US Fracking Boom Sends Peak Oil Believers into the Denial Zone

US states such as Texas, North Dakota, Ohio, Pennsylvania, Louisiana, and more are taking advantage of a huge economic boost coming from the US fracking boom.

One of the biggest secondary economic effects of this fracking boom is the growth in US manufacturing directly related to the relatively low US gas & oil costs.

"Low natural gas prices provide an additional competitive advantage to US producers in many industries, including chemicals, steel, copper, aluminum, cement, and other energy-intensive industries," FitchRatings states. _Platts

For their part, true believers in peak oil doom have descended into full fledged denial mode. Many of the doomers are bravely declaring that US tight oil & gas are mere "flashes in the pan," and will play out entirely "any day now."

The reality is saying something much different, with US natural gas prices falling roughly 30% between 2011 and 2012. Prices of crucial commodities do not fall that drastically in the face of an obvious and impending supply shortfall.

But resource scarcity doomers have never been known for their skill at reading price signals, or other important indicators. In their world, it is all about the circular jerkular belief reinforcement, boosted by the echo acoustics of the choral chambres.

...natural gas spot price fell 31% last year. This drop in natural gas price may be a major reason why our economy has been performing better than many expected. The EIA reported that average wholesale prices for natural gas fell significantly throughout the United States in 2012 compared to 2011. The average wholesale price for natural gas at Henry Hub in Erath, Louisiana, a key benchmark location for pricing throughout the United States, fell from an average $4.02 per million British thermal units (MMBtu) in 2011, to $2.77 per MMBtu in 2012. This was the lowest average annual price at Henry Hub since 1999. Of course today the markets focus will be on the reports. Buckle up!

The American Petroleum Institute reported whopping builds in products and not as much as I expected on crude. The API reported crude stocks up by 2.4 MLN BBLS The surge came in gasoline were we saw a 7.9 Million barrels and distillate stocks 5.9 Million barrels. In Cushing Oklahoma the oil delivery point stocks rose by 332,000 barrels. Refinery runs dropped weekly crude imports up 1.2 million barrels. Heating oil stocks UP 537,000 Barrels to27.16 million barrels per day. _Phil Flynn

Remember: Everything you think you know, just ain't so. While that aphorism may contain a bit of hyperbole, if you keep it in mind you are not as likely to fall into the deep black holes of denial where doomers tend to dwell.

North America Riding High on Shale; Now It's the World's Turn

The US and Canada are experiencing a significant economic, energy, and environmental bonanza, due to the shale boom. Now it is the rest of the world's turn to learn from North American experience.

Countries embarking on shale gas development worldwide stand to benefit from lessons learned in US shale gas operations and water management, according to a recent report from Accenture. Operators, meanwhile, could cut both costs and water use in unconventional plays worldwide by collaborating with regulators and sharing infrastructure with other operators in the same basin, said the Accenture report, “Water and shale gas development: leveraging the US experience in new shale developments.”

Accenture analyzed how countries with proved shale gas reserves, specifically Argentina, China, Poland, and South Africa, can look toward experience gained in US water regulation and management to develop shale gas economically and sustainably.

“Successful oil and gas operators will be those that understand the local water challenges, leverage the learning from the US plays, and develop the right water sourcing, use-reuse, treatment, disposal, and supply chain strategy,” said Melissa Stark, managing director and Clean Energy lead for Accenture's energy industry group.

“One key opportunity for new geographies where infrastructure is a challenge is to explore sharing the development of infrastructure, water treatment facilities, and the development of the local supply market.” _O&G Journal _ via _ GWPF

Key Findings of Accenture report & link to full report PDF download

The tight gas & oil revolution is likely to help a score of nations around the world to boost their energy and industrial infrastructures -- at least for a matter of decades.

China, Argentina, Russia, Australia, and parts of Eastern Europe are likely to be the earliest beneficiaries to join North America in experiencing the bonanza. Africa, central Asia, and large areas of coastal regions and continental shelf may also display significant new tight oil & gas.

The evolution of oil production in both conventional and unconventional deposits will reflect the overall economics of global oil demand and supply.

The tight oil & gas boom was the result of small private concerns pursuing unpopular theories of production. Big oil and governments had almost nothing to do with this huge boom coming about.

The neo-Malthusian doomer psychology of imminent catastrophic energy depletion has influenced the thinking of policymakers in both government and industry for several decades now -- to the detriment of rational planning and development.

The rumour that doomers are partial to eating lead-based paint chips should perhaps be investigated more closely.

A Graphic Look at the Global Shale Revolution

Hindu

The real impact stems from its effect on the oil market. Shale gas offers the means to vastly increase the supply of fossil fuels for transportation, which will cut into the rising demand for oil — fuelled in part by China’s economic growth — that has dominated energy policymaking over the last decade.

...The major geopolitical impact of shale extraction technology lies less in the fact that America will be more energy self-sufficient than in the consequent displacement of world oil markets by a sharp reduction in U.S. imports. This is likely to be reinforced by the development of shale oil resources in China, Argentina, Ukraine and other places, which will put additional pressure on global oil prices.

The second factor is the potential to use natural gas for transportation. Some analysts suggest that this will only be a realistic prospect for fleet and long-haul road transportation. But they are overlooking the immense advantage that natural gas has as a transportation fuel in America and Europe, which have both developed a natural gas infrastructure in urban areas that takes piped natural gas into homes, offices and supermarkets. Once gas is cheap and widely available, it is possible to consider dealing with the “last mile” problem of providing home refuelling kits so consumers can fill up natural-gas powered cars in their own garages.

The incentives to develop shale oil and natural gas are very great. But so far, the United States has only experienced the first stage of low natural-gas prices and the reimportation of energy intensive industries such as chemicals and steel because of low gas prices. The next stage of the shale revolution’s impact is going to be felt as major stimulus gets under way from lower oil prices. More broadly, the shale revolution will grant the United States a greater range of options in dealing with foreign states.

For the Europeans, the shale revolution is also largely positive. A greater variety of gas supplies from liquefied natural gas originally destined for the United States has been dumped in European markets; by 2020, shale gas in the form of liquefied natural gas is likely to begin arriving in Europe in significant quantities, and there is also the prospect of some domestic shale gas becoming available. Europe will also benefit from the second stage of the shale revolution as oil prices come under pressure. _Hindu

Another Global Perspective

Every continent has shale oil & gas deposits. Even Russia has rich shale and tight rock petroleum -- but it will need North American technology to develop the resource. The same thing is true for China and much of the rest of the world. North America developed the technology and continues to refine it at a rapid rate.

Basic Fracking, Far Below the Water Table

While faux environmentalists whine about tectonic risk and the risk of polluting the water table and aquifers, the reality of the technology is leaving these green lefty-Luddites in the dust. The greatest environmental risk regarding shale oil & gas fracking is the risk of not taking advantage of the clean energy resource.

Russian Economy At Risk if Oil Prices Decline

The US shale boom has already hit Russia's Gazprom hard. Now, the rising boom in US oil production, along with other sources of new global crude production, are casting a shadow across Russia's grand plans for the future.

The Russian government requires an oil price of above $125 in order to achieve fiscal breakeven. That means that the Russian government is being forced to either postpone spending, or dip into cash reserves, as long as oil prices stay well below that level.

But now there is a very real risk that oil prices will dip from around $110 a barrel to below $90 a barrel. That would present a serious challenge -- perhaps a catastrophe -- to Putin's ambitious and free-spending government.

“If the [oil] price is $80 per barrel, the budget deficit will widen to 3 percent of GDP," Kudrin said.

"The figure of 3 percent is a critical boundary, beyond which we are likely to lose our country’s investment-grade rating,” he said.

Russia’s budget for 2013-2015 will run a deficit even with oil priced at $100 per barrel, he said. _Russia's Oil Risk

Another startling bit of news out of Russia, is the big push to shale oil & gas production in Siberia. After all the rude talk from Putin, Gazprom, and other Russian authorities -- telling the world how bad shale drilling and fracking is, and how pathetically irrelevant US shale production was -- now Russia's state oil company is taking the plunge into shale big-time:

ExxonMobil agreed to spend $300 million on advanced horizontal drilling and fracking at Russian state oil company Rosneft's Siberian fields in a project designed to help Russia realise its vast tight oil potential.

The two companies will form a joint venture, split 51-49 between Rosneft and Exxon, to carry out the pilot programme and launch commercial production if they find sufficient oil in the Bazhenov shale and the nearby Achimov formations of Western Siberia.

The Bazhenov is the world's largest source rock. However, Russia, still rich in conventional reserves, has yet to follow in the footsteps of the United States in deploying advanced horizontal drilling and hydraulic fracturing technologies, which is known as fracking, on a commercial scale.

With the core fields of Western Siberia in decline, however, the government of Russia, the world's largest crude producer, has offered tax breaks for companies who drill into "tight" formations where hydrocarbons are trapped in non-porous rock. _Siberian Shale

There is always the chance that US President Obama will let his buddy Putin off the hook, of course. Obama's EPA is chomping at the bit to shut down the US shale boom. Obama would make a lot of friends within the global faux environmental complex if he were to shut down the nascent US energy and economic boom. And such a move would make Putin a very happy man.

But Putin cannot count on that -- given Obama's ambivalent stance toward his own presidential legacy.

And so Russia sits in a type of limbo, trying to maintain world-class oil production utilising Soviet-era infrastructure -- in the face of a demographic collapse of ethnic Russians, a continuing capital flight overseas, and an enervating brain drain and "womb drain" to freer lands abroad.

Contrasting Views on Future of Shale Revolution

Analysts at BOA / Merrill Lynch predict a continuing rise in North American shale oil production, with a steady downward pressure on oil prices. That comes from the BOA/ML 2013 Energy Outlook.

The CEO of engineering & construction giant Fluor Corp. says that the continuing bonanza of shale gas in North America will fuel a huge resurgence in manufacturing and chemicals.

In Mexico, a potentially significant rise in shale production awaits political decisions by the new president.

Meanwhile in Russia, doubts about how long the bear can keep producing its oil at current levels. If Russia learns to exploit its own giant shale resources, it should be able to extend its energy winning streak by a matter of decades.

Meanwhile, large numbers of doomers are predicting that the North American shale bonanza will come to an abrupt end any day now.

Economist James Hamilton is predicting an end to current rising trends in production of shale oils in North America within 10 years.

Hamilton's prediction is incomplete, however, since he fails to explicitly state what he sees happening for the next several years after shale production tops, and levels off.

Peak oilers are famous for predicting production peaks which look like an actual mountain peak -- picture the Matterhorn, for example. But even the poster boy peak of oil production -- continental US production -- stops looking like a sharp peak if you step back in time and look at the big picture, still being painted.

Looking at North America as a whole, Al Fin shale oil analysts picture a 10 year ramp up, followed by a roughly 10 year undulating plateau, followed by a gradual decline in North American shale production. The decline will occur for many reasons, including rising prices of production -- and decreased demand for crude in the face of an explosion of cheaper substitutes beginning in the mid 2020s.

Much depends upon whether US President Obama allows the anti-energy ideologues in his administration to place an overburden of expensive and restrictive regulation on top of the costs of production of shale oil & gas. Will he let slip the dogs of his war against energy? Or will he relent, and attempt to nurture a stronger US economy in his second and final term?

In the US, Natural Gas is King; Everywhere Else It's Coal

The US is set to become the world's most prolific producer of natural gas within the next 2 years, and the largest producer of oil by 2017 -- according to the International Energy Agency.

The US is already benefiting from its rapid growth in affordable natural gas supplies. And famed Harvard historian and author, Niall Ferguson, says that as long as President Obama avoids killing the golden gas goose, the US is in for a big economic boost ahead.

Already the US has begun to move away from the use of coal to generate electricity -- helping the country to "reduce its CO2 emissions" at a time when virtually every other region of the world is increasing coal use and CO2 output.

How fast is coal use increasing outside of North America?

More than 1,000 new coal plants are planned worldwide.

...after a slight dip during the economic troubles of 2008, the global coal trade has rebounded and rose by 13 percent in 2010.

...Most new coal-fired plants will be built by Chinese or Indian companies....

...However, Germany, the UK and France remain in the top 10 importers, and coal use rose 4 percent in 2011 in Europe as prices fell and plants due to close under clean air rules use up their allotted running hours. Indonesia and Australia are the largest coal exporters, with the latter planning to triple its mine and port capacity to almost 1 billion tonnes a year.

Many developing countries, such as Guatemala, Cambodia, Morocco, Namibia, Senegal and Sri Lanka, and Uzbekistan, are planning new coal-fired plants even when they produce almost no coal at all.... _1000 New Coal Plants

There are many ways of mining, shipping, processing, and burning coal cleanly and responsibly. The US coal industry would already be using many of these clean coal methods, if not for the Obama EPA's blatant and counter-productive energy starvationism and faux environmental anti-economic biases.

Nevertheless, the rest of the world is building a huge demand for coal from the US, Australia, and wherever else coal can be found in plentiful quantities.

Eventually, with the aid of high temperature gas cooled nuclear reactors (HTGRs) and other important breakthroughs, the use of coal for conversion to chemicals, fuels, fertilisers, and other necessaries, will attract no more comment from responsible regulators and environmentalists than "a good day to you sir, madam."

A Shifting Geopolitics Comes With New Discoveries

This article was first published on Al Fin

Every modern industrial nation requires affordable energy to run its industry, commerce, and to keep its citizens comfortable within their homes. For the last few decades, energy consumers in the western world have lived under the threat of having their energy supplies cut off, by belligerent suppliers in OPEC, Russia, and other bullying dictatorships.

Preliminary Map of Global Shale Gas -- Much More to Come

With the coming of new energy technologies that are unlocking vast supplies of previously inaccessible oil & gas, Russia's and OPEC's stranglehold over more civilised and cultured parts of the world appears to be weakening.

The Gulf is not the only area where the established oil powers are in danger of crumbling. The biggest single loser of all will most likely be Vladimir Putin's Russia, a regime largely dependent on high energy prices and a captive market with no real alternative plan.

..."Russia has just seen its aspiration market disappear. The US is already a bigger gas producer than Russia," Redman said. _Guardian

As US energy production continues to shift away from OPEC toward domestic producers, US industries can once again plan their production schedules based upon a more reliable energy supply. So that as US and Canadian industries re-build based upon more reliable and cheaper supplies of fuels and energy, other countries that depend upon more expensive and less reliable forms of energy -- such as Germany -- will increasingly lose out to North America.

Thanks to new applications of drilling technology to unlock natural gas trapped in shale rock, the nation’s output has surged and energy experts almost unanimously forecast that prices will remain low or moderate for a generation.

...“It has become clear to me that the responsible development of our nation’s extensive recoverable oil and natural gas resources has the potential to be the once-in-a-lifetime economic engine that coal was nearly 200 years ago,” U.S. Steel Chairman John Surma said in a speech this year.

Industrial companies are betting that the surge in the domestic production of natural gas is much more than a blip. Cheap and plentiful supplies of natural gas are flooding the U.S. market, and prices in the United States are as low as a quarter of what they are in Europe or Asia.

“For the foreseeable future, thanks to the recovery of vast U.S. underground gas deposits of shale, natural gas is likely to remain 50 to 70 percent cheaper in the U.S. than in Europe and Japan,” said a recent report by the Boston Consulting Group. _WaPo

Whether these new technologies ultimately create a new "economic renaissance" depends upon whether government agencies are able to keep their corrupt and ideology-stained paws off the private enterprise boom.

A sudden surplus of previously rare high quality energy is likely to have unforeseen effects on several parts of the world.

"In the past, when OPEC was cutting production by half a million barrels, everyone was jumping up and down. Today no one cares as we have a real surplus of oil," said the head of Azeri state oil firm Socar's trading arm, Valery Golovushkin.

"There is already plenty of oil in the Mediterranean. We at Socar are relying on long-term supply contract to Asia. But quite honestly we don't feel any particular joy from taking it to Asia and wasting money on freight," said Golovushkin, a veteran of the Soviet oil export industry. _Reuters

The North American shale boom caught a lot of global oil market suppliers flat-footed.

As North American shale oil & gas continues to rise in production -- and as other shale producers in Europe, Asia, South America, Australia, and elsewhere come on line -- the problems for OPEC and Russia will only be compounded further.

It is likely that a number of regional wars will be fought over oil resources, as individual oil dictatorships find that their own production is not able to pay for their ambitions and their need to pacify their people. Many of these wars will be supported and encouraged by Russia -- in an attempt to ramp up the risk premium for oil, and overall oil & gas prices.

The consequences of these rapid shifts in new oil & gas supplies have only begun to shake out. Watch carefully, and be very cautious.

Brian Wang has followed the ramp up of North American hydrocarbon production very closely

How Long Will the North American Shale Boom Last?

The North American shale boom has shaken the global energy industry. From Russia to the Middle East to South America and Oceania, the unexpected burst of production of oil & gas from North American tight rocks has had an explosive effect. And the NA shale boom continues to grow and expand. The question remains, "For how long?"

Normally, the question of the extent of any given set of petroleum reserves would be left to geologists and engineers. But these days it seems that everyone from investors to pundits to politicians to doomers to faux environmentalists to climate catastrophists to corrupt journolists, are all weighing in on the question -- each in his own manner of personal bias and set of weighted assumptions.

Among the naysayers, we have geological consultants such as Arthur Berman, and investment oriented authors such as Bill Powers. Powers depends heavily on Berman's analysis, and predicts that the North American shale boom will collapse within 10 years.

Of course, analysts and consultants have been predicting the collapse of the North American petroleum enterprise -- "any time now" -- for the past 150 years, so one must take these dour predictions for what they are worth.

OPEC, Russia, and other interested parties have been active in spreading propaganda about the "safety" of fracking and the long term lack of viability of shale resources -- all the while preparing to develop their own shale resources in a semi-secretive manner. Take what they say about the issue with a tonne of salt.

Other pessimistic looks at the North American shale oil & gas phenomenon appear to be largely journolistic smokescreens for coming energy starvationist regulations from the US Obama administration. In other words, the public drone minds must be prepared for what their overlords tell them is best.

Still other predictions of the collapse of shale come from hard core peak oil and faux environmental / carbon hysteria sites. In those cases, the predictions are little more than a quasi-authoritative form of "wishful thinking."

There are also any number of cornucopian predictions, such as the EIA's prediction that the US will surpass Saudi Arabia as the world's biggest energy producer. ... More.

Al Fin analysts typically occupy the high middle ground. The consensus at Al Fin is that for the next ten years North American tight oil & gas is likely to continue to expand -- as long as Obama keeps his hands off. If Obama's green energy starvationists are let off their leashes to do their worst, all bets are off.

Still assuming the greedy, corrupt politicians keep their hands off: the second decade is seen as a plateau, where price and production achieve equilibrium. The third decade is likely to see a decline in North American shale production due as much to falling demand as to a more rapid depletion in a growing number of wells.

Source rock production can be seen as scraping the bottom of the barrel. Or it can be seen as what it is -- an opportunistic and innovative way of turning waste into wealth. And there is much more out there that has not yet been found -- both onshore and offshore. Think three dimensionally -- it will help you to break out of a flatland mindset.

As readers of Al Fin Energy understand, methane, ethane, and other short chain hydrocarbons are constantly being produced both in marine sediments and in the deep lithosphere. Understanding where hydrocarbons originate biologically and abiologically -- and why they are so abundant on other planets and within interstellar clouds -- may help us to find vaster quantities of the stuff. In a way it will be like tripping over our own feet -- much as the current shale boom has been.

Elections Have Consequences: The Future of US Energy

President Obama's powerful interlocking network of campaign support organisations has succeeded in making sure that the US President can sit in the White House for another four years. This feat opens the door for a great deal of new regulation which has been held back until after the US elections.

President Obama has spent the past year punting on a slew of job-killing EPA regulations that will destroy millions of American jobs and cause energy prices to skyrocket even more,” Senator Inhofe said. “From greenhouse gas regulations to water guidance to the tightening of the ozone standard, the Obama-EPA has delayed the implementation of rule after rule because they don’t want all those pink slips and price spikes to hit until after the election. But President Obama’s former climate czar Carol Browner was very clear about what’s in store for next year: she told several green groups not to worry because President Obama has a big green ‘to-do’ list for 2013—so they’ll get what they want. As a result, hard working Americans will lose their jobs and be subjected to skyrocketing energy prices

This report also importantly puts the spotlight back on an Obama-EPA that has, as the Washington Post said, earned a ‘reputation for abuse.’ It serves as a stark reminder that President Obama has presided over a green team administration that works every day to ‘crucify’ oil and gas companies and make sure that ‘if you want to build a coal plant you got a big problem.’ _Independent.org

Not just the EPA, but the Department of the Interior, the Bureau of Land Management, and a number of other US federal agencies, have prepared regulations which will work to strangulate US energy industries:

... the proposed BLM rule would drive oil and gas developers off federal and tribal lands. Complying with the rules is too complicated and costly. Producers can realize a much faster and much better return on their capital investment by developing oil and gas reserves on adjoining private lands.

Federal and tribal lands hold large reserves of oil and natural gas. At a time when the United States desperately needs to move toward, not away from, energy independence, it makes no sense to let bureaucratic meddling effectively place these valuable domestic reserves out of reach. _Killing US Shale

Mr. Obama is certainly the president of the US, and probably will be for a number of years to come. He has the right to put his personal stamp on government policy.

In his first term, Mr. Obama largely kept his hands off the shale energy boom. That was fortunate for him, because without the shale boom, the US economy would have been in much worse condition. He "confined" his executive meddling on energy to a stonewalling of offshore oil, a slow regulatory death of coal, and what is essentially a freeze on nuclear.

But now, elections have consequences, and Mr. Obama has no reason to fear the full implementation of his agenda of energy starvation. The greatest uncertainty remaining is: How is it to be done, and when? These things must be done delicately __attributed to the Wicked Witch of the West.

China Threatens to Hit Russia Where it Hurts Most

China is threatening to hit Russia in the pocketbook, where it will hurt the dying bear the most.

China is to subsidize the development of shale gas in an effort to increase the share of unconventional energy sources in its economy. This comes as a part of a broader ‘shale revolution’.

...China is now considered to be home to the world’s biggest shale reserves in excess of 26trln cubic metres. To compare, the United States has an estimated 24trln cubic metres of underexplored recoverable resources of shale gas, according to Valery Nesterov, energy analyst at Sberbank Investment Research.

China may take third place in the world gas arena in another 25 year, as extraction of gas is forecast to skyrocket 5 fold during the period, the International Energy Agency said in May 2012. The US is set to top the ranking by 2035, with Russia dropping to second spot.

...A major move by the world’s economic powerhouses such as the US and Japan to develop shale reserves has worried the Russian Government. In late October President Vladimir Putin recognized the threat posed by alternative fuel sources to Russia’s economy, which is reliant on traditional energy sources. He urged Gazprom to revise its export policy, warning that a market reshape, where shale fuel and liquefied natural gas are increasing their weight, could hit Russia’s export revenues really hard. _Russia Today

China is also working hard to develop its domestic coal bed methane

Russia is being pressed to lower the cost of its natural gas, as a result of the increasingly vast resources of shale gas being developed from North America to Europe to China.

No wonder Russia's president and his crony oligarchs are hoping for US President Obama to win today's US election. Obama would preside over a continued weakening of the US, making Russia seem globally stronger in comparison. Obama's EPA and other agencies are already working to ramp up regulations against shale gas fracking, and to restrict other forms of energy such as coal, offshore oil, and nuclear power.

If a nation such as Russia can get its enemy to cut its own throat, what could be sweeter? As for China, Russia cannot expect such luck. But at least Russia understands the nature of China's corrupt kleptocracy, it being very close in nature to Russia's own.

China will be a tough customer for Russia to negotiate gas prices with, particularly as China gets closer to developing its own significant natural gas resource. And every dollar China saves in dealing with Russia, is a dollar that Russian cronies cannot use to build a new mansion, or stuff in a Swiss bank account. That's gotta hurt.

Without Obama, US Energy & Economic Prospects Improve

US President Obama has big plans for using the US Environmental Protection Agency (EPA) to shut down a large number of US energy projects and enterprises. The EPA's destructive plans are already in the works, and will be enacted over the next few months even if Obama is defeated. Fortunately, a new Romney / Ryan administration would soon be on the job to shut down those shenanigans.

With a new US administration will come a new and brighter day for US energy -- with healthy add-on effects to the US economy at large. Here is a look at the big advantage that the US will have over Europe and East Asia -- if Obama is defeated:

Some fifty new projects have been unveiled in the US petrochemical industry. A $30bn investment blitz in underway in ethylene and fertilizer plants alone.

A study by the American Chemistry Council said the shale gas bonanza has reversed the fortunes of the chemical, plastics, aluminium, iron and steel, rubber, coated metals, and glass industries. "This was virtually unthinkable five years ago," said the body’s president, Cal Dooley.

...The revival of the chemical industry is a spin-off from the greater drama of America’s energy rebound, though a very big one. As many readers will have seen, the US energy department said last week that the country will produce 11.4m barrels a day (b/d) of oil, biofuels, and liquid hydrocarbons next year, almost as much as Saudi Arabia.

...America looks poised to become the world’s biggest producer in 2014. It will approach the Holy Grail of "energy independence" before the end of the decade. This is largely due to hydraulic fracturing - blasting rock with water jets - to extract shale gas and oil, though solar power and onshore wind are playing their part.

Europe is going in the opposite direction, drifting towards energy suicide. So is Japan as it shuts down its nuclear industry after the Fukushima disaster. China is more hard-headed, as it needs to be. The country is adding 20m cars a year. Chinese oil imports are rising by an extra 0.5m b/d annually.

As of last week, US natural gas prices were roughly one third of European levels. The German chemicals group BASF said it had become impossible to match the US on production costs.

Asia is facing an even greater handicap as Japan soaks up supply of liquefied natural gas (LNG) to offset the closure of its nuclear power stations. Prices on the Pacific rim are near $15 per million British thermal units (BTU), compared to $3 in the US. _Ambrose Evans-Pritchard

H/T Anti-Green

If Obama is re-elected, all of those positive plans could easily come screeching to a halt, as the EPA moves to regulate the shale bonanza out of existence -- as well as a large number of other energy enterprises.

The green movement is composed largely of very impractical ideologues. They have achieved ascendancy in several governments of advanced nations -- including the US, Germany, Australia, and several others -- to a greater or lesser extent. Greens reject reliable forms of energy such as nuclear and hydrocarbons, in favour of the intermittent unreliables -- big wind and big solar.

If Europe does not find a way out of the green miasma of the energy starvationist lefty-Luddite greens, it will find itself growing demographically old in an environment of increasing energy scarcity. It is bad enough to grow old. But to grow old in the dark and cold -- that is a sad legacy for a once great continent.

US EPA Standing By to Shut Down US Energy Boom

This article was previously published on Al Fin

Today we bring you some good news, and some bad news, about the US shale revolution -- which has been the saving grace in the US economy over the last few years.

First, the good news:

Image Source

The U.S. shale boom... has transformed the U.S. energy sector. Shale gas alone is now 10 percent of the overall energy supply in the country.

A surge in unconventional oil and gas extraction nationwide will trigger more than $5.1 trillion in capital spending and support a total of 1.7 million jobs this year, a number that will swell to almost 3 million by 2020, a leading consultant said in a study released Tuesday. _IBT

Now, the bad news:

...the Obama administration is working to increase federal control over hydraulic fracturing in the United States. In April of this year, President Barack Obama issued an Executive Order on hydraulic fracturing that created a working group of 13 executive branch departments to coordinate policies between departments, share research and information on hydraulic fracturing, and ensure that the federal government spoke with one voice on the subject. This was in response to actions being undertaken by the Environmental Protection Agency to release new air pollution regulations for shale gas drillers and by the Department of Interior to release new hydraulic fracturing regulations for drilling on public lands.

In April, the Environmental Protection Agency (EPA) required drillers to capture emissions of certain air pollutants (volatile organic compounds and methane) from new wells. Drillers can burn the pollutants at the wellhead until the start of 2015, when EPA expects that enough equipment will be available to capture the pollution.[ii] The original proposed rule issued by EPA in 2011... was estimated to reduce oil production from hydraulically fractured wells by up to 37 percent and reduce federal royalties by $8.5 billion and state severance taxes by up to $2.3 billion due to reduced drilling and production.[iii]

While other countries are using hydraulic fracturing to increase production and revenues, the United States – which pioneered the technological breakthroughs that led to the practice — is looking to lower oil and gas production and increase costs by increasing regulations on the technology. To date, hydraulic fracturing has helped to reduce our dependence on imported oil and natural gas, lower natural gas and electric utility bills, and increase employment in states where shale oil and natural gas are produced. It looks like hydraulic fracturing should be a win-win relationship for domestic production and consumption of oil and natural gas, but the Obama Administration has proposed changes that threaten that through increased regulations, despite the fact that the states have successfully regulated that industry for half a century or more. _IER

Obama conveniently (and duplicitously) claims credit for the shale revolution, while his administration works behind the scenes to clamp down on the technologies which made the revolution possible.

Oil Job Finder

Plentiful oil & gas opens the door to a wide range of other industries to grow -- and to return to the US from overseas. No wonder Obama wants to stop it.

Rising US Shale Production and Impact on Employment

Growth in production of shale oil and shale gas is already having an impact on US employment, as seen in the graph below. If not for the economic growth in the US oil & gas sector, US unemployment would be well above 10% and the dismal state of the US economy would guarantee Obama's fate as a one-term president.

MJ Perry via Energy Tomorrow

But shale happened, and everything has changed. And the change has just begun.

Separate studies released in the last week by two respected Canadian firms, one of Western Canadian shale gas resources and another of the U.S. shale gas base have moved the tally of North American potential to a new plateau, beyond the trillions (Tcf) to 3.3 quadrillion cubic feet (Qcf), according to reports by Natural Gas Intelligence (NGI).

Calgary-based Sproule Associates, the oldest and still one of the biggest Canadian petroleum engineering and geology consulting firms, last week announced its survey of just five of 50 shale basins that have been identified in Western Canada produced a resource base estimate of between 809 and 2,222 Tcf or 2.2 Qcf.

A new analysis by ITG Investment Research, also based in Calgary, entitled “No More Guessing: Hardcore IV,” shows the U.S. Lower 48 onshore has 1.1 Qcfe of recoverable resources across 450,000 drilling locations. While the total includes data from 37 U.S. shale plays, ITG estimates recoverable resources of 900 Tcfe in just 10 overlapping plays, compared to 426 Tcfe for those same plays as estimated in a recent study by the U.S. Energy Information Agency. _TheGWPF

That is likely to be an underestimate, since much of Canada and the US -- including Alaska -- was not considered. More to come.

Speaking of "more," the EIA graphic below illustrates the near term projected growth of shale oil production in Texas and North Dakota alone. Ten years ago, the EIA could not envision this type of rapid production growth, and yet suddenly, there it is.

NextBigFuture

All of this growth in North American oil & gas is occurring despite the Obama administration's intentional policy of energy starvation, as manifested by offshore drilling bans and moratoriums, closing off of federal lands to energy production, and business killing regulations out the as...trozone.

Peak oil doomers have predicted the early demise of shale production, but the reality is proving otherwise.

Rune Likvern [in The Oil Drum], has a bearish view of Bakken production. He believes Bakken production is close to hitting a plateau.

Mr. Likvern's conclusions are incorrect. Well costs are improving in the Bakken, and will continue to do so through 2012.

...the Red Queen article stated an oil price of $80-$90/barrel was needed for Bakken wells to make commercial sense. Using an $80/barrel oil price we see that the majority of middle Bakken wells produce enough revenue to pay back costs in the first year of production. The author also made the mistake of not including natural gas, as he stated the potential contribution is marginal at $3/Mcf. It is obvious the author is not familiar with Bakken production as wells in NE McKenzie County can produce up to 11% NGLs. Using a $40/barrel price, in the first year revenues from NGLs are over $730,000.... _Seeking Alpha

As innovation continues to pile on top of innovation, shale operators are learning squeeze more out of every well.

Innovative minds are at work developing new tools and techniques to improve production. These range from new ways to perform massive multistage stimulation jobs to small embellishments in mature processes....

The recent Society of Petroleum Engineers Annual Technical Conference and Exhibition in Florence, Italy, offered several examples of easy-to-implement, economical techniques to optimize production. In mature reservoirs producing with high water cuts, it is difficult to identify from where production is coming. Many wells in these depleted fields are produced using electrical submersible pumps (ESPs); therefore, running production logging tools to evaluate production can be costly and problematic. A novel idea was presented where a fiber-optic distributed temperature monitor was run below the ESP. The temperature profile log could not identify the zones producing oil but could easily identify those zones producing water from nearby injector wells. By systematically turning injectors on and off, it was easy to see which injectors were contributing to which zones. On a subsequent workover, the water zones were squeezed off or isolated using a casing patch, significantly increasing the oil recovery fraction from the producing well...

New fracturing techniques have been pioneered to maximize well performance on a field or reservoir basis. Using the “zipper frac” technique, adjacent wells can be fraced stage-by-stage sequentially. By holding pressure on one well stage while the adjacent well stage is fraced, the resulting stress field prevents the fracs from intersecting. Going back and forth between the wells at each successive stage is cost-effective and helps to optimize production from each well. _EPMag

As production methods grow more efficient and profitable, more jobs are added to the overall economy.

Shale and hydraulic fracturing are driving job creation in our industry but also in associated sectors. Ohio and other states are seeing a rise in manufacturing due to shale production, which one study says could create 1 million new jobs by 2025. Steve Sexton writes on the Freakonomics blog that shale gas offers the U.S. advantages all around... _EnergyTomorrow

While the Obama administration has been lavishing billions of dollars on politically connected big wind and big solar developers and investors -- many of which went promptly belly-up -- the real action in energy has been in areas far from Washington.

Up until now, the Obama vision has led to countless failures, bankruptcies and layoffs — bringing calls for more subsidies that are taken from hardworking, productive people and businesses and given by unaccountable bureaucrats to failed technology companies run by crony-corporatists, who then contribute substantial portions of this compulsory taxpayer largesse to the re-election campaigns of cooperative politicians. _Source

The Obama EPA has been biding its time, waiting until after the election before taking steps to regulate the profits out of the shale motherlode. Even if Obama's energy starvationist regime is defeated in the US November elections, the EPA will have time to enact regulations which pack a ruinous punch against North American energy production -- including shale.

We can only hope that the green bureaucratic ideologues ensconced within Obama's EPA will re-consider their plan of action.

Global Shale Resources Shaking Up Energy Scene

Previously published on Al Fin blog


The Earth has barely been explored in terms of its vast energy potential. New sources of energy are cropping up in unlikely places, on an almost daily basis.

Shale and other unconventional gas resources have been identified in France, Germany, Hungary, Italy, Netherlands, Poland, Romania, Spain, Sweden, Switzerland and the UK. Land and license acquisition, and even some early stage exploration, is already underway or foreseen in a number of these countries. _New Shale Frontier

South Africa, for example, is now moving ahead to develop its significant native shale resource.

News from Japan's new shale discoveries
Notice that the map of shale resources above is incomplete, with large areas "greyed out". The map below reveals a broader view of the presently known global shale resource, but even that map is woefully incomplete.

JOHN Howard has warned that the development of the shale gas industry in the US could shake up the global energy scene and have a dramatic impact on China and Australia.

... "I think the potential for gas and oil from shale to transform the world energy scene, including the energy scene in China, is quite significant," Mr Howard said. _Global Shale Shakeup via Australia

Australia is yet another energy-rich country that has just begun to discover its potentially huge shale resource.

We should not forget China, which is thought to possess a gargantuan resource of shale gas. While China is unlikely to ramp up shale production rapidly, it is already using the threat of its shale gas to negotiate much tougher terms with Russian gas company Gazprom.

On Tuesday, Chinese sources told Platts in Astana that price remains the key issue in the negotiations, echoing earlier statements by the Russian side.

Russia wants a price close to that paid by its European customers, while China is insisting on a lower price, similar to what it pays to Middle Eastern LNG suppliers, according to the Chinese sources. _Platts

Left unsaid in most press reports is the profound impact of North American shale oil & gas development on the energy hopes and dreams of other nations possessing large reserves of shale hydrocarbons.

The Natural Gas Revolution: Creator and Destroyer

The natural gas revolution is currently spreading out from North America to creatively impact countries from China to the Ukraine to Poland to Israel. These are countries that are likely to benefit from the development of their newly discovered energy riches.

In North America itself -- where the bonanza began -- innovative technologists are finding new ways to substitute cheap natural gas in place of expensive diesel:

1. The biggest, baddest engines in the world, long chained to diesel fuel, are on the verge of a mass transformation because of cheap natural gas - with oil field equipment holding particular potential, executives said Thursday during a summit of heavy fuel users and producers.
   
   "Here's the first reason that large engines are going gas," said JoelFeucht, director of gas engine strategy for Caterpillar's energy and power systems division. "Large engines burn the most fuel. I could try to make it harder, but that's pretty straightforward."
   
   Oil companies alone use nearly 1.2 billion gallons of diesel fuel a year just for pressure pumping equipment that supports hydraulic fracturing, said David Hill, vice president of natural gas economy operations for Encana Corp. Adding the diesel used to power drilling rigs themselves, the total is more than 2.8 billion gallons annually, said Pierce Dehring, a project engineer for Baker Hughes.
   
   A single fracturing job can involve 7,800 gallons of diesel, at a cost of as much as $5 a gallon at some oil field operations, said Pat Osachuk, an engineer for Encana.
   
   The savings of natural gas, which now is around $2 cheaper for the energy-equivalent of one gallon of diesel, inspired a wave of interest at the High Horsepower Summit 2012, a conference dedicated to natural gas use in high-horsepower applications. Hundreds of company representatives packed into conference rooms at the Royal Sonesta Hotel in Houston to hear about developing engine technology and various uses of natural gas in large engines. ___Chron




2. ...natural gas fuelled locomotives are testing on the 300-mile run north of Edmonton to Fort McMurray, rail gateway to the oil sands region of northern Alberta. Fueling and maintenance take place in Edmonton. ___Heraldonline

All types of engines are being converted to run on cheaper natural gas, from automobiles to long range diesel trucks to heavy construction equipment. The savings will eventually be transformed into profits, jobs, and new expansions and ventures.

Most politicians of the world have forgotten where economic prosperity comes from: The Ultimate Resource. Without the ultimate resource, human societies cannot prosper.

For example, countries that suppress the ultimate resource are likely to suffer from the new natural gas bonanza:

Gazprom, the natural gas company controlled by the Russian state, is in crisis. It is likely to fall victim to the shale gas revolution that is under way across the US. The shale gas revolution will probably have telling consequences for Russian state capitalism and President Vladimir Putin’s power.

This crisis erupted suddenly. With its surge in shale gas production the US has become self-sufficient in natural gas. It has overtaken Russia as the biggest natural gas producer. Crucially, US natural gas is cheap. Domestic US natural gas prices are only a quarter of Gazprom’s oil-linked eastern European prices. Such large price differentials cannot possibly last for long.

...Curiously, in 2011 Gazprom was formally the most profitable company in the world with purported net profits of $46bn, but these profits were hardly real. Investment analysts opined that no less than $40bn disappeared through inefficiency or corruption. Gazprom’s cash flow was barely positive.

In their 2010 booklet Putin and Gazprom , Boris Nemtsov and Vladimir Milov, the opposition politicians, detailed how assets were being stripped from Gazprom through large kickbacks on pipeline construction and cheap sales of financial and media subsidiaries to Putin cronies. Since shareholders have realised that only their dividend yield is material, Gazprom’s market value has plummeted by two-thirds from $365bn in May 2008 to $120bn today.

For years, many analysts have said that Russia will reform only when the oil price falls because Gazprom seems to be the Kremlin’s main slush fund, which is now being drastically reduced. The Kremlin will have little choice but to forsake its mega-projects. It has already abandoned the mastodon Arctic Shtokman field. The next steps should be to back out of South Stream, the superfluous and exceedingly expensive pipeline project, as well as the planned gigantic sky-rise headquarters in St Petersburg. But that will hardly suffice. This dysfunctional former Soviet gas ministry will have to be cut up into real companies, which need to be privatised. _Anders Aslund in FP via TheGWPF

Energy and Its Sworn Enemies in Government

Brian Westenhaus presents an interesting look at natural gas prices around the world, and wonders why the US government is dragging its feet on LNG exports to the gas-hungry nations of Asia and Europe.

For one answer to that question, one needs to look at the policies and behind-the-scenes machinations of the Obama administration and the US Democratic Party controlled Senate.

One must assume that the Obama DOE and the US Senate have good reasons for obstructing policies that would increase prosperity for companies in the US private energy sector, but rational reasons for Obama's actions do not readily jump into the conscious mind.

New Energy and Fuel

North America and much of the rest of the world are poised to begin producing significant new hydrocarbon resources -- beginning somewhere around the year 2020 -- assuming that today's governments (such as Obama's) move away from current policies of "energy starvation":

By 2020 or so...a flood of new oil and gas production will begin to wash over the world. Rather than general economic mayhem, there will be an economic shift: some rich countries will weaken, and hitherto marginal nations will take center stage.

Under this new scenario, oil prices could average $80 a barrel, compared with $110 for Brent benchmark crude today. Gulf monarchs untouched by the Arab Spring could face unrest, as shrinking oil revenues limit their scope for giving handouts. Mozambique—yes, Mozambique—could become one of the most important petro-states on the planet. China could more congenially assume a top rung among global powers. And the US could untether itself from some tyrants.

This vision of energy abundance stems from a series of new finds. Already, a natural gas revolution is under way in the US, where drillers armed with the new technology of hydraulic fracturing, or “fracking”, are pumping enormous volumes of natural gas from dense shale rock. America, on the verge of a gas deficit a few years ago, now has a century-long supply of the fuel. And fracking has now spread to shale oilfields. In states like North Dakota and Texas, it has brought an astonishing boost to US petroleum production.

But shale is only the beginning. There has been a flurry of discoveries and new production elsewhere—in Canada’s oil sands, the deepwater Gulf of Mexico, the Equatorial Margin of eastern South America, in offshore Brazil, deepwater Angola, west and east Africa, the eastern Mediterranean waters offshore from Cyprus and Israel, and more. Some of these new reserves may not start producing oil and gas until the 2020s, but when they do, they could spark the types of geopolitical disruption described above. _Quartz

Obama is closing hundreds of coal powered electricity generating plants in the US -- creating the potential for dangerous instabilities in the 3-part national power grid structure. Obama has devastated the US offshore oil & gas industry, has stonewalled pipeline projects that would boost energy production from new US shale oil and Canadian oil sands projects, and has blocked a large number of proposed energy projects on federal lands. While talking in favour of shale gas out of one side of his mouth, his EPA is moving to make shale oil & gas production much more expensive.

Across the board, the US Obama administration has blocked viable energy projects from hydrocarbons and nuclear sources -- while wasting many billions of stimulus dollars on big wind and big solar crony companies that are either already bankrupt or soon to become so.

The long term effects of such energy starvation policies will result in widespread economic slowdowns and unnecessary human suffering. Is that what the Obama administration wants to happen? No one knows, or if they do, they are not telling.

Coal to Chemicals via MTO: Methanol to Olefins

Several leading industrial nations are beginning to substitute cheaper coal and and natural gas -- in place of more expensive crude oil -- in the production of high value "petrochemical" products, including valuable polymer feedstocks.

UOP LLC, a Honeywell company, announced today that China s Jiutai Energy (Zhungeer) Co. Ltd. has licensed Honeywell s UOP methanol-to-olefins (MTO) technology to convert methanol from coal into key plastics building blocks. Honeywell s UOP/Hydro MTO process converts methanol from gasified coal or natural gas to produce high yields of ethylene and propylene, building block materials used in the production of films, packaging, plastics and other petrochemicals. The breakthrough technology allows producers in countries such as China to tap abundant coal resources, rather than more expensive petroleum, to produce petrochemicals. _Equities.com

I. Overview of MTO Process

The Methanol to Hydrocarbons process was discovered at Mobil Oil in 1977. This process is used to convert methanol to products such as olefins and gasoline. The methanol can first be obtained from coal or natural gas. In the Methanol to Olefins (MTO) process, the methanol is then converted to olefins such as ethylene and propylene. The olefins can be reacted to produce polyolefins, which are used to make many plastic materials. An MTO process flow diagram advertised by Honeywell is shown below.

__UC Berkeley

Substituting cheaper and more abundant coal and natural gas, in place of crude oil, will make crude oil supplies go much further. Such substitution will also place a de facto ceiling, of sorts, on intermediate to long-term oil prices.

The real energy prospect is the world now faces a problem of newly found, or newly developed, and ever increasing energy resources and supplies - not a crisis of energy scarcity.

The turnaround has been lightning rapid, in at most 5 to 7 years, and has wrongfooted many analysts, most politicians, and the world's "historic major" energy corporations, as well as the green movement and "ecology politicians" who still claim energy supplies are rapidly declining and we face an inexorable energy crisis - very like their residual attempts to peddle global warming apocalypse. In fact the prospect of us facing energy penury, shortage and scarcity has been turned upside down. _The Energy Crisis that Wasn't

Besides displacing crude oil from the petrochemicals business, coal and natural gas will be displacing more and more crude oil from the petrofuels business. Gas to liquids (GTL) and coal to liquids (CTL) are gradually becoming more economically profitable, at the same time that crude oil prices have been creeping upwards.

As biomass to liquids (BTL), kerogens to liquids (KTL), and gas hydrates to liquids, become ever more viable, conventional crude oil will find itself competing with massive hydrocarbon resources amounting to many trillions of barrels of oil equivalent.

Yet another story about Russia's Gazprom being forced to confront the global reality of tight gas resources.

Russia's national oil & gas companies had been growing fat and lazy, not to mention corrupt. It looks as if Russia will be forced to ask for outside help to develop its huge tight oil & gas resources -- before it gets priced out of European and some Asian markets.

Betting Against Shale Gas is a Dummy Play

We know that Russia's Gazprom and President Putin would like for the rest of the world to forget all about fracking for shale gas -- despite the fact that Russia is beginning to develop what is perhaps the most massive tight oil & gas play on the planet. France and Germany seem to be prohibiting fracking for oil & gas -- for now -- and Exxon has walked away from a chance to frack for shale gas in Poland.

But other big companies are moving into Poland and Eastern Europe almost faster than Exxon can remove itself.

Oil and gas investment is flooding into the region in amounts not seen since the fall of the Berlin Wall. Anglo-Dutch giant Royal Dutch Shell RDSB.LN -0.32% PLC, France's Total SA TOT -1.01% and ConocoPhillips COP +0.15% of the U.S. have acquired exploration rights in Poland, where current estimated reserves equal 35 to 65 years of the country's demand for natural gas, according to the Polish Geological Institute.

Ukraine is heating up as well. TNK-BP Holding, a joint venture of BP BP.LN +0.29% PLC and a group of Russian investors, plans to invest $1.8 billion in shale projects at a half-dozen sites around Ukraine. In June, Italy's Eni SpA E -1.37% paid an undisclosed amount for a stake in Ukraine-based LLC Westgasinvest, which holds about 1,500 square miles of land with potential shale-gas reserves. And Chevron Corp., CVX -0.09% which has acquired more than 6,250 square miles of potential shale gas leases in Central Europe since 2009, says it is working with Ukraine to negotiate a production-sharing agreement. _WSJ

It is rather clear that what happened with Exxon is that Russia offered it a piece of the huge Bazhenov fracking play if Exxon would abandon its Eastern European fracking -- at least the part of it that lies outside of Russia.

Gazprom is suffering some reverses due to mismanagement and a corrupt involvement with the Russian government. It will be more difficult for top Russian government functionaries to siphon profits from Gazprom as profit levels drop in response to more competitive gas prices offered to Europe from other suppliers. Gazprom's (and Putin's) hellfire sermons against fracking are being exposed as self-serving ways of trying to cover up a worsening balance sheet.

Germany is beginning to pay a price for its rejection of shale gas and nuclear power. German industry is falling behind in global competitiveness and is being forced to move more and more plants overseas as a result of its government's horrendous Energiewende policy.

South Africa first banned fracking, but is now rapidly back-stepping from its earlier stance. As noted before, Russia is now adopting fracking for its huge tight oil & gas resources after first condemning it. More and more nations are certain to follow suit.

North America was first out of the gate adopting newer, more efficient methods of getting at tight petroleum resources. But the technology is spreading rapidly, and is likely to significantly impact global energy markets for at least 2 to 3 decades.

By the end of that time, several new advanced nuclear fission reactors -- safer, cleaner, cheaper, scalable, factory - produced to order -- are likely to be coming onto the market internationally. These new sources of high quality industrial heat & power are likely to radically change the energy landscape, and push oil, gas, and coal to the margins -- more suited as chemical feedstocks for the future.

As for big wind and big solar? They were never a good match for modern industrial societies, and should probably be limited to third world villages and remote island locations.

Fracking Suddenly Becoming More Economically Affordable

Schlumberger's Hiway Flow Channel Hydraulic Fracturing increases production by 20%, reduces water use by up to 60%, and reduces proppant (sand, fibre, chemicals etc) by 40%. All of this adds up to significantly lower expense per unit of production, making tight oil & gas production more economical.

Schlumberger LTD FAQs

[Besides Hiway,] Schlumberger and other innovators are also using sophisticated seismic techniques, combined with data from pilot wells, to reduce the number of fracks along a drill pipe and target only the "sweet spots" in the field.

Together, these new techniques and smart rugged sensor kit from National Instruments can also reduce the production pace variability that plagues the unconventional industry.

And according to one senior executive at one of the world's major oil companies, these cost-saving innovations may only be the beginning.



Oilfield services company Schlumberger has devised a new fracking system called "Hiway" which promises to slash the costs of tight gas production.

So how does Hiway work?

Hodenfield, who grew up in North Dakota where the Bakken field is at the centre of the U.S. shale gas boom, brightens at the opportunity to explain a process that adds a proprietary fiber to the traditional sand and fluid mix, and uses a "pulsing" system to send globs of the fiber in between each injection.

The dissolvable fiber globs create more effective channels for the gas to flow, and the pulsing rhythm can be made to match the geological structure of the rock, also pushing the sand deeper into the cracks and resulting in more effective openings that conduct gas better for every liter pumped in.

Hiway is not the only new technique on the scene as oil companies look to use fracking to reach more lucrative oil as well as gas.

Schlumberger and other innovators are also using sophisticated seismic techniques, combined with data from pilot wells, to reduce the number of fracks along a drill pipe and target only the "sweet spots" in the field.

Together, these new techniques and smart rugged sensor kit from National Instruments can also reduce the production pace variability that plagues the unconventional industry.

And according to one senior executive at one of the world's major oil companies, these cost-saving innovations may only be the beginning.

"It's mostly brute force up to now," he said. "When the oil majors get serious about investment in fracking the cost could fall by half."

U.S. fracking expenditure is not pocket change. Hodenfield cites data from analysts Spears & Associates saying the total onshore oil and gas industry drilling and completions spend, boosted mainly by unconventional work, has soared to $150 billion a year from $20 billion in 2002.

This eclipses the offshore spend, which was at a similar $20 billion level 10 years ago and has only recently recovered to that level after the Macondo oil spill disaster of 2010.

Hodenfield says smarter technology is also the key to reducing the environmental impact of fracking in shale rock, tight gas, coal bed methane and other unconventional gas fields. _Reuters

Tight oil & gas is not an infinite source of hydrocarbon energy, but it is a truly massive resource --- particularly on a global scale. While vast conventional oil & gas resources remain to be discovered, the same is doubly true for unconventional hydrocarbons. This is because up until now, exploration has not focused upon the unconventional resources. Due to an increasing ability to produce this resource more economically, more exploration will take place looking specifically for unconventional deposits.

h/t GWPF

Why China Needs North American Expertise to Develop Its Vast Shale Gas Resource

China possesses one of the larges shale gas reserves in the world. But China lacks the native expertise to develop its tight gas resource. China needs outside help.

But China is more in the habit of stealing technology than of working cooperatively with outsiders. Will China's desperate need to develop its natural gas resource force it to learn to work well with others?

Getting shale out of the ground has proved challenging as China’s shale deposits also have more clay than the brittle marine shale of the US, making fracking more time consuming and less productive. This is compounded by lack of infrastructure that makes the shale revolution possible in the US, including an extensive gas pipeline network and oil workers trained in fracking techniques. Issues that might limit this potential include a lack of water resources around China’s western shale reserves and the deep nature of some basins, coupled with hilly terrain. These factors combined with Chinese companies’ relative inexperience are likely to make such projects more costly than their US counterparts... China's main motive for exploiting shale-gas reserves would be for power generation, and perhaps even for gassifying its transportation system. But the resulting natural-gas liquids could also feed big new petrochemical capacities.

China’s recently announced development plans for shale gas production may be overly optimistic, considering the geological complexities of China’s shale formations, according to natural resources expert GlobalData. The report suggests that the geology of China’s shale gas reserves, as well as the country’s water shortages, insufficient pipeline infrastructure, government control over natural gas prices, and environmental issues will all challenge China’s ambitions, despite the country’s extensive plans to support and encourage industry growth. China’s five-year shale gas development plan for 2011-2015, released on March 16, 2012, boasts the target of 6.5 billion cubic meters (bcm) of annual shale gas production by 2015. The plan states that a two-year appraisal of China’s shale gas reserves, an increase in China’s expertise on shale gas technologies, and the development of a regulatory framework will also be accomplished. However, the industry remains cynical of the ambitious production targets.

The Chinese government promises to support the research and development (R&D) of shale gas technology, and will also accelerate the process permitting investors to develop shale gas reserves. A contract management system will also be put into place to control and monitor industry activity. China will also consider the introduction of subsidies for shale gas projects, which will assist companies with obtaining a waiver or reduction of their license fees, priority for land use permits, and exemption of custom duties for the import of shale gas equipment and related technologies which is unavailable in China. Essentially, the government aims to provide an adequate policy environment for huge shale gas development. The construction of natural gas pipelines will be encouraged at shale gas reserves that are close to existing gas pipeline networks, and the construction of small-scale Liquefied Natural Gas (LNG) or Compressed Natural Gas (CNG) facilities will be encouraged at shale gas reserves remote from existing pipelines. However, the development of the domestic pipeline network will take time and money, and this is expected to slow the pace of shale gas development. China aims to achieve a commercial level of shale gas production which has so far only been achieved in North America.

However, Chinese shale gas companies cannot currently use the high performing drilling technologies used to extract shale gas in the US, as further research is needed to adapt the US’s drilling methods to China’s very different geology.... Lastly, the Chinese government is expected to encourage international exchanges and co-operation, yet state control over natural gas prices will keep natural gas prices artificially low, not reflecting the realities of the natural gas market. Shale gas development companies will therefore have little incentive for development, as profitability will be minimal. With the development of shale gas requiring huge capital investment, the industry remains uninspired as government policies, especially on pricing, threaten to remove any financial attraction from the industry.

If China’s plans are successfully implemented, shale gas will change the pattern [of] China’s energy consumption. _China's Race to Develop Its Shale Resource

In fact, China's main motive for developing its vast shale gas resource will be to negotiate better gas prices with suppliers, including Russia's Gazprom. At least in the beginning. Later, China will want to use methane and natural gas liquids as fuels and as feedstocks for chemical processes -- to substitute for oil based products.

China needs to reduce its dependency on oil in any way it can. This will mean eventually using nuclear process heat to convert natural gas -- and coal -- to liquid fuels, chemicals, fertilisers, polymers, and other essential products.

But China desperately needs outside help to overcome the many obstacles it is facing. For this, China will need to discover a new way of honestly working with international commercial entities. Achieving such honest cooperation may be the most difficult obstacle of all for China to overcome.