and trillions cubic metres of natural gas are being thrown around both in Romania and Bulgaria by local and foreign oil companies. Exploratory wells have been already dugged to locate this cornucopia. Price tag: 200 million US per well!!!
But there is so far no extraction. Nobody cand definetely tell if any oil will ever be produced. Local govs want their piece of the pie and big. There is also the geopolitical factor. Russian occupied Crimeea is less then 300 km east of this supposed oilfields. The risks are both technological and political. An Gazprom and Lukoil , if they dont get a piece of the action, may induce the russian gov to do something about unwanted competition.
Romania has the capacity to actually refine the oil and transport the natural gas and stored it, since our former gas plays cand be used for that and there are huge. We got the pipelines, the specialists, even the drillers and the oil rigs. But the capital is lacking and nobody wants to ahem, ahem bothers the russian's sensitivity.
rate of flow may be important, but the economy and the geopolitical factors also can play still a major part. we need in Europe the natural gas from the Persian Gulf to shake off the dependency on Gazprom...but ALL PIPELINE PROJECTS between Europe and the Near and Middle East have been terminated by wars and insecurity. Who plays a major part in making that region unstable??...Russia again...
Stability is absolutely crucial to extract resources in an economically viable way. And that '[commodity" is geting scarce. Just look at the latest african oil instability...