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Is shale oil losing its lustre?

Operators are no longer accelerating production ‘due to very high costs and infrastructure bottlenecks’.

Gulf News

When my column “shale oil is no threat to oil producers” was published here, I received two comments by E mail. Both were from highly professional people long enough in academia and the business for their views to be respected.

The first comment from an expert in an oil producing country said that “shale oil as far as I can see is an American version of mid-summer night dream and that even nuclear explosion cannot release the oil from shale rock”. Of course this view is extreme as shale oil is already produced. I suspect the comment meant that the recovery is so little compared with the original oil in shale plays.

The second comment came from an expert already involved in shale oil production. He said that operators are no longer accelerating production “due to very high costs and infrastructure bottlenecks”. The reason for the original enormous acceleration in drilling is to maintain the operators hold on their land leases which are tied to production and that once production is achieved, “companies are reducing their capital expenditures and going into full development in a much more controlled fashion in the hope that costs will come down and infrastructure issues are resolved.” Furthermore, the hype about US energy independence “is based on brokers drawing straight lines through growth of the past few years and extrapolating it 20 years into the future, which any rational, thinking person knows is never going to happen.” I may add that this kind of rhetoric is political as I explained in the above mentioned column and is intended to hurt the interests of producing countries.

Meagre recovery

Recent articles and reports about the subject are more sober and clearly point out that in spite of production the shale oil reserves have not been added officially to US reserves. It may be true that the shale oil in place may run to trillions of barrels but the recovery is meagre.

Shale oil being the better quality and cheaper to produce is already affecting the production from Canada’s oil sands as reported by Reuters February 27, 2013 where Suncor Energy is re-examining a plan to build a multibillion-dollar upgrading plant in northern Alberta.

Another article suggested that shale oil failed “to dent Middle East shipments” as the US is still importing about 2 million barrels a day (mbd) from the Arab Gulf region as it has done in the past which is in line with the average of the last 20 years.

An interesting article titled The Myth of “Saudi America, written in the Slate by Raymond T. Pierrehumbert on February 6, 2013 reporting about a recent meeting of the American Geophysical Union (AGU) where some speakers said “show-me-the-numbers” and disputed the claim that the US is on the “brink of a new era of oil and natural gas abundance.” It said that “the International Energy Agency jumped on the bandwagon with breathless, and equally fishy, forecasts of the coming “Saudi America.” The article added “even if it were to prove possible to achieve production rates comparable to those of Saudi Arabia that would only mean that we would deplete the resource faster and bring on an oil crash sooner.”

Expensive oil

The AGU discussions cited shale oil recoverable reserves in the range of 1 to 2 per cent of the oil in place though it is in the trillion barrels and that “oil production technology is giving us ever more expensive oil with ever diminishing returns for the ever increasing effort that needs to be invested.”

Bill Chameides of Duke University recently questioned in Huffington Post if the shale oil production, “continue apace or sputter out?” He quotes David Hughes of the Post Carbon Institute as saying “the sustainability of tight-oil production over the longer term is questionable” and “declaring US energy independence and laying plans to export the shale bounty is unwise”.

The water resources contamination in the process of shale oil and gas production is a real risk and is increasingly coming to the fore as companies are not yet legally bound by the Safe Drinking Water Act and operators are not required to disclose their chemicals for trade reasons.

A recent US Geological Survey study of “decades-old wells in eastern Montana found plumes of salt water migrating into aquifers and private wells, rendering the water from them unfit for drinking”. A case in Texas is reporting methane in drinking water taps and a contaminated well of one family that may have come from fracking operations.

Experts are also questioning the availability of water for the shale oil production to rise to the anticipated level at a time where many regions are experiencing droughts. Hydraulic fracturing requires huge amounts of water that is not readily available and sometimes has to be trucked from faraway places.

The reality is slowly but surely coming to the “shale revolution”.

The writer is former head of the Energy Studies Department at the Opec Secretariat in Vienna.