Can Shale Formations Enable U.S. to Become Oil Exporter?

March 2015, Vol. 242, No. 3

Chandra R. Munagavalasa

In recent years, the technological advances in recovering hydrocarbons trapped in tight formations, like shale, using unconventional drilling methods (horizontal drilling in conjunction with multi-stage hydraulic fracturing) have made U.S. oil production grow dramatically.

The growth in crude oil production from tight oil formations is about a fourfold increase from 2008 to 2012. In 2008, tight oil production accounted for 12% of total U.S. crude oil production, whereas in 2012, it accounted for 35% of total U.S. production. Tight oil productions, as of mid-2014, accounted for over 50% of U.S. crude oil production.

Shale Oil Vs. Tight Oil

Before we go further, a quick note on difference between shale oil and tight oil. Shale oil and tight oil are often used interchangeably. This is simply not true. Shale oil formations are only a subset of all the low permeability, tight oil formations. For this article, the terms tight oil and tight oil formations are much broader and accurate in this context.
Technically Recoverable Resources Vs. Economically Recoverable Resources

Although tight oil formations are abundant in the U.S. and many other countries, it is important to understand that, using current technology, only a part of these tight resources can be recovered. Those that can be recovered are known as technically recoverable resources. However, the technically recoverable resources which can be profitably produced under current market conditions are the only good candidates for drilling. These resources which can be profitably produced are known as economically recoverable resources. As the technology advances, the quantity of technically recoverable resources and economically recoverable resources will keep raising.

U.S. Tight Oil Production

U.S. crude oil production in April 2014 was 8.4 million barrels per day (bbl/d), with Permian, Eagle Ford and Bakken plays contributing nearly half of this total. The combined crude oil production volumes from Permian, Eagle Ford and Bakken plays reached 4 million bbl/d. Permian hale and Eagle Ford shale production topped 3 million bbl/d, more than doubling production in the past three years, and Bakken shale production is 1 million bbl/d, almost tripling its production over the same period (EIA’s Petroleum Supply Monthly Report).

In 2008, the Eagle Ford formation in South Texas tight oil production was virtually nothing. As of mid-2014, Eagle Ford Shale was producing over 1 million bbl/d.

Future Tight Oil Production Estimates

Since the recovering resources from tight oil formations is still at an early stage and future production is highly dependent on technology advances, availability of water resources, shale heterogeneity and several other factors, it is incorrect to simply extrapolate current production data to estimate future production data. Rather the estimated future production data will be a range (variation between upper and lower limits). For this reason, the federal Energy Information Administration (EIA) included the estimates for high oil and gas resource case and low oil and gas resource case.

As per EIA, in the high resource case, tight oil production is expected to reach 8.5 million bbl/d in 2035, with total U.S. crude oil production reaching 13.3 million bbl/d. The share of total U.S. product consumed represented by net crude oil and petroleum product imports in the high resource case is seen declining to 15% in 2020 and continuing to fall through 2040 as U.S. becomes a net exporter of crude oil at the end of the projection period.
As per the Advanced Resources International’s (ARI) 2013 proprietary shale resource data, the combined eight U.S shale plays – Bakken, Eagle Ford, Permian, Niobrara, Utica, Woodford, Marcellus, and Barnett – represent the overall estimate of 47.7 bbls of of technically recoverable shale oil. Bakken and Eagle Ford plays combined contribute to over half the total undeveloped U.S. shale oil resources.

Disadvantages Of Fracking

However, unconventional drilling comes with its own disadvantages – high cost of drilling, water contamination, greenhouse gas emissions and rapid production decline. Tight oil production is a highly water-intensive process. Chemicals are added to the water to facilitate the underground fracturing process. Fracturing fluid is primarily water with some chemical additives. Over half the injected water (contaminated with chemicals) is recovered, treated and released back.

Conclusion

The U.S. becoming an oil exporter by 2040 is largely dependent on several tight oil formation factors and technological advances in drilling. Most of the shale oil wells are only a few years old (relatively very recent when compared to conventional oil wells), so there is significant uncertainty as to the expected lifespan of these wells and their ultimate recovery. Shale’s geophysical characteristics vary significantly throughout a formation so the resource potential cannot be fully determined until extensive well production tests are conducted across the formation.

The tight oil development is still at an early stage and as we continue to make advances in drilling technologies that may allow production to occur in potentially high-yielding tight oil formations.

Author: Chandra R. Munagavalasaworks at SunGard Energy as a manager in software development in Houston. He holds a master’s degree in Industrial Management from IIT-Madras. He can be reached at chandra.munagavalasa@gmail.com or https://twitter.com/cmunagavalasa

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