Reports of the demise of the shale revolution premature

A 96% decrease in 'technically recoverable resource' estimates at the Monterey Shale formation had many questioning its viability

RIYADH, Saudi Arabia, Jun 3, 2014/ Troy Media/ – Is the shale revolution over?

The viability of the ongoing shale revolution came under scrutiny recently after technically recoverable resource (TRR) estimates for the 1,750 mile Monterey Shale formation – which runs down the centre of California, roughly from Sacramento to the Los Angeles basin and includes some coastal regions – were decreased by a whopping 96 per cent.

Among the doomsayers were The Guardian (“Write-down of two-thirds of US shale explodes fracking myth”), Investing Daily (“Is Shale Drilling a Sham?”), the Seeking Alpha web site (“The U.S. Shale Oil Miracle Disappears”) and Motley Fool (“The California Shale Bubble Just Burst”).

But the U.S. Energy Information Agency (EIA) asserted that the doomsayers have it wrong because TRR is significantly different from daily output and its revision would have little or no impact on the U.S. shale output estimates. In fact, EIA head Adam Sieminski stressed to me in an email that, while TRR is a useful concept, changes in play-level TRR estimates do not necessarily have significant implications for projected oil and natural gas production, which are heavily influenced by economic considerations that do not enter into the estimation of TRR.

That conclusion is buttressed by both the 2013 and 2014 editions of the EIA’s own Annual Energy Outlook, which both state that projected oil production from the Monterey play is not of material importance to the U.S.’ oil production outlook which, itself, remains largely unaffected by the change in TRR estimates.

Estimates of TRR are highly uncertain, Sieminski pointed out in his email, particularly in emerging plays where few wells have been drilled. He also emphasized that “TRR estimates will likely continue to evolve over time as technology advances and as additional geologic information and results from drilling activity provide a basis for further updates.”

Citi Research, in a report entitled “Much Ado About Nothing,” emphasized that while the 96 per cent write down of Monterey Shale reserves – which represents a big chunk of the EIA assessed 58 billion barrels of tight/shale oil resources in the U.S. – does indeed looks dramatic, it will have “little impact on U.S. oil production growth path. . . . The revision is less important than at first blush.’

In fact, U.S. oil production projections have not been based on significant volumes of Californian shale production at all, and instead has been driven by the three major tight/shale oil plays – the Bakken in North Dakota and the Eagle Ford and Permian Basin in Texas – with contributions from smaller plays across Oklahoma, Colorado, Wyoming and elsewhere, Citi Research’s report underlined.

Its conclusions are being backed up by independent pundits. Richard Behl, a geology professor and director of the MARS (Monterey and related sedimentary rocks) Project at California State University, Long Beach, told Natural Gas Intelligence Shale Daily’sRichard Nemec that he “would guess that E&P (exploration and production) in the Monterey will not slow the active players – both large and small – but this change in EIA perspective might shake out speculators without experience and understanding of the complexities of these rocks.”

Behl was also of the firm opinion that the latest EIA assessment would prove to be “just as wrong” as the earlier, bullish one.

Independent Southern California geologist Donald Clarke told the Daily that Monterey’s chemical complexity is further complicated by “structural deformation and the resulting fracturing. What is needed is a set of models that will help target the sweet spots or certainly the less risky targets.”

Clarke is of the opinion that if this can be done the recoverable oil in the Monterey may actually be a large number, possibly 10 billion bbl. “Creative minds can open up the Monterey just like they opened up the Marcellus and Bakken. We need to give them a chance to. I guess you can put me with the bullish group.”

“The fact that the technology doesn’t exist today, doesn’t mean that it won’t exist tomorrow,” concurred Tom Tanton, with the Energy & Environment Legal Institute, while talking to Bloomberg’s Steven Greenhut.

The oil is there. Only the technology is missing. Efforts to fully tap the Monterey Shale will have to wait until the right technology is available. And that seems to be the sole outcome of the current debate over the viability of the shale revolution.

Rashid is an energy analyst and a widely published expert on global energy affairs. He appears regularly on BBC and other news media. He operates an energy consultancy, Husain’s Associates, from Toronto, dividing his time between Canada and the Middle East. For almost 25 years, he has served as Vice President of a leading Saudi trading and consulting house.

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