Accelerating oil and gas field decline

The International Energy Agency (IEA) reports that global oil and gas field decline is accelerating.

Now, I’m not advocating for increased extraction of fossil fuels – my concern is that a declining fossil fuel base may interfere with an orderly transition to renewables.

When talking about oil and oil fields, there is conventional oil, where you have large easy to access oil fields where the oil flow rate from the fields is high and fast, eg in Saudi Arabia. Then you have unconventional oil, eg shale oil that is not as easy to access and the flow rate is lower.

A key fact is that the discovery of conventional oil peaked globally in 1964 – every year since we are finding less. As we developed those discoveries and burned through them, exactly 40 years later in 2004 global production started ‘flatlining’ or hitting a ‘plateau’, for the first time.  Subsequently, the oil price started to increase and eventually spiked to US$147 a barrel in 2008 – this very much contributed to the Global Financial Crunch.

The US then developed shale oil as a substitute, eventually hitting a record 12-13 million barrels a day. but, as shale is unconventional oil, it takes more energy to get it and the EROEI ratio (Energy Return on Energy Invested) is lower – you spend more energy to get a bit less energy back. Before long, you’re “running harder to stay in the same spot”, and the usual economic tools to jump-start the economy don’t quite work as well as they did in the past.  Inflation becomes a bit more stubborn, as the increasing oil price seeps into everyday items.  After decades of conventional oil at US$30/barrel, it’s now US$50-60 or more (in January 2025 it was US$77), so we are in an unprecedented situation.

Drilling shale (fracking) is a slower oil extraction process – its not like a big gushing oil well in Saudi Arabia – you have to crack shale rock deep underground and then hold the cracks open to let the oil ooze out.. then pump down oil dissolving solvents to flush the oil out. Huge amounts of high pressure equipment are needed. This uses huge amounts of water, proprietary chemical mixes and proppant (special proprietary sand/ceramic mixes used to hold the rock cracks open).. all happening under induced high pressure. The resulting waste water, mixed with chemicals and proppant becomes a real disposal issue.

Unlike Saudi Arabian wells with decades of production,  US shale wells only last about 3 years each .. before you have to drill another … and then another.. and another.

There were only 5 large shale fields in the US.. .. the largest is the Permian field. The other four our have already peaked and gone into decline. Hundreds of thousands of shale wells have been drilled in these fields.. and suddenly the US was riding a surge in oil production after being in decline with conventional oil since 1971.

But the laws of physics still hold… we effectively just substituted by moving the deck chairs around and then they changed the legal definition of ‘conventional oil’ to include shale oil (!).  Recently shale oil executives have been signalling they cannot keep the rates of production up .  The longer you keep the rates up, the higher the risk of a faster decline past the peak… and you only see the peak ‘in the rearview mirror’ after the event. International oil companies sounded the alarm last year about needing to keep discovery and drilling rates up – they know what is coming faster if they don’t drill faster.

So a lot more of the oil drilling effort goes into offsetting the decline rate in aging fields and systems have to run harder and harder to stay at the same rate, let alone accelerate growth.

Peaking.. and declining EROEI happens with any fossil fuel – including coal (Eg the UK peaked in coal production in 1913 – two years ahead of forecast), uranium (yes that is a fossil fuel as well), and gas.

Leaders such as Trump know that their power base depends on accelerating corporate profits .. so where can they drill next? The Arctic National Wildlife Refuge (ANWR) may very well be in the cross hairs once people release that his comments of vastly growing Americas shale oil production turn out to be difficult if not impossible.

Anyway – the Saudis and Trump are not happy with the IEA making this announcement (which is actually what the IEA is supposed to do – it was formed to warn the world of energy risks after the 1970s oil shocks).

Oh and one other thing courtesy of geologist Dr Colin Campbell – “You cannot have cheap credit, without a cheap source of energy” – he was referring to the financial system being geared to issuing cheaper debt with lower oil prices and energy input costs.  As we have seen in the past the global economy cannot handle oil at over US$100 per barrel .. its starts to break the gears.

Economists have long argued that we can always substitute in the market if a resource gets more scarce.. my answer is yes if there is a substitute available … and then only to a point, as the energy returned on the energy you spend inevitably goes downhill when the substitutes’ decline rate starts to accelerate faster than anticipated.  The quality of a substitute is usually not as good as an original resource. We tend to ‘use the good stuff first’!   Unless you come up with a completely new high quality/energy rich resource.

So here is the IEA’s announcement..

“Nearly 90% of annual upstream oil and gas investment since 2019 has been dedicated to offsetting production declines rather than to meet demand growth.” — IEA

Ngaa mihi,

Simon