COLUMN-Shale is dumb but booming. What if it gets smart?: Campbell

Fri Oct 26, 2012 10:54am EDT

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By Robert Campbell

NEW YORK Oct 26 (Reuters) - For all the hoopla surrounding the shale revolution in oil and gas markets, it is worth bearing in mind that the technology is still in its infancy.

It is hard not to be overwhelmed by the speed of the transformation hydraulic fracturing, or fracking, is bringing to global oil and gas markets.

In the United States, fracking has spawned talk of re-industrialization, buoyed by cheap natural gas that will give North America a competitive edge over the rest of the world.

And shale oil production may lift U.S. crude output so quickly that the country becomes once again the world's largest producer of liquids within a decade.

Yet current techniques are in their infancy according to industry experts. There is considerable room for improvement, both in the application of force to reservoirs as well as in the location of "sweet spots" where fracking yields the best results.

Today hydraulic fracturing relies heavily on brute force and operators still count on a great deal of luck when completing wells, although the best operators are gaining an edge through research and development.

However, the scale of the opportunity from improvement is staggering.

Analysts at Bernstein Research argued this week, based on data from services firm Schlumberger, that a remarkable 80 percent of production from average shale wells comes from only a fifth of the fracking stages, and a staggering 50 percent of all fracking stages contribute no output whatsoever.

That suggests a huge amount of money spent blasting water and sand into the ground is being wasted. And that in turn points to a major focus of research in the oil services industry: improving completions to cut costs.

Lower costs may well open up additional shale basins for exploitation where the economic case today is simply not compelling.


Already, modest reductions in costs and drilling time have allowed some operators in shale areas to substantially boost productivity.

Continental Resources, one of the top firms in North Dakota's Bakken Shale, trumpeted the role of technology and refined techniques in helping it achieve its 2014 production goal this year.

Higher production gives the firm more cash flow, which, in the custom of North American independent oil firms, it is plowing right back into exploration and development.

This is a major reason why shale-related output in North America has continued to outstrip projections. Lower costs lead to higher cash flows, which in turn lead to even more drilling than initially planned.

None of this is to say there are not significant challenges nor that some firms are hopelessly optimistic in their forecasts. But the current scope for technological improvement appears to remain considerable.

The prospect for technological advances in shale oil and gas extraction is one of the major reasons why some opponents of peak oil theories, like Nansen Saleri, a former Saudi Aramco executive who now heads upstream technology consultancy Quantum Reservoir Impact, are optimistic about the prospect for liquid fuels production.

"In a few years the techniques used today for fracking will be viewed as primitive," Saleri said in an interview this summer.

Finding the technologies that help streamline completion costs for hydraulically fractured wells as well as improving monitoring techniques to ensure wells and frack stages are better placed are the focus on intense research already.

Longer term, companies are already examining more radical improves, such as replacing pumped water with magnetic resonance techniques or other energy sources, in the fracking process.

Moreover as the technology matures and becomes less costly, it is likely to prove more portable than at present.

While North America seems uniquely suited to shale oil exploration at present due to deep capital markets and an oil and gas industry made up mostly of smaller, independent firms, lower cost technology may eventually erode this advantage.

That is the interesting question for global oil markets. If shale oil drilling techniques can be exported, will the balance of power shift? Or will the fact that major oil basins remain largely off-limits to private companies blunt the impact.

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Comments (1)
Shale_Doctor wrote:
Shale gas production has increased by ~15% per year since the early 1990s (data from IHS). Hydraulic fracturing has been around for >50 years, and horizontal drilling nearly as long. It is perhaps more appropriate to suggest that the technology has moved out of its infancy into its rambunctious, impulsive adolescence, and the country is still trying to decide whether to give it a driver’s license. In the sixty-five years from from the Titusville well in 1859 to the end of World War I, U. S. production climbed to about a million barrels a day, at about 9% per year, driven by enormous technological advancement. The current evolution of shale gas is simply the next stage in this development.
Jeremy Boak, Director
Center for Oil Shale Technology and Research
Colorado School of Mines
Golden CO
Viewpoints are mine, not positions of the Colorado School of Mines

Oct 26, 2012 1:37pm EDT  --  Report as abuse
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California state worker Albert Jagow (L) goes over his retirement options with Calpers Retirement Program Specialist JeanAnn Kirkpatrick at the Calpers regional office in Sacramento, California October 21, 2009. Calpers, the largest U.S. public pension fund, manages retirement benefits for more than 1.6 million people, with assets comparable in value to the entire GDP of Israel. The Calpers investment portfolio had a historic drop in value, going from a peak of $250 billion in the fall of 2007 to $167 billion in March 2009, a loss of about a third during that period. It is now around $200 billion. REUTERS/Max Whittaker   (UNITED STATES) - RTXPWOZ

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