Saturday, January 14, 2012

U.S. Shale Oil Revolution Has Only Just Begun

From Robert Campbell, Reuters market analyst:

"If independent U.S. oil producers are right, last year was only a taste of the transformation that is coming to America’s oilpatch. Some optimists are already forecasting huge increases by 2015, perhaps taking U.S. oil production up by some two million barrels per day to 8 million bpd by then.

Both the expertise of the industry and huge amounts of investment capital are already moving into less established shale plays hoping to replicate the success that has already materialized in North Dakota and Texas, which put these places on oil traders’ lips as the unprecedented slump in West Texas Intermediate crude oil prices compared to globally-traded grades.

Well, get ready to learn a few more names.

Perhaps you have heard of the Utica Shale in Ohio now, where Total has just splashed out more than $2 billion on a prospect that is still in its infancy — production is essentially nil today— but which promoters say could be the next Eagle Ford shale. But have you heard of Colorado’s Niobrara shale, California’s Monterey Shale, Oklahoma’s Mississippi Lime Shale, the Tuscaloosa Marine Shale in central Louisiana or the Lower Smackover Shale that stretches from Northern Louisiana into Arkansas?

Every single one of those places, and others throughout the United States, are currently being combed over by cash-rich independent oil companies hoping to find the next big oil play."


6 Comments:

At 1/14/2012 11:19 AM, Blogger Benjamin said...

These new oil oil plays bring up natural gas as a sideshow--but they still have to sell the natural gas.

Add on huge natural gas strikes globally.

Natural gas prices are said to be "low' now, athough they were even lower in the 1990s.

I suspect we see "low" natural gas prices for a generation at least.

 
At 1/14/2012 11:42 AM, Blogger Rufus II said...

LNG is selling for $10.00 to $13.00/kcuft in Asia, I believe.

 
At 1/14/2012 12:10 PM, Blogger rjs said...

it'll be interesting to see how the plains grows crops once they pump the ogallala aquifer dry for frack water...

 
At 1/14/2012 5:20 PM, Blogger juandos said...

"it'll be interesting to see how the plains grows crops once they pump the ogallala aquifer dry for frack wate"...

It'll refill over time...

 
At 1/15/2012 3:31 PM, Blogger VangelV said...

I am sorry but Mr. Campbell seems to have written mostly a hype piece. Let us look at some of the details.

Some optimists are already forecasting huge increases by 2015, perhaps taking U.S. oil production up by some two million barrels per day to 8 million bpd by then.

The same type of cheer-leading came from analysts about the NASDAQ in 2000 and housing in 2007. They were wrong. When it comes to the markets opinion is not all that important when the fundamentals are not supportive of it. While it is possible to make money by following the trend and trading it, that does not work well when the goal is abundant energy and you don't have an economic process to produce it.

And let us take a look at the track record of the industry 'experts'. The fear of gas shortages in the early 2000s led to the building of LNG infrastructure that is now idle because the low costs have made LNG imports impractical. Keep in mind that this fear of shortages followed another great fear that caused Congress to stop the building on gas powered electricity generation facilities in the late 1970s. The meddling with the markets created surpluses for natural gas and added a floor to the price of coal as plenty of coal powered facilities were built instead.

Both the expertise of the industry and huge amounts of investment capital are already moving into less established shale plays hoping to replicate the success that has already materialized in North Dakota and Texas, which put these places on oil traders’ lips as the unprecedented slump in West Texas Intermediate crude oil prices compared to globally-traded grades.

What is lost is the other side of the story. Many of the previously hyped shale plays have failed to produce operational profits for the companies that invested capital into them. If the core areas of the richer shale deposits failed to deliver why are we to believe that more marginal properties will lead to better results?

My argument is still the same. If we are to get sustainable investment in shale gas production we need a price of$8/Mcf or higher. For shale oil production to continue to be viable in non-core areas we are going to need $120 per barrel or higher. But even with everything going right I suspect that the script will follow that of the Elm Coulee field.

 
At 1/17/2012 11:17 AM, Blogger Hydra said...

It'll refill over time...


Actually, probably not. As i understand it it is the type of aquifer that settles as the water is pumped out.

But that is going to be a problem whehter it is pumped for agriculture or fracking.

Either way, the wate r is worth more than it is sitting in the ground.

 

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