In 2012, the International Energy Agency (IEA) forecast that the US would outpace Saudi Arabia in oil production thanks to the shale boom by 2020, becoming a net exporter by 2030. The forecast was seen by many as decisive evidence of the renewal of the oil age, while informed detractors were at best ignored, at worst ridiculed.
But the IEA's latest assessment has proved the detractors right all along. The agency's World Energy Investment Outlook released this week says that US tight oil production - which draws largely from the Bakken in North Dakota and the Eagle Ford in Texas - will peak around 2020 before declining.
The IEA report says:
"... output from North America plateaus [from around 2020] and then falls back from the mid-2020s onwards."
Mid-2020s actually sounds like a nice long reprieve to me. But things are unlikely to go that smoothly if companies were counting on a more optimistic supply curve. Shale oil companies have been raking in revenue, but maybe not so much in the way of profit. From Bloomberg:
Floyd Wilson raps his fingertips against the polished conference table. He’s just been asked, for a second time, how he reacted when his Halcon Resources Corp. (HK) wrote off $1.2 billion last year after disappointing results in two key prospects.
Halcon spent $3.40 for every dollar it earned from operations in the 12 months through June 30. That's more than all but six of the 60 U.S.-listed companies in the Bloomberg Intelligence North America Independent E&P Valuation Peers index. The company lost $1.4 billion in those 12 months. Halcon's debt was almost $3.2 billion as of Sept. 5, or $23 for every barrel of proved reserves, more than any of its competitors.
Maybe this means the shale boom will get its own financial crisis to precede round two of the bumpy plateau. I wonder how that will compare to 2008. On the plus side, at least it's all junk bonds. It's not a crisis of supposedly-safe investment-grade debt, so there won't be the web of insurance and derivatives that made the subprime mortgage crash such a cascading failure. On the other hand, a lot of projections of America's financial future are pinned to assumptions about shale gas.