Extracting oil and natural gas from shale started from The Barnett Shale located in Texas more than a decade ago. The Barnett shale in Texas and Marcellus Shale in Pennsylvania are two of the largest producers of Shale oil and gas. Apart from these two well-known sites, there are more than 30 smaller locations from where Shale is being extracted. Currently, 172,300 people are employed in the oil and gas extraction sector, according to the latest data from the Bureau of Labor Statistics.
The U.S. is one of the largest producers of crude oil. EIA estimates that total U.S. crude oil production averaged 8.9 million b/d (barrels per day) in 2016. Hydraulic fracturing methods have enabled oil and gas producers to extract Shale oil and gas. This has increased the ability to produce additional oil which supports the industry. According to estimates, if the present demand levels continue, Shale oil and gas can be extracted for approximately 200 more years.
Looking at the oil and gas extraction industry’s Conway data, there have been 279 total projects out of which 166 are new projects and 113 are expansion projects.
The highest number of project announcements took place in 2012 with 73 new and 34 expansion projects. The lowest number of projects were announced in 2013 and 2015. In 2014, the number of announcements took an upward turn to recovery, but in 2015 only 28 projects were announced. One of the reasons for this decline is the fall of oil prices. According to a report released by the consulting firm Deloitte LLP, with global crude oil at near ten-year low prices, 35% of listed E&P oil and gas companies are at a high risk of bankruptcy worldwide.
Texas had the highest number of projects announced from 2011-2015 followed by Pennsylvania. Barnett Shale, which is one of the largest natural gas fields in the country, is located in Texas. There are plenty of opportunities in Texas apart from Barnett. There’s Haynesville Shale in East Texas, Eagle Ford Shale in South Texas, and the Cline and Wolfcamp Shales in West Texas’s Permian Basin. The USGS announced in November 2016 that Wolfcamp shale contains 20 billion barrels of oil and 16 trillion cubic feet of natural gas. This is the largest estimate of continuous oil that the agency has assessed in the U.S. This has created opportunities for projects in the future.
Pennsylvania has the Marcellus Shale fields. Some of the largest mining companies in the country are operating in the Marcellus fields. In December 2016, Alta Resources Development LLC acquired $1.44 billion in natural gas assets from Anadarko Petroleum Corp. and Mitsui & Co. Ltd. According to studies conducted by EIA, the Marcellus shale fields will be the largest shale gas play over the long-term.
The Difference: Conventional Oil versus Shale Oil Production
Crude oil naturally exists in a liquid state whereas shale oil naturally exists in a solid state. Crude oil produces transportation fuels such as gasoline, jet fuel, diesel, and kerosene. It can also be used as raw material for many chemical products such as plastics, pharmaceuticals, fertilizers, pesticides, and solvents. Crude oil is extracted using pipe and pump production off of vertical wells.
Shale oil is mainly used as heating oil, marine fuel or chemical for railroad wood preservative. Unlike crude oil, shale oil is not frequently used as a raw material for chemical products. However, high boiling point compounds in shale oil can be used to produce middle distillates such as kerosene, diesel and jet fuel. The main difference between Shale oil and Crude oil production is that instead of drilling just past the target deposit, the well will take a 90 degree in the deposit and runs along it horizontally. Hence, horizontal fracturing methods are used for shale oil extraction.
According to the Annual Energy Outlook report published in 2016 by the U.S. Energy Information Administration (EIA), about 4.9 million barrels per day of crude oil were produced directly from tight oil resources in the United States in 2015, or about 52% of total U.S. crude oil production.
New Opportunities from Permian Formations
Permian formations which are organically rich and are stacked relatively shallow provide miners with low cost, low risk oil production. Permian wells are now producing almost 60 percent more during their first 30 days than in 2014. According to EIA, 2016 U.S. drilling activity is increasingly concentrated in the Permian Basin, which spans parts of western Texas and southeastern New Mexico. EIA’s Drilling Productivity Report published in January of this year found that Permian now holds nearly as many active oil rigs as the rest of the United States combined, including both onshore and offshore rigs, and it is the only region where crude oil production is expected to increase for the third consecutive month.
Ups And Downs
The decline in oil prices has seen many independent producers shut down production. The industry lost over 150,000 jobs during the two-and-a-half-year downturn. In Midland Texas, some 20,000-30,000 temporary workers left after companies began cutting down production.
However, 2016 saw growing optimism from mining companies. Technological advancement such as horizontal drilling methods has meant low costs and low risks for extraction. Companies have adapted by cutting down production costs. Pioneer Natural Resources said it had reduced its production cost per barrel by 26 percent since last year. Devon Energy said costs were down 40 percent from their peak. Reduction in production costs and advancement in tech can create growth opportunities in the industry.
This, in turn, can create a complimentary effect in communities surrounding the projects. As workers migrate, there will be opportunities for other service and businesses as well. An article published in Investopedia reported transformation of a small town in North Dakota from 2009-2015. After the introduction of improved techniques of hydraulic fracturing in Williston, North Dakota, oil production in the area went from under 1 million barrels a month in 2009 to over 6 million a month in 2015. There are 41 companies operating over 4,000 oil and natural gas wells in the area. According to the 2010 U.S. Census, Williston had a population of 14,000. In the four years to follow, the population more than doubled to become the sixth-largest city in North Dakota. U.S. City officials estimate the serviceable population of Williston is closer to 60,000, as many workers from outlying rural areas find temporary, off-record housing anywhere they can.
Shale gas extraction has ability to create growth for surrounding communities. Economic developers should study the prospects of Shale gas and strategize its development.