By Robert Campbell
NEW YORK Oct 26 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
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
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
Already, modest reductions in costs and drilling time have
allowed some operators in shale areas to substantially boost
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
"In a few years the techniques used today for fracking will
be viewed as primitive," Saleri said in an interview this
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.