Is America’s energy boom coming to an end?
As companies shut down oil- and gas-drilling rigs and lay off thousands of workers who toiled in shale fields in North Dakota, Texas, and elsewhere, many analysts are wondering whether the United States is closing in on an oil and natural gas production peak.
It’s an important issue not only for those whose jobs depend on drilling and consumers enjoying lower gasoline prices, but also for regulators, policy makers, and others grappling with a wide range of energy issues. The questions include whether to build multibillion-dollar natural gas pipelines into New England and how much should be invested in renewable energy technologies as alternatives.
Whether to proceed with those and other expensive projects may well depend on how long the so-called shale revolution lasts in America.
“It’s the big question everyone is asking: When will oil and gas production plateau and flatten out?” says Daniel Yergin, vice chairman at IHS Inc. and author of the Pulitzer Prize-winning book “The Prize: The Epic Quest for Oil, Money and Power.”
The US Energy Department recently projected that US oil production will peak as soon as 2020 — just five years from now — at about 10 million barrels a day, up from 9 million today and 6 million five years ago. Production then would gradually decline over the coming decades, meaning fewer oil and gas field jobs and higher energy prices.
If those projections are right, it means the domestic oil industry and American consumers and businesses are enjoying their best days now, energy analysts said. Natural gas production is expected to peak in 2040.
The nation has experienced an energy boom in recent years, driven by the controversial drilling technique known as hydraulic fracturing, or fracking, which has opened vast reserves once trapped in shale rock deposits. The shale revolution was made possible by high oil prices that topped $100 a barrel as recently as a year ago.
The additional supplies injected into world markets by shale drillers, coupled with the decision by the Organization of the Petroleum Exporting Countries to maintain production to hold its market share, sent prices tumbling.
With oil prices trading recently at about $60 a barrel, the issue has become how much crude can be extracted profitably. It’s the relationship between drilling costs and oil prices that will determine when the country hits peak production.
“It’s not so much that the oil will run out, but whether the economically viable oil will run out,” said Martin Tillier, chief market strategist for OilPrice.com, an energy news and analysis website. “At some point, taking it out of the ground will cost too much and cease to be economically viable.”
Parker Hallam, chief executive of GSE LLC, a Dallas oil- and natural gas-drilling company, said EIA’s projections may not be off the mark. A harbinger of what might come has occurred over recent months, he said.
In North Dakota, Texas, and other areas of the country, hundreds of oil and gas rigs have recently closed down as the price for a barrel of oil crashed to around $43 a barrel in March. That slide led drillers to cut production and lay off thousands of workers.
But some industry analysts say projections of peak production are shaky because it’s difficult to project future drilling costs and global energy prices. Joe Petrowski, managing partner at Mercantor Partners, a Framingham energy investment and management firm, said drilling technologies will keep improving, thus allowing drillers to extract ever more oil and gas from shale fields at lower costs.
Petrowski said US output of both natural gas and oil will remain high for decades to come, justifying expensive infrastructure projects such as building new gas pipelines in New England.
Kinder Morgan Inc. has proposed building a multibillion-dollar pipeline that would stretch across Western Massachusetts through Southern New Hampshire into the Merrimack Valley and transport natural gas from eastern shale fields.
Spectra Energy Corp., another Texas company, has teamed up with the utilities Eversource Energy (formerly NStar and Northeast Utilities) and National Grid to expand the existing Algonquin gas pipeline system in the region
But Greg Cunningham, director of clean energy and climate change at the Conservation Law Foundation, said the prospect of the US hitting peak production in five or even 25 years should make people pause about spending billions of dollars on projects such as pipelines that may end up not delivering as much fuel as expected.
He said that businesses and consumers who use natural gas will end up paying the bill for these projects through higher rates. “Ultimately, the ratepayers could be left holding the bag.”
Jay Fitzgerald can be reached at jayfitzmedia@ gmail.com.