The 5-minute ENERGY Blog
POST 5: THE US OIL SHALE BOOM
In my last Post I pointed out that once the price of oil increased from ten cents per “coke can” to twenty five cents entrepreneurs went to work. I mentioned the Canadian industry (that the US Government has spurned) increasing production dramatically with difficult to access supplies. At the now higher price of twenty five cents per coke can, US entrepreneurs (including yours truly) are also getting to work to find more organic, green, naturally occurring biofuel packed with solar power.
The following graph I took from an excellent presentation given by Laredo Petroleum. Laredo went public only last December, and is an example of investor dollars pouring into the oil space because of increased prices meeting technological driven opportunity. This is their forecast of what will happen to US oil production over the next several years.
It is quite astonishing to consider the possibility that in a short five years US oil production might be restored to the previous peak rate reached forty years earlier.
What took so long, why wasn’t this done a long time ago?
In my last post I mentioned that I believe that while we have plenty of energy resources, we are running out of easy to access, cheap, conventional oil. Conventional oil is trapped in layers of sedimentary rock. Conventional oil reservoirs might be a beach or sand bar, or a coral reef that got buried under thousands of feet of earth.
Then plant material (we call it “total organic carbon”) in nearby “source rock” forms oil and gas that begins to migrate and might get trapped in a layer of sand or limestone, if there is a barrier to further migration.
Until recently it didn’t really occur to anyone to produce directly from the source rock. But now we are using enhanced fracture stimulation technology to access oil trapped there. This source rock is clay laminates we call shale that has one to ten percent “total organic carbon.” The organic material is converted to oil and gas by the high pressure and temperature from being buried. A slate black board or a slate roof is a good picture of what this material is like.
Where I am active in the Permian Basin we are fracturing a couple of thousand feet of shale source rock buried about two miles under the surface. For each well, we pump about a million gallons of water and a million pounds of sand to prop open tiny microfractures, creating nano-French drains that allows oil and gas to migrate to the well bore. We spend about two million dollars to drill and complete a well, and if we get a really good one it will initially produce a hundred barrels per day; that’s about the daily volume you could get from a garden hose turned up about half way.
It is working so well that a boom is occurring in my home town of Midland, Texas. Hotels are full. Truck drivers can make $70-100,000 per year. Help Wanted signs are everywhere. There are about 250,000 people living in the local area, and few houses for sale. North Dakota has experienced something similar.
At the conference where I heard Laredo speak, there was a lot of sentiment worrying that oil companies would do to oil prices what they did to gas prices; be so successful they cratered the price. The oil market is a little different because it is a world market, while gas is a local, US only market. Will that transpire? Perhaps.
But I would say it would likely happen, if it wasn’t for one thing. Can you guess? Here it is: around 85% of world oil reserves are controlled by governments. Governments don’t like to invest to create new supplies; they like to pass out the goodies to create dependency and patronage. An oil shale boom was about to start in Argentina recently and the government decided to nationalize the company that was the main mover. The resulting chill could stifle development.
If we in the US continue our heritage of self-governance and allow investment and purchasing decisions to be made in the Market rather than by central planners, we will continue to lead in finding new supplies.
This is the essence of American exceptionalism; we are an exception because we are self-governing. That means our energy companies are private sector companies that discover new supplies like oil and gas shale, in spite of resistance from central planners and regulators. Companies from all over the world are now investing in US oil shale to gain know-how. The political decisions we make in the next decade are critical to the fate of the entire world in many ways, including future energy supplies.