New technologies used to squeeze oil and natural gas from tight formations like shale do more than just convert barren areas to large producing reservoirs. Production is the sweet smell of success but is really only a part of the overall transformation. Because of this metamorphosis of turning barren areas into producing locations, the total infrastructure comes into play.
The major technologies responsible for these monumental changes in oil and gas production are horizontal drilling and hydraulic fracturing. In discussing major changes in hydrocarbon production, improvements in recovering oil from tar sands in Canada should be included. Major capital spending in the U.S. and Canada is helping develop these fossil fuel plays but billions are also funding the collection and delivery systems needed to maximize the returns from the in-the-ground investments.
This change in technology to produce hydrocarbons from low permeability formations began in the 1950s though records suggest experimentation started earlier. Work began in the mid-1970s to produce natural gas from eastern U.S. shallow shale deposits. The move to large-scale commercial recovery from shale deposits began in the 1980s with Mitchell Energy making a play in the Barnett Shale in north central Texas.
The success of the Barnett, producing almost 500 Tcf of natural gas per year by 2005, brought in more companies and saw the development of other major shale plays such as the Fayetteville in north Arkansas, Marcellus in the Pennsylvania, New York, West Virginia and Ohio areas, Eagle Ford in Texas and the Haynesville in northwest Louisiana and east Texas. Recently, the Haynesville surpassed the Barnett in daily product, 5.6 Bcf/d to 5.4 Bcf/d.
While these big fields are generally natural gas plays, the development of the Bakken Field in North Dakota, Montana and parts of Canada is mostly crude-driven. A relatively new shale field getting much attention, Niobrara in northeast Colorado, northwest Kansas, southeast Wyoming, and southwest Nebraska appears heavy in oil production.
The advent of shale plays, especially in natural gas, has made a major change in the gas industry and its effect permeates throughout the industry. Shale gas activities have increased U.S. shale gas production from 0.39 Tcf in 2000 to 4.87 Tcf in 2010, 23% of U.S. dry gas production, according to the Energy Information Administration (EIA).
The Annual Energy Outlook 2011 (AEO2011) says shale gas reserves were about 60.6 Tcf at year-end 2009 which is about 21% of total U.S. natural gas reserves. According to the EIA, shale gas is the largest contributor to increased natural gas production and by 2035 will account for 46% of U.S. natural gas production.
For the natural gas business, this is a major “game changer”. In the early years of this century, the big concern was where gas supply would come from. Hopes of increasing Canadian imports and the development of LNG terminals in various coastal areas of the country were considered for preventing a gas shortage in coming years. Natural gas was considered the fuel of the future or the bridge fuel until other “greener” fuels could be developed.
The additional gas availability from shale has completely changed the need for LNG and the fact that Canadian imports have steadily dropped is not significant. Though a number of LNG terminals were completed, some of those companies are considering converting receiving terminals into shipping ones and exporting gas from the U.S.
While the major effect of the new technology is in the natural gas industry, it has also impacted crude oil recovery. The growth of the importance of the Bakken field is a direct result of increased use of horizontal drilling and fracing methods used in gas recovery. Some of the newer predominately natural gas plays such as Eagle Ford and Haynesville still have significant oil recovery. Niobrara appears strong with crude. With crude oil prices surpassing $100/B and the possibility of rising even higher, crude production is getting major consideration.
According to the financial group Raymond James, crude oil production from the Williston Basin, part of the Bakken shale deposits, will account for roughly 15% of U.S. crude oil production in 2015 compared with 5% in 2010. The additional crude production coming from shale deposits is especially helpful in light of crude production lost from offshore locations in the U.S. In recent years, the U.S. Geological Survey estimated the Bakken area had 4.3 billion barrels of recoverable oil. More recent estimates are up to 11 billion barrels and some even higher.
This change in location for both oil and natural gas production plays a significant role in how the technology has changed the whole industry in addition to making more hydrocarbons available. The impact from the new technology opening up what were essentially barren productive areas to major supply centers is considerable and far-reaching. Big capital sums will be needed to bring these new supplies to the market efficiently and economically.
With natural gas, the changes arising from shale production affect the infrastructure in two major ways: collection systems and gas-processing facilities to remove hydrocarbon liquids are needed in the new production areas; secondly, with the large amounts of gas coming from the Marcellus play which is in the upper-eastern U.S., pipeline capacity bringing natural gas from the Southwest and Gulf of Mexico offshore is now in excess.
Much of the shale-produced gas carries high quantities of natural gas liquids. While production in the Southwest areas like the Barnett, Haynesville, and Eagle Ford have better opportunities of finding processing facilities and pipelines to carry the gas liquids to markets, gas from the Marcellus does not. Not only is the lack of processing facilities a challenge but the amount of pipeline capacity to carry liquid product to market poses a problem. Apparently one of the major pipelines with multi-pipeline service to the Northeast is taking one of its lines out of service for gas to transport liquids back to the Southwest.
The proximity of the gas production to the marketing area also poses problems for the long-haul pipelines serving the Northeast from the Gulf Coast and Southwest. The Northeast consumes approximately 18% of the nation’s gas supply. Until recently, with the exception of small amounts from Canada and Pennsylvania/New York area, all the gas came from the Southwest and Gulf of Mexico areas. With Marcellus now supplying about 1 Bcf/d and more as further development continues, this changes the pipeline needs and operations.
Even in areas where there is already a strong production position in the state, the new locations for the shale fields present problems for lack of field line and processing plants. The Eagle Ford field in Texas is a good example of new gathering and processing facilities needed in a prolific natural gas-producing state. Big players in filling these needs are the intrastate pipelines. In Texas, Energy Transfer, Kinder Morgan and Enterprise are strong.
On the crude oil side, infrastructure changes involve getting oil from the Bakken to major refineries for production and marketing. According to Raymond James, Bakken production is 421,000 bpd and current capacity – or crude oil takeaway is 452,500 bpd which includes a couple of pipelines, a refinery nearby and use of railcars. Plans for additional capacity to handle the increased flow includes using the proposed Keystone XL pipeline to carry Canadian oil from the tar sands fields to Gulf Coast refineries.
This is the other technology-based improvement affecting the oil infrastructure. Large deposits of tar sands in Canada are mined for crude oil production. Increased efficiency and the high economic return for crude products have made tar sand production more important and have led to technical improvements.
While the first phase of the Keystone pipeline has been completed, the second phase, Keystone XL, is hampered by various environmental groups fearful of problems of pumping the tar sand-derived crude. Part of Bakken production would likely make use of the pipeline when it is completed.
The considerable effect resulting from the new production technology is evident. The increased efficiencies and additional recoveries in shale fields continue to reach far out into every part of the industry. It is easy to see after a step-by-step analysis what changes have resulted from the new technology and the desire to increase energy production.