Posts tagged “shale oil”
The OPEC Free Fall
There is a popular narrative going around that I want to address in today’s article. Last November, after several months of plummeting crude oil prices, the Organization of the Petroleum Exporting Countries (OPEC) met to discuss the oil production quotas for each country in the months ahead. Many expected OPEC to cut production in order to shore up crude prices that had been falling since summer. This was the strategy favored by OPEC’s poorer members, as many require oil prices at $100/barrel (bbl) in order to balance government budgets.
Instead, OPEC announced that they would continue pumping at the same rate. They chose to defend market share against the surge of supply from U.S. shale producers, and in doing so the fall in the price of crude oil accelerated. A look at the U.S. rig count shows the swift impact to U.S. shale drillers in the aftermath of that meeting:
In the past few weeks I have received numerous questions about the role of a “drop in demand” in the oil price decline. These questions are driven by many stories in the media that have referenced a drop in demand.
There are two primary reasons given for this so-called demand drop. One is that years of high oil prices have resulted in reductions in consumption through conservation and improvements in vehicle fleet efficiency. The second reason is due to the strengthening dollar, oil has become more expensive for many countries since oil is generally traded in dollars.
There are elements of truth behind both reasons. There has indeed been reduced oil consumption in recent years in most developed regions of the world. It is also true that the dollar has strengthened against many currencies. But despite the rationale that explains this drop in oil consumption, ultimately the data must support the narrative. CONTINUE»
The US Shale Oil Boom
There have been a lot of stories over the past few years about the implications of the US shale boom. To review for those who might have been living in a cave for the past 5 years, the marriage of horizontal drilling and hydraulic fracturing (fracking) has reversed 40 years of declining US oil production and created a shale oil and gas boom.
As amazing as it would have seemed a decade ago, US oil production is increasing at the fastest pace in US history. In the past 5 years US oil production has increased by 3.22 million barrels per day (bpd). The overall global oil production increase during that time was only 3.85 million bpd, meaning the US was responsible for 83.6 percent of the total global increase over the past 5 years.
Risks, Rewards, and Soft Power
In oil markets, the year 2014 already looks to repeat 2013 with some important differences. Unpredictability in the commodities’ extraction and delivery, political risk, and policy risk may play a bigger role in 2014. The potential lifting of the crude oil export ban, which the industry and some lawmakers desire, may also stir up the market.
On the policy front, safety and methods of transporting oil and water disposal issues arose in 2013, and will likely again in 2014. The second rail disaster from transporting oil from North Dakota’s Bakken Shale, the Lac-Mégantic, Quebec incident with loss of life and the December 30th Casselton derailment, renewed the debate between pipelines versus rail transportation. The director of the North Dakota Department of Mineral Resources “predicted that as much as 90 percent of crude produced in the Bakken this year will move by rail” a recent article noted. In Parker County, Texas, the Texas Railroad Commission listened to residents’ complaints about earthquakes, which they attribute to disposal wells. The US Geological Survey sees a link between the earthquakes and wastewater disposal; a similar renewal in earthquake activity is reported in Oklahoma as well. CONTINUE»
More Supply, Competition and Friction Possible
News of Iran’s potential slow ramp up of oil supply resounded with a downward small ping in prices in late November, later to bounce back based on supply realities and economic growth. Iraqi oil supply keeps increasing, averaging about 3 million barrels per day, a new high in the last 20 years. Iraq plans to keep pumping — growing production 500,000 – 750,000 barrels more per day in 2014. Iraq’s output relative to OPEC production hovers near 10%, from around 7.5% in 2008. Iran’s contribution to OPEC production was around 12% in 2008, dropping in 2013 to 8.6%, according to a recent Wall Street Journal article.
“Al Arab Yantafiq lam yantafique,” said Mr. Charles Kestenbaum, a top Middle East expert and former U.S. Trade Specialist, in a November 25th interview, immediately following the news of Iran’s nuclear deal. This Arabic expression is translated as: ”Arabs can only agree to disagree.” In late November, the Dallas Committee on Foreign Relations hosted Charles Kestenbaum, a veteran of Middle East affairs since the mid-1970s. In his quote, a common expression, lies the challenges ahead in the Middle East.
I, along with my editor Sam Avro, recently conducted a broad-ranging interview with John Hofmeister, former President of Shell Oil and currently the head of Citizens for Affordable Energy, a non-profit group whose aim is to promote sound U.S. energy security solutions for the nation. Previous interviews with Mr. Hofmeister were:
In the current and final installment, he discusses the technical feasibility of producing oil from kerogen.
Shale Oil and Oil Shale
Although the oil coming from the Bakken Shale Formation in North Dakota and the Eagle Ford Shale in Texas is commonly referred to as shale oil, it is properly called “tight oil.” The term shale oil has been used historically to refer to oil that is produced from kerogen, but “shale oil” is often improperly used synonymously with the oil produced from tight oil formations.
Since 2005, the “total oil supply” for the United States as reported by the Energy Information Administration increased by 2.2 million barrels per day. Of this, 1.3 mb/d, or 60%, has come from natural gas liquids and biofuels, which really shouldn’t be added to conventional crude production for purposes of calculating the available supply. Of the 800,000 b/d increase in actual field production of crude oil, almost all of the gain has come from shale and other tight formations that horizontal fracturing methods have only recently opened up. Here I offer some thoughts on how these new production methods change the overall outlook for U.S. oil production.
Let me begin by clarifying that “shale oil” and “oil shale” refer to two completely different resources. “Oil shale” is in fact not shale and does not contain oil, but is instead a rock that at great monetary and environmental cost can yield organic compounds that could eventually be made into oil. Although some people have long been optimistic about the potential amount of energy available in U.S. oil-shale deposits, I personally am pessimistic that oil shale will ever be a significant energy source.
The Difference Between Oil Shale and Oil from Shale Formations
There has been some confusion lately about the overall extent of U.S. oil reserves. Some claim that the U.S. has hundreds of billions or even trillions of barrels of oil waiting to be produced if the Obama Administration will simply stop blocking development. So, I thought it might be a good idea to elaborate somewhat on the issue.
Oil production has been increasing in the U.S., primarily driven by expanding production from the Bakken Shale Formation in North Dakota and the Eagle Ford Shale in Texas. The oil that is being produced from these shale formations is sometimes improperly referred to as shale oil. When politicians speak of hundreds of billions or trillions of barrels of U.S. oil, they are most likely talking about the oil shale in the Green River Formation in Colorado, Utah, and Wyoming. Some have assumed that since we are accessing the shale in North Dakota and Texas, the Green River Formation and its roughly 2 trillion barrels of oil resources will be developed next. But these are very different types of resources. CONTINUE»
Just a note that this weekend I leave for an extended business trip, with visits to Seattle, Washington D.C., Germany, Massachusetts, Vermont, and California. I will be on the road for about four weeks, but will try to keep to my schedule of posting new columns on Mondays and Thursdays. Next Monday I will have a story up on Virent’s progress in producing gasoline from biomass, and following that I have a number of stories and guest posts to choose from. I was recently asked to participate in an energy roundtable at Focus on China’s Energy Future and the Shale Gas Question. It is no secret that I feel that China’s moves stand to continue sending shock waves through the… Continue»