Looking into the Crystal Ball: Forecasting the Future of West Texas Oil Production
In 2016, most oil consumed in the US came from the US (see stats below from the EIA):
Though oil resources from foreign governments clearly play a role in US supply much of this foreign oil comes from “friendly” countries in North America (Mexico and Canada provide 45% of foreign oil). One can argue that because the US now acquires a majority of its oil from North America, the near-term future price of oil will largely depend on continued production in US/Canadian/Mexican oil fields. Once these North American fields mature and ultimately decline, we might anticipate prices to climb until new fields come online (just as they did beginning in the late 2000s).
Of all the oil produced in the United States, Texas currently produces the most, with August 2017 production at 3.366 million bbls/day, or 38% of total US production of 8.857 bbls/day (https://www.eia.gov/dnav/pet/pet_crd_crpdn_adc_mbblpd_a.htm). Assuming the US consumes about ~20 million bbls a day (eia 2016 report), this means that Texas (primarily West Texas) currently produces roughly ~17% of all the oil consumed in the US.
The figure above is a plot showing Texas Oil production since 1981. Note the rapid uptick in production beginning after 2008 (following a steady rise in oil prices and onset of horizontal hydraulic fracturing).
The Bakken oil Field in North Dakota represents the second largest actively producing oil field in the U.S., and in August 2017 produced 1,068 million bbls/day, or approximately 12% of US production (see figure below from iea.gov).
When combined, Texas and North Dakota produce a whopping ~50% of all US oil, and ~22% of all oil consumed in the US.
Let’s assume for the moment that governments outside North America (ie. outside the US, Canada, and Mexico) will not significantly change production/export volumes to the US for the next several years (which has generally been the case recently—see figure below).
Based on this potential reality, maintaining low oil prices in the near-term (next 2-5 years) currently depends on maintaining if not steadily increasing oil production in Texas and North Dakota to offset steady US demand until new less expensive oil fields come online in the US.
If West Texas or North Dakota go into decline, will other states increase production output at comparable volumes any time soon? ( See the eia website; look at the production by state vs time https://www.eia.gov/dnav/pet/pet_crd_crpdn_adc_mbblpd_m.htm, it’s worth looking at offshore data and new mexico data and thinking more deeply about what this tells us).
Given today’s current price of oil and current technology, it appears unlikely that other states will be able to easily fill the void if Texas or North Dakota go into steep production decline. ( For example, production in Alaska, and California is stagnant, and remained so even during the price spike in 2008, Oklahoma is nowhere close to the production of North Dakota or Texas, despite increased production using unconventional methods since 2008.
Barring a major technology break-through or price increase (or both), this implies that once Texas and North Dakota reach peak production, we may need to find new sources or else more imports.
Above shows where we import our oil. Note that most of our imported oil also comes from “friendly” countries in North America (38% from Canada and 7% from Mexico). Based on this observation, one can see why the XL pipeline and NAFTA are important issues today. But will North American oil sources of today still be significant sources in 5 years? Specifically, for how long will we be able to sustain/increase oil production from “friendly” places like Texas, North Dakota, Canada, or Mexico using todays technology before we need to make massive new infrastructure and technological breakthroughs and potentially become more dependent on “unfriendly” oil supplies?
With this in mind, I present below the key questions I ask you to address in your final paper….
Your Job: Assuming oil consumption in the US doesn’t increase, but instead remains relatively constant at 20 million barrels/day,
I want you to estimate:
- When peak unconventional oil production will likely occur in Texas based on estimated proven reserves using today’s unconventional technology.
- What the average rate of production decline will be with time (bbls/day) in Texas assuming these fields go into decline as other fields have in the past (perhaps use iea data as a guide).
- Where most future oil production will likely occur in North America (US, Mexico, Canada—use both projections and eia data) to maintain/sustain U.S. supply, and
- When you might anticipate peak unconventional production in North America.
- Based on these predictions, and ignoring both short-term market forces and disruptive long-term market changes, when do you anticipate the US once again relying heavily ( >50%) on oil supply from outside North America?
To make these estimates, I expect you to use a three-pronged approach that includes:
- A download and review of raw EIA data.
- Peer-reviewed reports and literature THAT ARE PROPERLY CITED outline both expected reserves AND INCORPORATING ASSOCIATED UNCERTAINTIES.
- Detailed Quantitative analysis (by integrating Hubbert style methods or creaming curves for making your estimates for each of your questions above).
The Report should be no less than 3 and no more than 10 pages. Grading will be based on addressing each of the questions above using the three techniques suggested, writing clarity, and logic. Your first page should include an ABSTRACT that contains a clear, focused hypothesis.
A paper copy is due under my door on the final exam date at 9 a.m. , December 8th, 2017.
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