In light of the stubbornly bleak economic situation in the US, optimism appears to exist in only two of its industrial sectors – oil and gas. Advances in technology, which made production of shale gas in the US economically feasible and revolutionized the gas industry, gave enormous push to the development of shale oil in recent years. Employing horizontal drilling and hydraulic fracturing, energy companies began adding thousands of barrels of oil per day to the US crude oil production. According to the US Geological Survey, the US sits on over half of the world’s shale oil, with largest known deposits in the Green River area of Colorado, Utah, and Wyoming. So far, the Bakken shale oil field in North Dakota has been a major success story, followed by Eagle Ford in South Texas.
The Energy Information Administration (EIA) predicted that the US oil production would reach about 5.65 million barrels per day (bpd) in 2012, crediting the shale oil development for the anticipated increase. At the same time, domestic oil production from Alaska and Gulf of Mexico was expected to fall. Goldman Sachs made an even bolder prediction that the US would become a top oil producer by 2017, reaching 10.9 billion bpd and surpassing Russia and Saudi Arabia. But according to EIA’s 2011 Annual Energy Outlook, US crude oil output was to increase to only around 6 million bpd by 2020.
While the prospect of US joining the leaders of oil production in near future is welcome news, a caution against over-optimism may be needed. First, with the rise of shale oil output, costs to develop new fields are increasing as well. Second, as with shale gas production, there may be uncertainties about projecting shale oil output in the U.S. due to its possible rapid decline rates. Some fractured shale gas wells experienced rapid declines, from 50 up to 80 percent or more during the first year. Given the newness of this industry, sufficient experience and time may be necessary to determine recoverability of reserves, decline rates and production lifespan of shale gas and oil wells.