Shale oil wells are gushers in their first year, then deplete rapidly. Shale companies therefore, have to keep ploughing more money into production just to keep output flat, a phenomenon known as the \u201cRed Queen Syndrome,\u201d named after Lewis Carroll\u2019s \u2018Alice\u2019s Adventures in Wonderland\u2019.<\/p>\n
Shale wells typically bleed off 70 to 90% in their first three years and drop by 20 to 40% a year without new drilling.<\/p>\n
A recent IEA Report confirms this, stating that the world\u2019s oil and gas fields are declining at a faster rate than previously thought, leaving the energy sector facing a costly battle to maintain output.<\/p>\n
In fact, since 2019 oil and gas groups have spent $500,000 on oil and gas production, nearly 90 percent of annual investment, simply to arrest the decline in existing fields.<\/p>\n
\u201cThe situation means that the industry has to run much faster just to stand still,\u201d IEA boss Faith Birol was quoted saying<\/a>.<\/p>\n It\u2019s a 180-degree turn by the agency, which previously warned of a \u201cstaggering glut\u201d of crude.<\/p>\n The IEA analyzed data from 15,000 oil and gas fields and concluded that production is growing more precarious because of an increasing reliance on shale oil and gas, where fields need continuous new drilling to maintain their output.<\/p>\n Related: Chevron and Israel to Build Gas Pipeline to Egypt<\/a><\/p>\n In its Tuesday report, the IEA also suggested that if oil companies stop spending altogether, global oil production will contract by 5.5 million barrels a day, around the combined output of Brazil and Norway. The decline for natural gas has risen to 270 billion cubic meters per year from 180 bcm\/yr.<\/p>\n US shale oil and gas would collapse by 35 per cent in the first year after drilling stopped<\/a>, the FT said.<\/p>\n Reuters reported<\/a> that after reaching peak production, the average annual decline in output was 5.6% for conventional oil fields, and 6.8% for conventional gas fields.<\/p>\n Declining output from oil and gas fields means that oil production will gradually become concentrated in the Middle East and Russia, where large fields decline more slowly.<\/p>\n My Oilprice colleague Tsvetana Paraskova recently penned a piece titled \u2018US Oil Patch Sheds Jobs as Producers Face Weaker Prices<\/a>\u2019.<\/p>\n US shale jobs fell 1.7% in August, producers slowed drilling, deferred completions, and pushed efficiency after about a 12 percent year-to-date oil price slide.<\/p>\n Chevron plans a 20 percent workforce reduction and ConocoPhillips up to 25 percent, even as companies try to maintain output with lower capex.<\/p>\n The US shale patch is seeing the deepest jobs cuts in three years as producers respond to lower oil prices with slowing drilling activity and greater efficiencies through consolidation and cost cuts, Paraskova wrote.<\/p>\n As the price of oil is dangerously close to breakevens for many smaller independents, the US shale patch is in\u00a0a wait-and-see mode<\/a>.<\/p>\n