Published on May 22nd, 2014 | by Tina Casey21
Monterey Shale: Fracking’s Great Moment Of Derp
May 22nd, 2014 by Tina Casey
The US energy world was rocked yesterday by a new Energy Information Agency report that significantly cut the projection of recoverable oil from the massive Monterey Shale formation in California. That’s “cut” as in chopped, shredded, and mashed to a bloody pulp. How bad is the damage? Well, just a few years ago in 2011 the projection was for 13.7 billion barrels, and yesterday’s update brought it down to about 600 million. That’s a 96 percent drop for those of you keeping score at home.
How’d the Monterey formation go from boom to bust in just three years? Just a quick note to our readers before we dive in. We’ve spilled a lot of ink on shale gas issues here at CT, so in case you missed it, the emphasis here is on shale oil (also not to be confused with oil shale, which is a whole ‘nother can of worms).
Monterey Shale Oil — The 2011 EIA Report
The seeds of the debacle are actually right there in an EIA report dated July 8, 2011, titled Review of Emerging Resources: U.S. Shale Gas and Shale Oil Plays.
It starts off with a clear warning, as in “estimating the technically recoverable oil and natural gas resource base in the United States is an evolving process,” and it goes downhill from there.
The report notes “considerable uncertainty” in general regarding the recoverability of shale gas and oil, given the current state of drilling technology and the prospect of shifting market conditions.
Despite the optimistic projection for Monterey shale in 2011, the report contains a critical caveat:
…the resource estimates in the current report will be modified over time as more wells are drilled and completed, technologies evolve, and the long-term performance of shale wells becomes better established.
One important factor that EIA considered in hedging its bet so clearly is the absence of a meaningful history of production upon which to draw. The agency did take the experience of other formations into consideration, but it could not project that onto the Monterey Shale formation with certainty:
Because most shale gas and shale oil wells are only a few years old, their long-term productivity is untested. Consequently, the long-term production profiles of shale wells and their estimated ultimate recovery of oil and natural gas are uncertain.
In addition, EIA noted that most of the new shale production was taking place, naturally enough, within the most promising or already proven areas of shale formations. That makes it difficult to generalize for the purposes of projecting results from one formation to another.
Also throwing off the comparison between formations is the sheer size of some shale formations, making it difficult to assemble a reliable formation-wide estimate of recovery.
Monterey Shale: The 2014 Debacle
Reuters has a good update on the latest EIA announcement, including confirmation that yes, the estimate dropped by 96 percent. Apparently some folks did not get the 2011 memo and had trouble believing what they were seeing.
For that matter, it seems that a critical analysis of the 2011 EIA report by the Post Carbon Institute sailed over everyone’s heads, too.
The Post Carbon report came out just last year. It took the EIA report to task for placing too much emphasis on the experience of Bakken and Eagle Ford shale operations. Post Carbon also notes that EIA failed to fully account for variations in Monterey shale formations, though to be fair EIA did place that aforementioned caveat emptor sticker on both of these points.
The Post Carbon report adds quite a bit of detail, for example this:
An analysis of every well producing from Monterey shale reservoirs reveals that average initial productivity is less than half of the typical horizontal and vertical shale wells assumed in the [EIA report], and less than a quarter of the “typical Elk Hills vertical shale well.”
Fracking and acidization have doubtless been tried extensively on Monterey shale wells, yet the data do not show any significant increase in initial well productivity or likely cumulative oil recovery for recent wells.
The majority of oil produced from the Monterey appears to have migrated, owing to the fractured nature of much of the Monterey. The existence of very extensive areas of uplifted mature source rock with non-migrated oil comparable to plays like the Bakken is highly speculative.
On the bright side, EIA based its estimate on initial production difficulties in Monterey shale. The estimate could swing in a positive direction if there is a technologically resolvable problem for at least parts of the formation, and the industry comes up with a solution.
However, the low estimate could also solidify for any number of reasons, for example if the technology solution proves too expensive, or if the price of oil drops, both of which would reduce the competitiveness of Monterey shale oil in global markets.
Also contributing to downward pressure on oil prices is new competition from alternative sources, namely solar and wind, in tandem with the prospect of competitively priced battery electric vehicles and fuel cell EVs. The wind angle will be particularly interesting now that the US has finally begun to tap into its massive offshore wind potential.