A new revolution is transforming the American oil industry and output is rising again after decades of decline, as new technology and higher oil prices help to unlock a huge and largely-untapped petroleum resource for exploitation. Following hard on the heels of the gas sector’s ‘shale gale’, operators are now turning their attention to liquid fractions, known as shale oil.
Shale oil or tight oil is not extracted directly from the oil shale source rock, although such direct extraction does form the basis of small-scale oil shale industries in Estonia, China and Brazil. The term actually refers to liquid crude oil that is trapped within rocks of low porosity and permeability after being released when the source shale was heated to temperatures within the oil generation window in the past. As with shale gas, it is the combination of horizontal drilling and hydraulic fracturing that is beginning to unlock the potential of shale oil.
The production of shale oil in the US has soared in recent years, rising from just 12,000 bpd in 2006 to more than 280,000 bpd last year, and it is expected to average around 475,000 bpd this year. If all the hype is to be believed, shale oil could supply up to 3 mbpd of US oil production by 2020, more than most oil-producing countries in the world today. However, not everybody is convinced that shale oil has a bright future. Shale oil is expensive oil and extensive infrastructure is required to collect small volumes produced from a large number of widely-dispersed wells. Furthermore, shale wells are costly to drill and require a continuous injection of capital, energy and water to keep oil flowing. Well output declines rapidly after initial production, so new wells must be drilled continuously if production is to be sustained, let alone grow. There are also significant concerns about the environmental impact of hydraulic fracturing on scarce water resources, which may constrain future developments.
As long as oil prices do not fall sharply in the future – which currently looks unlikely – tight oil production from US shale plays will continue to grow strongly over the next decade. So far, claims that the shale oil boom cannot last have proved to be unfounded, as improvements in drilling techniques have continued to deliver higher recovery rates and high oil prices have encouraged growing investment. However, the industry will need to be careful to avoid environmental damage that might lead to restrictions on future developments.