September 2014, Vol. 241, No. 9

From the Burner Tip

Crude, Natural Gas from Shale Means More Than Ample Supply

Call it a revolution – an energy revolution! The new supplies of natural gas and crude oil that are coming from shale deposits have a greater meaning than just ample supply for an energy-hungry world. Its overall impact will change transportation and distribution infrastructures, it can change a country’s overall energy balance and in all likelihood, it will change the economics of oil and natural gas!

Hydrocarbon production from shale reservoirs is not really new. Some of the earliest oil productions were shale plays. What is new – thanks to some drilling and production techniques like horizontal drilling and “hydraulic fracturing” – the technique to get the oil and gas to flow – is that production from shale reservoirs is profitable and economically sound.

While various programs to enhance shale development were pushed by industry groups and the government, the breakthrough came in 1997 when Mitchell Energy, now part of Devon Energy, helped develop the Barnett Field, a shale play in North Texas. Growth in both natural gas and crude oil production has been good and expectations remain high.

The federal Energy Information Administration (EIA) projected in 2013 that U.S. natural gas production will rise from 23 Tcf in 2011 to 33.1 Tcf in 2040, a 44% increase. Almost all of this domestic increase comes from shale gas production which is seen rising from 7.8 Tcf in 2011 to 18.7 Tcf in 2040.

Like natural gas, U.S. crude production has seen a significant boost from shale resources. So much that U.S. crude production is projected to surpass Saudi Arabia by 2017 as the world’s largest oil producer.

A decade ago the U.S. was building terminals to import liquefied natural gas (LNG) to bolster its domestic supply but today, it is building terminals to export natural gas because of the excess supply coming from shale-derived production. The increased natural gas supply has many benefits. One of the biggest as well as the most obvious is the change in energy economics. Oil has been relatively stable even in light of the turmoil in the Middle East and natural gas prices, which were rising a few years ago, have dropped and are much more stable.

Crude oil prices have stayed in the $100/B (Cushing prices) range for the last three to four years. Natural gas prices (Henry Hub) which peaked in 2007 at close to $9/MMBtu have been in the $3-4 range for the last four years.

Along with the economic potential from the increased supply, there are many geo-political considerations. The potential of crude oil being available in previously non-producing countries will alter the importance of many of the big oil-producing countries today. Natural gas production from shale deposits will have some of the same advantages. No question why the high interest in shale source oil and gas around the globe.

What is shale-derived oil and gas? How does it differ from conventional production of crude oil and natural gas supplies? Shale petroleum products refer to crude oil and natural gas that are trapped within shale formations. Shales are fine-grained sedimentary rocks that were formed by the accumulation of sediments at the earth’s surface and within bodies of water of many different types of exact species like sandstone, limestone, shale, etc. During their formation, they accumulated large amounts of organic matter and are now rich sources of petroleum products.

Unlike conventional sources of hydrocarbons where the products after forming migrated to a central pool or geologically capped area, these products could not move because of the tightness of the shale formation. The resource was there but it could not be economically removed. This is where horizontal drilling and hydraulic fracturing to break the formation changed the economics and made recovery feasible.

These major technical breakthroughs occurred a little over 30 years ago. In recent years, as new fields were developed and more wells were drilled and production increased, new efficiencies in developing shale resources have helped to bring more shale-derived oil and gas to market. This was mostly a U.S.-derived technology that is being studied around the world in an effort to increase oil and gas supplies.

The beauty is that in the U.S. and around the world, shale deposits with economically available oil and gas supplies are located in various places where no previous oil and gas production was done. In the U.S., besides some good shale formation in areas already known for oil and gas production like the Southwest and Midwest, there are big shale reservoirs in the Mid-Atlantic areas like New York, Pennsylvania, Ohio, etc. and in the Mid-North Central area like the Dakotas northward up into Canada and southward down.

The big plays in the U.S. until now and where production has occurred are the following:

Bakken – North Dakota
Eagle Ford – Texas
Marcellus – Pennsylvania and West Virginia
Haynesville – Louisiana and Texas
Woodford – Oklahoma
Fayetteville – Arkansas
Barnett – Texas
Antrim – Missouri, Indiana, and Ohio

Outside the U.S., shale development is at an early stage but there are already strong indications of where there is potential for large sources of oil and natural gas. Global shale oil resource estimates range from 330 billion to 1,465 billion barrels. Investments are being made to determine the extent of the resource in countries like China, Russia, and Argentina,

Currently, the countries with the five largest estimates of technically recoverable shale gas resources are (in Tcf) from the report prepared for the U.S. EIA conference in 2013:

United States: 1,161
China: 1,115
Argentina: 802
Algeria: 707
Canada: 573

From the same report, the top five countries with the largest shale oil resources are (in billions of barrels)

Russia: 75
United States: 48
China: 32
Argentina: 27
Libya: 26

The potential for shale-based oil and gas production is almost beyond the imagination. This is only the beginning and like all technical advancements, continued use and experience will make the use more efficient and economical.

The beauty of this recovery is that essentially with the exception of the method of drilling and freeing the product from its environment, conventional oil and gas recovery methods are used.

This current effort has no effect on the large shale potential for crude oil in the western U.S. in Utah, Colorado and other state basins where the recovery would be through mining or in situ operations. The potential quantity is large but other sources of supply are more practical and economically available.

Even though the potential looks promising for continued shale development, there are some environmental issues that could interfere with the development. Fracturing the wells requires large amounts of water and in some parts of the country where water is short, this could affect other needs for the water.

Since the water used contains chemicals, there is concern on the safety of the operation. The fear is contaminating groundwater or releasing the chemicals to the environment. Lastly, there is concern of what to do with the recovered wastewater. One possibility is to re-inject the water into the ground in safe areas. This too, can present some problems. But with proper operational management and oversight, all of these problems can be worked out satisfactorily and safely.