Europe could experience the same cost reductions and reduced vulnerability to imports that the US has benefited from as a result of the shale revolution, according to Charles Daly
Shale oil can be described as oil where the source rock and reservoir rock are one and the same. Shale oil is formed within the source rock (shale) from the decomposition of sediments rich in organic matter. In conventional oil and gas reservoirs the hydrocarbons will have, over millennia, migrated from the source rock into the reservoir rock until trapped by an impermeable seal rock. However, in the case of shale oil the oil is unable to migrate through the low permeability shale and hence it remains within the source rock. The hydrocarbons that remain in the source rock constitute shale gas and shale oil.
Where is it found?
Whilst the US remains the only substantial commercial producer of shale oil many other countries worldwide have shale oil resources. A study by the Energy Information Administration (EIA) indicates technically recoverable resources from shale of 345 billion barrels of oil and 7,299 trillion cubic feet of gas.
Shale oil resources are distributed amongst a number of countries. The EIA notes that the report from which this data is taken, does not assess many prospective shale formations, such as those underlying the large oil fields located in the Middle East and the Caspian region. It also notes that the estimates are highly uncertain and will remain so until they are extensively tested with production wells. Shale oil resources are, therefore, widely spread around the globe and notably present in some of the largest energy consuming nations such as the US and China.
How is it extracted?
Shale oil extraction is dependent on the much maligned and debated process of hydraulic fracturing or ‘fracking’. This process is not new, having been used in the oil and gas industry since the late 1940s.
The principles of the process have not changed since the early days, but modern hydraulic fracturing is the practice of pumping water and sand into the earth at high enough pressures and rates to crack hydrocarbon-bearing rock and thereby artificially increasing the permeability of the rock, thus providing a pathway for the oil and gas to flow to the wellbore.
It is worth noting that the substantial amount of water required for each well and although a certain amount of water is recycled, the demand for water makes fracking in arid areas an uneconomic proposition.
What are the forward production forecasts for shale oil and gas and how does shale oil fit into the forecast?
In 2010 tight oil accounted for less than 1% of the world’s liquid supply but, by 2040 it is projected (by ExxonMobil) to account for 7% of the global liquids supply, a production increase of 15 fold. Whilst this would account for just over 2% of the global primary energy supply at that time, this modest percentage is still regarded by many as the real game changer of the last few years.
Global resources of shale oil and gas are significant but which, if any, of the countries identified as having such resources will join the US as commercial producers of shale oil and gas? Russia has considerable resources with the Bazhenov shale formation potentially holding enough tight oil to rival and possibly better the U.S. Bakken play. Russia also has access to large water reserves.
Will Europe see a similar development to that in the US?
To date, shale oil and gas development in Europe has been small scale and has encountered disappointing results, which has hampered progress. Russia, Poland, France, Ukraine and Romania have been previously identified as potentially having shale oil or gas potential in Europe. However, in 2015, Chevron announced it was abandoning its shale gas plans for Romania, having previously pulled out of shale gas in Poland. Exxon Mobil, Total and Marathon Oil have also stopped similar exploration in Poland over recent years. France also boasts promising estimated reserves, but it has a firm ban on fracking meanwhile Romania seems to be struggling to fulfil its apparent promise.
The effect of shale oil on European refining if the US export restriction is lifted
For some European refiners, particularly those processing lighter crude oils, an influx of such lighter US crude oils into the Atlantic basin could potentially provide newer, cheaper feedstocks. The response of the Algerian and Libyan producers will be key – will they cut prices to hold market share? Such actions could support margins for some of Europe’s refiners who have struggled in many years (although recent margins have been pleasingly robust).
– Shale gas and oil production in the US has led to a cost reduction to the overall economy and reduced the vulnerability to imports
– Shale oil and gas should be seen in the same context for Europe.
– Fracking is not the monster that has been publicised by the Green Brigade in Europe
– Shale deposits sit a 1500m or deeper, the water table at about 300m. There should be no great risk of contamination of drinking water.
– Fracking has been used in the oil industry for years without any problem.
– The constituents of the fracking fluid is water, sand or silica and a small amount of detergent. No toxic chemicals are involved.
- Charles Daly, Chairman and CEO of Channoil Consulting, will be discussing shale oil issues on the second day of the Tank Storage Germany conference, taking place at the Hamburg Messe on November 25 and 26. For more information visit www.tankstoragegermany.com