Getting things done
According to data from the Federal Reserve, it looks like the industrial capacity (the ability to do work) of the oil and gas industry peaked in November 2015. The data for oil and gas industrial capacity stretches back to the early 1970’s.
This time it was different
What I find interesting in this data is that during the mid-1970’s to mid-1980’s, a period of elevated oil prices, the industrial capacity of the oil and gas industry did not noticeably change.
From the mid-1970’s to the mid-1980’s, industrial capacity essentially is flat. Then from the mid-1980’s to the mid-2000’s, industrial capacity declines. From the mid-2000’s to roughly November of 2015, it begins to sky rocket.
The source of this information comes from a FRED blog post in April 2015. Looking at the graph from that post, you can see that as industrial capacity rose, so too did capacity utilization (the percent of work being done with the industrial capacity shown above). This of course has led to an equally sharp rise in industrial production (the product of industrial capacity and capacity utilization).
My guess is that since this industrial capacity represents both the ability to drill wells and complete wells, that means the ability to workover a well is at multi-decadal highs. When I say workover, I mean refrack. And according to this Bloomberg article, refracking is the new fracking (same as the old fracking).
Because of this, I don’t see a whole lot of evidence to support a sharp decline in US oil production. Since most new oil production over the past 7 years came from fracking, and since the industrial capacity to refrack is very high, oil production may not fall off as rapidly as decline curves suggest (since decline curves typically account for primary production).