The American story about fracked gas since 2007 and fracked oil since 2011 is that it will continue to surge for years, turning the US into a blissful energy Eden – and Osborne wants a slice of the action. But research undertaken by US experts in the field independent of the big oil and gas companies have found a very different story. That data shows high early decline rates in existing shale-gas and shale-oil wells, so that high levels of drilling are needed just to maintain production. This problem is made worse in that ‘sweet spots’ which offer easier-to-reach deposits and higher returns are exhausted early in field development. As a result shale-gas production has already peaked in every US region except the Marcellus Share in Pennsylvania, and production of shale oil in the top 2 US regions, Texas and North Dakota which comprise 74% of US shale-oil production, is likely to peak as early as 2016 or 2017. The obvious conclusion is that the US oil and gas companies are leading the world towards an energy crisis by hyping the potential of what will be a short-lived phenomenon.
The dawning truth is already affecting investor sentiment across the world. On 2 January this year The Wall Street Journal revealed that large foreign investments in US shale-oil and shale-gas leases were drying up rapidly. In the same month Shell wrote off $2 billions invested in US shale after bad drilling results and as a consequence of this and other setbacks issued its first profit warning in 10 years. So where does this leave Osborne and the UK? Jeremy Leggett, one of Britain’s foremost energy campaigners, puts it like this: “Anyone who knows the extent of necessary industrialisation at a fracking sweet spot, and who also knows the sentiments of rural England (as already displayed at Balcombe in ~East Sussex), knows that it will impossible to replicate the shale boom in the UK. It would likely be political suicide for the political party that attempted it”
And this assessments doesn’t only apply to shale. Mark Lewis, former head of energy research at Deutsche Bank, has provided the evidence to show that the counter-narrative of impending supply problems also applies to the oil industry itself. The decline rates of all conventional crude-oil fields producing today are spectacular, projected by the Internationa Energy Authority to fall from 69 million barrels per day (mbpd) now to only 28 mbpd in 2035. Capital expenditure for oilfield development and exploration has nearly trebled in real terms from $250bn in 2000 to $750bn in 2012. In addition the oil industry’s discoveries are falling, its profitability is declining despite a persistently high oil price, and OPEC consumption of its own oil is soaring, so global crude-oil exports have been falling since 2005. So an oil crunch is inevitable, and much faster than many people think (Osborne, are you listening?)