Researchers at MIT have uncovered issues with the U.S. Energy Department’s official forecast for oil output, which may vastly overstate oil and gas production in the years to come. The flaw is due to the Energy Information Administration’s (EIA) belief that technological advancement is the reason for the increase in oil output and that this trend will continue for the foreseeable future. MIT believes that the increase in oil output is due to drillers focusing on extracting from “sweet spots” due to lower energy prices rather than technological advancements.
According to Justin B. Montgomery, MIT researcher and one of the study’s authors, the EIA is under the assumption that technological improvements will increase well productivity, which is leading to overestimation. The EIA assumes technology advancements increase output of wells by roughly 10%; however, the MIT research findings suggest the output only increases by 6.5%. Montgomery states that “this (technological improvements) compounds year after year, like interest, so the further out in the future the wells are drilled, the more that they are being overestimated.” According to field studies conducted by Montgomery and his colleague, Francis O’Sullivan, in North Dakota’s Bakken shale deposits, the EIA’s forecast would be overestimated by 10% in 2020 and get progressively worse as “sweet spots” are exhausted and technology fails to keep up.
The EIA’s leader of oil, gas and biofuels exploration and production analysis, Margaret Coleman, even noted that MIT’s research raised valid points regarding its forecasting and that the EIA does not have the same type of detailed data as the researchers had to base their forecast on. Additionally, Dave Yoxtheimer, Penn State hydrogeologist, believes that the current forecast may be valid only because “the industry is working sweet spots,” but “when that’s all played out, they’re (the oil and gas industry) going to have to go to the tier-two acreage, which isn’t going to be as productive.” This can be seen in the fact that the EIA recently estimated roughly half of the U.S. oil output came from wells two or fewer years old.
If the MIT researchers are correct, energy prices could rise; but more importantly, the U.S. shale industry may no longer be strong enough to counter the Organization of Petroleum Exporting Countries (OPEC), which is currently maintaining oil-output cuts to reassert its members as global leaders.
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