Monday, May 9, 2011

Crude oil production rises at Bakken and other U.S. shale plays

North Dakota is currently the fourth largest producer of oil in the United States and has been setting new production records almost every month. At the end of 2010 oil production had grown to 342,000 barrels of oil per day . The key impediment to even faster growth is the oil pipeline and transport infrastructure limits.

U.S Oil production 1986-2010

Oil Shale Reserves in the US Prospects Outweigh Challenges

The North Dakota Department of Mineral Resources updated its estimate of recoverable oil in 2008 and 2010 based upon better E&P data and now believes there are 4.0-6.3 billionbarrels of recoverable reserves in North Dakota’s Bakken and Three Forks formations alone. And there are additional oil plays including the Lodgepole, Tyler, and Spearfish that are yet to be explored for development.

North Dakota Oil Production

At the current actual oil production rate of 350,000 barrels of oil per day (BOPD) at the current price of Cushing oil of $112.43 per barrel (4/27/11) North Dakota alone is reducing oil imports by $39.3 million per day or more than $14.4 billion per year annualized.

Economically recoverable oil is cost effective to extract and process. Of course, “cost effective” is a continuum, not a point: what makes economic sense is very different at crude oil prices of $40 per barrel, $80 per barrel, or $120 per barrel. Also, what is economically recoverable depends on technology as well—as technology improves and becomes more widespread (creating economies of scale), price drops. Cost reductions of 50 – 75% over 20 years are feasible.

US EIA’s Annual Energy Outlook 2011, says there is 2,552 trillion cubic feet (Tcf) of potential natural gas resources in the US. Unconventional natural gas from shale resources are 827 Tcf of this resource estimate, more than double the EIA estimate published last in the AEO2010. Based upon the 2009 rate of U.S. consumption (about 22.8 Tcf per year), that is enough natural for 110 years of use. EIA expects these unconventional gas estimates to grow and other potential oil and gas plays are explored and validated.

Higher oil prices reflect the global tradable market for oil as a commodity. Lower domestic natural gas prices reflect the reality that natural gas trades primarily as a regional commodity. There was a time not long ago when energy experts expected LNG to transform natural gas into the same globally priced commodity as oil. Russia, Qatar and others even considered forming an LNG cartel like OPEC to fix prices for natural gas.

Shale Liquids Production

Liquids production (crude oil and condensate) is rising significantly at several shale plays in the United States as operators increasingly target the liquids-bearing portions of these formations.

In North Dakota, for example, total liquids production has risen nearly 150% since 2005 due primarily to escalating development of the Bakken shale (which extends into Montana). Using similar horizontal drilling and hydraulic fracturing technologies applied to the Nation's shale gas plays, operators increased Bakken production from about one million barrels in 2005 to nearly 50 million barrels in 2009, or about 135,000 barrels per day. Excluding Bakken volumes, the State's liquids production increased by only about 5% over the same period.

  • Shale plays known primarily for natural gas production—or where horizontal drilling initially targeted natural gas—are also seeing accelerating liquids-focused drilling.
  • At the Barnett in Texas, overall liquids production more than doubled (and production from horizontal wells swelled roughly six-fold) from 2005 to 2009.
  • Liquids production from the Woodford in Oklahoma surpassed one million barrels in 2009, up 83% from 2008 and nearly eight times 2007 volumes.
  • At the Eagle Ford formation in Texas, liquids production in 2009 grew more than five-fold over the previous year, and is on pace to exceed five million barrels in 2010.
  • Liquids production from Appalachia's Marcellus shale nearly quadrupled in 2009 and is expected to show another considerable increase in 2010.

The number of oil rigs drilling horizontal wells rose significantly through the first half of 2010. Further increases are likely as operators sharpen their focus on liquids in these and other shale plays.

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