Production of shale oil biggest technological change in 70 years

06 March 2012 23:03  [Source: ICIS news]

HOUSTON (ICIS)--A technology revolution has begun in the US with production of shale and ultra-tight oil reservoirs, said an analyst on Tuesday.

Horizontal drilling and hydraulic fracturing is the largest breakthrough since moving to offshore drilling in the 1940s, said ConocoPhilips chief economist Marianne Kahn.

 In addition, five years ago the larger oil molecules were thought to be too large to rise through the fractures in the shale, she said.

In 2007, only six to eight unconventional resource basins were identified, said senior vice president of energy and national security Frank Verrastro of the Center for Strategic and International Studies (CSIS). Currently, there are 18 to 20 basins.

More than 5bn bbl of oil were produced in North Dakota, the home of the Bakken shale, in 2011. Several hundred thousands of barrels per day of oil are transported by rail from the Bakken to the US Gulf coast, said Verrastro.

The production has jump-started the North Dakota economy, Verrastro said. He said Dunn County in North Dakota has a population around 2,000, and the county has about 20,000 commuters.

Analysts expect the US will reap 3m bbl/day of oil from tight rock formations and shale, said Kahn.

US imports of oil have dropped to 40% as a result of shale basins and the recession, from its peak of 50% in 2005, said Kahn. The imports are expected to continue to drop.

The US has advantages in shale drilling because companies can purchase private mineral rights and mainly produce on private land, Kahn said. The US also benefits from set infrastructure and a large drilling fleet.

Kahn said a positive investment climate is necessary. She said the US has the highest tax rates in the world for the oil companies, and every time the industry turns around, the tax rates are higher.

Investment researcher Jeffrey Currie with Goldman Sachs said US policy is preventing the free flow of capital, but the way to overcome it is new technology, such as hydraulic fracturing.

By: Sheena Martin
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