Disruptive, chaotic, and unexpected are terms that may be accurately leveled at any revolution; beginning in 2007 a revolution swept through the most fundamental industry of the modern world — energy.
Shortly after the U.S. Shale Revolution kicked off it began to pull the United States from recession with an enormous production of shale oil and natural gas. This revolution transformed the U.S. from an importer of natural gas to a dominant exporter, dramatically reduced emissions, increased electricity generation from natural gas and has exhibited tremendous influence on world politics.
Vast deposits of oil and natural gas (particularly natural gas) classified as ‘unconventional resources’ were virtually untapped until the expertise and technology required to access them was mastered. The impact of this revolution has altered U.S. and global economies profoundly. Its effects still resounding worldwide, many wonder whether the shale revolution will continue for years or decades unabated.
1. Conventional vs. Unconventional Resources
Prior to the U.S. Shale Revolution vast amounts of unconventional resources—including shale oil and gas—lay dormant in the earth, the processes too inefficient and expensive to consider viable. Conventional resources remained the easiest way to bring cheap, reliable, on-demand energy to the world.
1.1 Conventional Resources
Reliably produced since the mid-1800s using simple and economical methods such as vertically drilled wells, conventional resources have remained the norm in energy production for more than a century and a half. Considerable advancements in technology and expertise further refined the traditional methods of producing these resources.
1.2 Unconventional Resources
Requiring more specialized techniques and technology to produce, ‘unconventional’ resources are energy sources that present unique challenges to developers. As it relates to hydrocarbon energy—and for this article’s purposes—’unconventional resources’ refers primarily to oil and natural gas sought from sources such as biogas, coalbeds, methane hydrates, sandstone, and shale formations.
Sandstone, shale, and other tight formations have become economically viable for production of oil and natural gas in the wake of the U.S. Shale Revolution. The staggering increase of natural gas production has been nothing short of revolutionary in its impact on the domestic and global energy marketplace. Remarkably, the future of biogas and methane hydrates holds the potential to far exceed the benefits of the already tapped unconventional resources.
1.3 The Promise of Energy for the Future
As humanity adapts to a rapidly growing population, transformative technological advances, and a constantly changing climate, our need for readily accessible and cleaner energy increases daily. Advances in renewable energy sources are making headway yet are currently unable to provide Earth’s population of billions with the necessary amounts of on-demand power. While these technologies develop further, unconventional resources show promising potential to power the globe into a new era.
2. Horizontal Drilling and Hydraulic Fracturing
2.1 Horizontal Drilling
A typical oil, gas, or water well is drilled vertically to reach the reservoir that contains a resource. Economically producing oil and natural gas from coalbeds, sandstone, and shale formations requires technology that takes into consideration the most effective methods of production. This type of drilling is less disruptive to the environment and allows for the drilling of multiple directional boreholes from a single well pad, exposing a greater area to hydraulic fracturing.
Drilling non-vertical wells for oil, gas, and water began earnestly in the 1930s. Surveying the progress of a wellbore proved a difficult task, as taking the three critical measures of depth, inclination, and magnetic azimuth at the point, are necessary for precise directional drilling. A handful of crucial developments made the process of directional drilling substantially more accurate and efficient in the 1970s.
By the 1990s the techniques involved in horizontal drilling advanced enough to produce respectable quantities of natural gas from shale formations, though further refinements would continue to evolve the procedure.
2.2 Hydraulic Fracturing
The process of hydraulic fracturing (fracking) uses an existing well to project a high-pressure fluid mixture into the rock formation to create cracks which facilitate the flow of oil and natural gas. Fracking fluid is comprised of water, chemicals, and a proppant such as a sand to promote continuous flow of oil or natural gas.
The technique of hydraulic fracturing has been routinely employed since the late 1940s. Early concepts and experimentation with fracking began in the 1860s in the U.S. and continued throughout the 20th century. Fracturing evolved from using explosive torpedoes and acids to further production of water and gas wells to using proppant and water mixtures.
By the 1950s hydraulic fracturing using proppant mixtures was a worldwide phenomenon, though horizontally drilled wells remained relatively uncommon until the 1980s. The mid-90s saw a tremendous increase in high-volume fracking as advances in technology and the increased price of natural gas coincided to make these operations economically feasible.
2.3 Environmental Concerns
Hydraulic fracturing has gained increased attention as environmental concerned have been raised. The nature of this technology holds the potential to contaminate water sources when improperly executed. Water depletion, increased surface pollution, and strain on local infrastructure are primary concerns to address when examining the impact of fracking on the environment.
3. Impact on the U.S. and World Economies
3.1 Effects in the U.S.
The multiple-record-shattering impact of the U.S. Shale Revolution radiates throughout the domestic economy, having generated nearly 3 million jobs since 2007. The U.S. broke a nearly 60-year status of importing natural gas in 2017. By 2018 the U.S. exported more natural gas via pipeline than it had imported for the first time in twenty years. Prior to the Shale Revolution the U.S. imported 60% of its oil, now down to 12%.
Domestic output of crude oil and NGLs (natural gas liquids) has risen from 7 to 15 million barrels per day. Output of natural gas has swelled from 52 to 83 billion cubic feet per day. Downstream markets for petroleum products have moved from deficit to surplus since 2007, and the impact on the U.S. merchandise trade deficit has been nothing short of a remarkable boon.
U.S. generation of electricity has markedly switched from 49% coal in 2007 to 30% a decade later. That same year, electricity generated by natural gas rose to 30%. Plentiful and inexpensive shale gas allowed the U.S. to cut its use of coal by nearly 40% across the board from 2007.
3.2 Global Impact
“In a shale revolution world — no one is and island — everyone will be affected” said Faith Birol, Executive Director of the International Energy Agency. Rapid transformations of global oil markets, resulting from the Shale Revolution, are one of many shifts in global energy markets.
As the oil-supply growth increases, the U.S. will export more oil than Russia while closing the gap to Saudi Arabia’s exports. The U.S. export capacity of LNG (Liquefied Natural Gas) will reach third place behind Australia and Qatar. Additionally, as global demand for natural gas increases, the export of LNG and increased use of natural gas may be a game-changer for reducing global emissions.
The U.S. Shale Revolution has played a significant role in altering the dynamic of global energy geopolitics, influencing rivals and allies alike. Some have stated that it is responsible for bringing Iran to the table regarding its nuclear program during the Obama Administration. Edward Morse, director of commodity research at Citigroup said it is “the most politically disruptive factor in the global oil market since the formation of OPEC in 1960.” As Europe promotes LNG to curb reliance on Russian gas imports, flexible exporters such as the U.S. have opportunities to consider. These dynamics will force major exporters such as Russia and Qatar to reconsider long-term contracts in favor of alternative approaches.
4 Market Outlook
4.1 Will the Revolution Continue?
According to the EIA, “The U.S. Energy Information Administration estimates in the Annual Energy Outlook 2019 that as of January 1, 2017, there were about 2,459 trillion cubic feet (Tcf) of technically recoverable resources (TRR) of dry natural gas in the United States. Assuming the same annual rate of U.S. dry natural gas production in 2018 of about 30.4 Tcf, the United States has enough dry natural gas to last about 80 years.”
While the above figures are likely to shift significantly with further information and development of plays, it is abundantly clear that the U.S. Shale Revolution is going to play a large role in markets at home and abroad.
Dr. Birol of the EIA predicted that “The second wave of the U.S. shale revolution is coming. It will see the United States account for 70% of the rise in global oil production and some 75% of the expansion in LNG trade over the next five years. This will shake up international oil and gas trade flows, with profound implications for the geopolitics of energy.” She added that “The world has not seen yet the full impact of the shale revolution — it is just starting.”
The U.S. Shale Revolution has proven its mettle through the last decade with astonishing results that have left the world reeling and it seems that the best is yet to come. Pioneering technologies, hard-working roughnecks, and perseverance have won a truly astounding energy revolution — impacting not only the United States of America — but countries and individuals around the globe.
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