Texas Oil Counties
by David Archibald
8 January 2025
Peak oil was originally going to happen in 2005, but then the US tight oil boom came along and oil production growth was able to keep up with world demand growth. That boom started in North Dakota but most production is now from the Permian Basin in Texas. So Texas would be a good place to start looking for signs that world oil production is about to tip over into decline. One Texas county, Howard County, is a textbook example of what that decline will look like:
In the year to September, Howard County’s oil production has fallen 34% while ‘casinghead’ gas production has remained much the same. Casinghead gas is natural gas (methane) and LPGs that were in solution in the oil at the reservoir pressure.
As this figure shows, gas production (as a byproduct of oil production) in Howard County has remained flat for the last year while oil production has fallen 34%. The physics of that is explained in this graph of monthly oil production and the gas/oil ratio:
The vertical axis in this graph is the daily oil production in thousands of barrels and the horizontal axis is the gas/oil ratio for each month. The gas/oil ratio was bounded by the red lines while oil production was rising. Then Howard County ran out of drilling locations, so few new wells were drilled. Without new wells draining fresh rock, the average reservoir pressure started declining and more gas came out of solution in the oil.
At first the gas bubbles are tiny and get carried along in the oil. The tiny methane molecules, just one carbon atom with four hydrogen atoms attached, are much slipperier than the oil molecules, travel faster through the rock, and so are preferentially produced relative to the oil. As drainage of the oil reservoir continues, the reservoir pressure falls further below the bubble point (the pressure at which gas comes out of solution in the reservoir) and so the amount of gas produced, relative to oil, continues to increase. The process is self-reinforcing. But it is the pressure differential between the rock and the well bore that drives oil out of the rock. The faster the pressure declines, the more oil that is left behind, stranded in the rock. What is impressive about Howard County is the straight-line decline in gas/oil ratio. Peak oil production was in July 2023 in Howard County. The gas/oil ratio started its linear increase two months later.
A number of other Texas counties are showing an increase in gas/oil ratio. Nevertheless this graph of monthly production of the top 11 oil producing counties indicates that Howard County is the only one that has tipped over into steep decline:
And this graph shows how production by county has changed over the last two years:
It shows that only Martin County has had a significant increase; most have been flat.
ural gas as a byproduct of tight oil is being produced in parts of Texas now that the natural gas price can be negative. Bear in mind that in energy content terms, Howard County’s gas production equates to 165,000 barrels per day, which is two thirds of the current oil production rate.
Natural gas may be near worthless in central Texas but it sells at near the oil price, in terms of energy content, as LNG on the international market. You could capture the arbitrage by building an LNG plant on the coast of Texas. A number of operators plan to do that, doubling the current production rate:
These operators may not be fully aware of the potential for Texan gas production to plunge as reservoir pressure keeps dropping away.
There is an indication that Exxon is aware that tight oil production in Texas might start falling rapidly.
The graphic on the left is from Exxon’s 2023 Outlook Report. It forecast a steady decline in world oil production to 2050 but with total liquids rising. The graph on the right from Exxon’s 2024 Outlook Report shows production falling out of bed from right now, with investment in existing fields only providing a third of the oil that is needed. Exxon’s tight oil production in the Permian Basin is concentrated in Upton County, where it still has lots of room to drill super long laterals. Nevertheless, the far more pessimistic outlook in 2024 suggests that they now know more about the physics of tight oil production.
David Archibald is the author of The Anticancer Garden in Australia.