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MIT Study Suggests US Overstates Shale Forecasts

MIT Study Suggests US Overstates Shale ForecastsMIT Study Suggests US Overstates Shale Forecasts

Turns out, America’s decade-long shale boom might just end up being a little too good to be true.

Hydraulic fracturing, or fracking, has turned the US into a force in the global oil and gas markets, which has more than a few people abuzz about the prospect of energy independence, Bloomberg reported.

But now, researchers at MIT have uncovered one potentially game-changing detail: a flaw in the Energy Department’s official forecast, which may vastly overstate oil and gas production in the years to come.

The culprit, they say, lies in the Energy Information Administration’s premise that better technology has been behind nearly all the recent output gains and will continue to boost production for the foreseeable future.

That is not quite right. Instead, the research suggests increases have been largely due to something more mundane: low energy prices, which led drillers to focus on sweet spots where oil and gas are easiest to extract.

“The EIA is assuming that productivity of individual wells will continue to rise as a result of improvements in technology,” said Justin B. Montgomery, a researcher at the Massachusetts Institute of Technology and one of the study’s authors.

“This compounds year after year, like interest, so the further out in the future the wells are drilled, the more that they are being overestimated.”

Extrapolating from field studies Montgomery and his colleague Francis O’Sullivan conducted in North Dakota’s Bakken shale deposit, the research suggests that total US oil and natural-gas production from new wells could undershoot the EIA estimate by more than 10% in 2020.

Things would get progressively worse each year after that, as wells in various sweet spots are exhausted and technology fails to close the gap.

“The same forecasting methods are used in other plays in the US and the same dynamic is likely to be present,” Montgomery added.

Margaret Coleman, the EIA’s leader of oil, gas and biofuels exploration and production analysis, said in an email “the study raises valid points” and the administration is looking at ways to give its estimates a tighter focus.

She added that many shale fields lack the detailed well data that informed the MIT study, which means EIA forecasters have to use known geologic information and assumptions about prices and technology to come up with estimates.

The MIT study also casts a long shadow over the claims of International Energy Agency Executive Director Fatih Birol that shale production will make the US the “undisputed leader of global oil and gas markets for decades to come.”

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