Articles from 2012
The US lesson for European oil
- Written by Nick Grealy
- Published: 15 January 2013
It's been some time since I wrote on the second part of the US shale energy revolution, oil. To call it shale oil is inexact, and risks confusing shale oil with oil shale as found in Alberta, a mistake the Co-op already made in their extreme energy campaign objection to shale gas, although they're too embarrassed now to admit the error. We've also concentrated here in Europe on shale gas, which risks losing the big picture
Shale oil is also known tight oil, and essentially can be described as using the two key shale gas techniques of hydraulic fracturing and horizontal drilling to access oil. Similar to gas, these are deposits geologists knew existed but which were considered inaccessible until 21st century technology. One doesn't always need horizontal drilling, because lots of shale oil success comes from hydraulically fracturing existing vertical wells, which is causing the Permain Basin to come back from the dead. But for now the two key areas of US shale oil are the Bakken of North Dakota and the Eagle Ford in South Texas, extending south from San Antonio and further into Mexico.
The Bakken fits the description of what was once considered a mature oil province brought back from the dead. This chart from the Federal Reserve Bank of Minneapolis, shows the long view:
The Bakken was never a Permian Basin or a North Slope, but chugged along for 50 years producing a few barrels a day per well. Producers went for the easy oil, and during the oil price surge of the early 80s they tried drilling a few more wells. But as this chart shows, the application of new techniques and Bakken geology led to a modern day surge. This is a detailed graphic representation of what an oil boom looks like:
Daily oil production in North Dakota was 8 barrels in 2004, against over 140 last year. Total oil production was 669,000 barrels a day in November 2012, compared to 1500 in August 04. The Bakken was unheard of as little as four years ago outside the industry, and it was only last year that a realisation started to dawn that this was a massive discovery with international impact. The Bakken led the gap between the US WTI oil price and Brent Crude to go over $20, providing a huge economic advantage to the US in not only the cost of gas energy but also oil. Let's put this another way: Bakken oil production had a value of $22 billion at $91 in 2012 against $27 million in 2005 at $51.
But, as usual in the shale revolution, we don't want to give you that. Meanwhile in Texas, the most exciting news since Spindletop came first from gas in the Eagle Ford but quickly translated to oil. This from the rather quaintly name Texas Railroad Commission show the evolution of Eagle Ford oil production in a stunningly short time frame:
Again, these figures move from $13 million a year in 2008 at $99 to $10.8 billion in 2012 at $91. This from the San Antonio Express-News gives an update which is quite frankly, mind-boggling:
The Eagle Ford Shale play is still in its early stages, with landmen continuing to hunt for mineral rights across South Texas and no one really knowing how much oil is out there.
But if the Eagle Ford seems big, get ready for what's happening in West Texas, where oil and gas production is ramping up in shale layers such as the Wolfcamp in and around Midland.
“They're getting thousands and thousands of feet of pay zone,” said Ken Morgan, director of the Texas Christian University Energy Institute, who spoke Wednesday at Palo Alto College. “It's like the Eagle Ford on steroids. They haven't even begun. We're just in the toe of this thing.”
This is the kind of news that has global impact on so many points that's it hard to know where to start. The transformation of the US, the US dollar and a resultant economic ripple effect worldwide are only several. The geo strategic implications of this are only starting to be understood. For various reasons, the military planners of NATO are very concerned, but the worry goes to OPEC members and of course Russia.
Unfortunately in Europe the debate is stuck in an essentially trivial debate over such arcana as the impact of shale gas on renewables.The issue is oil.Just as we saw that shale gas is not a North American exception, tight oil/shale oil activity is rippling worldwide: The Vaca Muerta shale in Argentina, the Georgina Basin in Australia and the Bazhenov Shale in Siberia are three hot prospects, but the Paris Basin is meant to be the European Bakken and despite everything, people are plugging away behind the scenes in France to get this through Francois Hollande's head. The Paris Basin allegedly contains enough oil to equal the Bakken. The choice is France in decline, or a Euro zone transformed into a petro currency.We need to stop obsessing about what has happened in the US and start to take on board what will happen:
We're so early in this,” said John Breyer, a geologist and senior technical consultant at Marathon Oil Corp. “I don't think anybody really knows.”
But Breyer said that wells in the Eagle Ford are producing more oil using horizontal wells that are half the length of those in North Dakota's Bakken Shale.
“This is going to dwarf North Dakota,” Breyer said.
Morgan said the Eagle Ford is part of a larger global energy picture, with U.S. shale plays upending the energy market. The United States imports $1 billion in oil per day, but Morgan said it has a chance to become more economically independent with hydraulic fracturing, which is the process of pumping sand, water and chemicals at high pressure to fracture dense rock formations to release oil and natural gas.
“We are covered in shale plays, and what we know about shale is the tip of the iceberg,” Morgan said.
While companies have been drilling in the crude oil windows of shale plays, one thing limiting drilling of natural gas reserves across the country has been low natural gas prices, which fell, ironically, because of the abundant shale discoveries.
Prices are below $4 per million British thermal units, down from $12 in 2008. And dry gas sits at greater depths, making those wells more expensive to drill than oil wells.
If liquefaction plants are built, the U.S. can export natural gas to Europe and Japan, where prices for natural gas are much higher. Morgan also said large companies are looking at converting fleets to run on natural gas instead of diesel. “You've got cheap fuel, so cheap it's ridiculous,” he said.
Europe is sleepwalking towards a renwable energy future that is as delusional as it is deeply held. We will impoverish ourselves, while achieving nothing. Minimal, if any, CO2 will be reduced. It will make people with money feel good about themselves. The rest of Europeans will be asked to submit to cuts, cuts, cuts. Some day reality will intrude, but the European economy can't afford to wait.
Even a partial replay of the US success would transform the European economy. Just as the Bakken was only the opening act in the US oil revolution, there are prospective oil resources in Germany, Poland, Lithuania and Romania. Oh, and let's not forget what this from the UK's IGas signifies today:
In addition to the main Bowland basin, IGas has identified prospective shale horizons across all of its UK acreage in both the East Midlands (Bowland extension) and the Weald Basin
The East Midlands was quite a productive oil field in it's time. What's stopping it coming back from the dead as the Bakken did? Geology? Or fear?
The Weald Basin also has a history of small scale production and geologically is the northern side of the Paris Basin. If groups like the Co-op continue to build alarm over the impact and dangers of oil and gas to the local population, they'll stay in the ground. They're entitled to their opinion, but the UK, and Europe, as a whole need to make an informed choice based on scientific facts as opposed to being framed in an outdated debate.
What's stopping production there? These resources belong to every single person in the UK. Something to remember the next time your pension or child benefit or services are cut again and again and again to keep the bankers happy. There is an alternative.