Shale technology and its impact

by: Hans van Cleef

Will shale oil and gas make the US energy-independent?

The use of hydrolic fracturing (fracking) and horizontal drilling has led to a global revolution in the energy sector over the past few years. The conventional method of producing oil is to simply drill a vertical hole into an oil or gas well and to pump the oil up out of the ground. The unconventional method to produce oil and/or gas is to use the new technique of hydrolic fracturing, or fracking, in combination with horizontal drilling. This technique is often used to release oil or natural gas (also known as shale or tight gas) from source or reservoir rocks. As a result of the combination of horizontal drilling and fracking, it has become possible to extract shale oil and gas economically. In general, however, conventional oil is still easier and cheaper to produce than unconventional oil. Since January 2008, US crude production has risen by more than 30%, largely because of shale technology. And, since the start of 2011, US crude production has increased by approximately 1.3 million barrels per day (mbpd). According to the Energy Information Administration (EIA) another 1.4 mbpd will be added before the end of 2014. As a result, market participants are wondering whether US energy independence is on the horizon. According to the International Energy Agency (IEA) and others, it could occur by 2020, or, at least, energy independence for the continent ofNorth America could be reached by that time. In this report, we describe the possible impact of shale technology on supply, geopolitics and energy prices.