With just a month left before U.S. President-elect Donald Trump begins his second term, oil prices remain uncertain, as markets seem to be waiting for his leadership to take shape.
Trump has consistently promised to push U.S. shale producers to increase output, even if it means “drilling themselves out of business.” However, the question remains: how exactly will he achieve this, given that U.S. oil production is led by independent companies, not a national oil company (NOC)?
Exxon Mobil’s Upstream President, Liam Mallon, recently dismissed the idea that U.S. producers would drastically increase production under Trump’s second term. But there’s a bigger issue at play: U.S. oilfields may be nearing the end of their boom. According to Goehring & Rozencwajg LLC, a research firm focusing on natural resources, shale output is in the early stages of a prolonged decline. The main cause, they argue, is depletion, not market conditions or regulatory challenges. While these analysts previously predicted that the explosive growth of U.S. shale would plateau by late 2024 or early 2025, the situation might be worse than expected. Data from the U.S. Energy Information Administration (EIA) shows that shale oil production peaked in November 2023 and has since declined by about 2%. Likewise, shale dry gas production has dropped by 1%, or 1 billion cubic feet per day, since its peak the same month. Goehring & Rozencwajg’s models predict an even steeper decline in the coming months.
The situation is being compared to the oil crisis of the 1970s. Back then, President Nixon responded to the 1973 OPEC oil embargo by launching Project Independence, an initiative to boost U.S. oil output through deregulation and quicker permits. While this effort helped drive oil prices from $3.18 per barrel in 1973 to $34 per barrel by 1981, it failed to halt the natural decline in production. The U.S. oil rig count soared from 993 in 1973 to over 4,500 by 1981, but by the end of that year, crude production had dropped by 15%, from 10 million barrels per day to 8.5 million barrels per day. By 2010, U.S. output had plummeted to just 5 million barrels per day, even as oil prices hovered around $100 per barrel. This phenomenon, dubbed the “Depletion Paradox” by the analysts, shows that rising oil prices alone may not reverse geological limits on production. As the late geologist M. King Hubbert famously said, every oil basin is finite, and production inevitably hits a limit.
Another challenge for U.S. producers under Trump’s second term could be the outlook for oil prices. A new survey by law firm Haynes Boone LLC suggests that banks expect oil prices to dip below $60 per barrel during Trump’s new term, reducing the incentive for increased drilling.
Enhanced Oil Recovery (EOR) Offers Hope
While depletion is a significant concern, there’s hope that new technologies could revive U.S. oil production. Similar to how hydraulic fracturing revolutionized shale production in the early 2000s, Enhanced Oil Recovery (EOR) technologies may provide a much-needed boost. A recent study by Menhwei Zhao, a geological advisor based in Calgary, looked at the Weyburn Midale oil pool in Saskatchewan, which has been using carbon dioxide (CO2) injection for over 20 years. Zhao found that without CO2 injection, production would have ceased by 2016. However, EOR could extend the life of the pool by 39 to 84 more years. While Zhao focused on a Canadian project, he believes that similar results could be expected from large-scale CO2 injection efforts worldwide.
The Wasson Field’s CO2 injection project in West Texas also saw a nearly seven-fold increase in crude production. CO2 injection, along with other EOR techniques, is being used more widely across the U.S. in oilfields such as the Permian Basin, as well as in states like Kansas, Mississippi, and Wyoming.
U.S. oil fields generally go through three stages of production: primary, secondary, and tertiary (EOR) recovery. In the primary phase, only about 10% of the reservoir’s oil is recovered. Secondary recovery methods, such as injecting water or gas, can boost production by 20 to 40%. However, much of the easy-to-reach oil has already been extracted, and producers are increasingly turning to tertiary recovery techniques. These methods can recover 30 to 60% of a field’s total oil in place.
Gas injection, the most common EOR method, accounts for about 60% of U.S. EOR production. By injecting gases like CO2, natural gas, or nitrogen, producers can push additional oil toward the well and improve its flow rate. CO2 injection, in particular, has been successful in the Permian Basin and other oil-producing regions.
The U.S. Department of Energy (DoE) is researching new methods to improve CO2 injection, estimating that next-generation CO2-EOR could unlock more than 60 billion barrels of oil that would otherwise remain trapped. At current production rates of around 13 million barrels per day, it would take about 13 years to extract that volume.
As U.S. oilfields face depletion, new technologies such as EOR may play a critical role in extending production and supporting U.S. energy independence. However, the challenge of depletion, coupled with fluctuating oil prices, means the outlook for shale production remains uncertain.
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