Article Looks at the Decline Rates in Shale Production
In the case of decline rates, the fear has been that offsetting the falling production in existing reserves would make it difficult to increase production to meet rising demand. Some call this the ‘Red Queen’ issue, running faster and faster just to stay in place.
Only a handful of reports have analyzed decline rates in detail, most notably the InternationalEnergy Agency’s 2008 World Energy Report, which showed a gradual rise in decline rates over the course of decades. Why rising decline rates suddenly had a major impact in the last decade is left unexplained.
But decline rates are only one variable determining production levels, the other being additional drilling. Production is the result of the natural decline rate and offsetting investment, such as infill drilling, water or gas injection, and many other techniques. As far back as 1990[i], I reported that forecasters were generating overly pessimistic production curves because they were omitting efforts to improve recovery in known fields, a significant source of new supply. This investment is not reported in any way that permits it to be measured or predicted, but it does seem to correlate with cash flow (oil prices) and thus, likely declined after 1998, which goes a long way towards explaining the subsequent weakness in global production.
Unlike the Red Queen, the oil industry has managed to not only stay in place but race ahead, confirming that decline rates are only one factor determining supply. Individual country production trends highlight the fact that decline rates can often be overcome.