The 450 Scenario And Implications For The Texas Shale Oil Boom

The World Energy Outlook is a bit more complicated than you might imagine if you were to simply look at the shale oil and gas boom in Texas. The International Energy Agency (IEA) came out with its latest predictions for the energy industry last November, and there are some interesting findings which I have not seen reported previously, at least not here in the energy epicenter of the U.S., Houston Texas. The Chronicle’s FuelFix blog has covered the recent decline in U.S. drilling activity, but I haven’t seen a mention of the 450 Scenario. The most recent findings from the IEA suggest that the shale miracle may have been overhyped.  As with all things in the media these days, one can only assume that we’ve been told the part of the story that vested interests would have us believe. One of the more neutral evaluations of the world energy picture is provided by Dr. Scott Tinker, and the documentary film The Switch Energy Project. Tinker heads the Bureau of Economic Geology at the University of Texas.

In 2012, the IEA’s World Energy Outlook proclaimed the death of Peak Oil projecting the U.S. to become the largest global oil producer by 2020. Flash forward to November 2013 and the IEA has softened its tone on the projection of future oil growth. As Michael Klare examines, part of the reason for the soften tone is realization of the limitations of ‘techno-dynamism’. It’s no secret that all of the easily available cheap oil has been extracted.  What’s left is harder to get to and more expensive to produce. As explained in the 2013 edition of the IEA’s World Energy Outlook that ‘miracle’ currently feeding the boom in oil production may have limits as well. The argument for techno-dynamism is “the belief that rising world oil demand will continue to drive the increasingly costly investments in new technologies required to exploit the remaining hard-to-get petroleum resources.” With the disappearance of easy oil, oil companies will be forced to exploit increasingly expensive hard-to-reach reserves. I find it interesting that the U.S. oil rig count peaked in June of last year at 1413, and it has yet to eclipse that mark. Total oil and gas rigs operating in the first week of 2014 stood at 1751, down 6 from the previous week and 11 below where they started the year in 2013.

The IEA’s most recent 450 Scenario suggests that belief should be treated with caution. Klare explains the 450 Scenario…

“It assumes that momentum develops for a global drive to keep greenhouse gas emissions below 450 parts per million — the maximum level at which it might be possible to prevent global average temperatures from rising above 2 degrees Celsius (and so cause catastrophic climate effects).  As a result, it foresees a peak in global oil output occurring around 2020 at about 91 million barrels per day, with a decline to 78 million barrels by 2035.”

The 450 Scenario would certainly have implications for Texas shale oil and gas production. For now, we are most certainly reaping the benefits of a major boost to energy production in the state of Texas. As we learned in the 80s however, that boom often does not last forever.  I suspect that the truth lies somewhere in the middle, between ‘miracle’ and reality. I do know that the oil and gas boom was most certainly aided by extremely loose monetary policy.  If global interest rates begin rising faster than expected, I would offer that the 450 Scenario as explained by the IEA could materialize faster than many imagine.


Peak Oil Is Dead or Long Live Peak Oil! Only time will tell.

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