By: Edgar Ang, opisnet.com

The U.S. may be marching toward the politically charged “energy independence day” amid growing domestic oil production.

However, “the gap between U.S. oil production and consumption is large and may not close in the forecast period (2022),” Credit Suisse said in a report on U.S. oil production outlook.

“North American oil independence (U.S., Canada, Mexico) looks more achievable with appropriate policies to promote safe drilling, energy efficiency, regional coordination and gas substitution. However, we don’t hold out high hopes of the same low cost dividend to the U.S. economy provided by natural gas due to the relatively higher cost of oil shales and Canadian oil sands. Natural gas appears the best low cost energy policy bet,” the bank said.

U.S. oil production could reach just over 10 million b/d by 2020 and maintain this level for a number of years, according to Credit Suisse. The strong oil production growth estimate is based on high oil prices, a 27% higher oil well count by 2016 versus 2012, (58% higher than 2011) and a 25% improvement in 30-day initial production (IP) rates per well. Although the well count increases by 27%, the oil rig count only increases by 11% owing to improvements in drilling efficiency, which is defined as the number of days to drill a well.

Key shale plays to watch include the Eagle Ford, Bakken and Permian. After recent exploration success, the offshore Gulf of Mexico and potentially Alaska should also contribute some growth.

Single well economics suggest breakevens in the $60-75/bbl range for U.S. shales today. However, driving growth at forecast rates requires substantial capital — access to capital could be a greater constraint.

In a simple calculation, the U.S. oil industry needs around $95/bbl Brent near term to fund the capex required to deliver this growth, based on self-generated cash flow alone. This could be lowered by external funding, but we are already seeing some companies reduce capex when WTI recently fell through $90/bbl.

As U.S. oil production volumes rise, this breakeven could fall toward $80/bbl. It is important to note that the average recovery of a gas well is three to five times the recovery of a typical oil well on a Btu basis. The shale oil revolution should help meet rising global demand but looks less likely to lead to a collapse in domestic pricing similar to U.S. gas markets.

Price Impact

For downstream implications, the U.S. will require new trunkline pipes and gathering system to accommodate 600,000 b/d of annual oil production growth from the U.S. and 300,000 b/d of Canadian annual production growth through 2017, the bank said.

“Our short term model suggests WTI-LLS will remain wide through the second half of 2012 but narrow as Seaway, southern Keystone XL and Permian pipes are built through 2013,” Credit Suisse said. “Even as WTI-LLS spreads narrow, it is likely that a wider discount will remain for Bakken and Canadian Heavy crude through 2014,” it added.

Although oil supply from the U.S. and Canada is visibly growing, outside North America, non-OPEC supply growth is negative in 2012. Oil spare capacity increases towards 3% by 2015 (from 2% today) but markets may still reflect some risk premium over marginal costs, the bank said. “Risks to this view seem balanced. Spare capacity could rise faster if curtailments in Nigeria, Iran, Venezuela, Sudan were resolved. Spare capacity could fall, if a global economic recovery takes hold,” Credit Suisse said.

The rising oil and gas production is also expected to have an impact on the U.S. economy. The bank’s U.S. industry capex model suggests around $1.3 trillion dollars of spend between now and 2020. Low U.S. gas prices should encourage some $35 billion of petrochemical capex and a manufacturing renaissance. The logistics to bring shale hydrocarbons to market could total an additional $80 billion this decade.

Article republished, courtesy of Oil Price Information Service

(HELENA) The State of Montana will offer detailed training on a range of topics that includes air quality and discharge permitting, compliance requirements, and best business practices for contractors, opencut mining, materials processors, and the oil and gas industry.

The trainings will be in Sidney on October 1 – 3 at the Mondak Heritage Center, 120 3rd Ave SE,  and will be conducted by representatives of the Departments of Environmental Quality (DEQ) and Transportation (MDT). The trainings are free of charge and open to qualified registrants.

The three-day series is designed specifically to address practices surrounding opencut mining and associated development and growth seen in recent years throughout northeastern Montana.

“This training series provides valuable information that will save owner-operators and contractors time and money as they grow with the region,” said Darrick Turner, manager of DEQ’s Small Business Environmental Assistance Program. “Attendees will come away with a better understanding of the state’s environmental regulations and the permitting processes.”

Topics will include air quality and discharge permitting, and inspections. A full day is devoted to siting and compliance requirements and permitting for opencut operations. Enforcement and transportation issues will also be addressed.

Registration is available by calling 800-433-8773 or by emailing Darrick Turner at: dturner2@mt.gov.

“Wildly overblown fears expressed in anti-hydraulic fracturing letters.” (2012-7-30). The Livingston Enterprise. Section: . Retrieved 2012-8-6.

Editor,

Two recent letters to The Enterprise have called for either a ban on hydraulic fracturing near National Parks (Dee Fleming, 7/18/12) or a ban in Montana and essentially nationwide (Heidi Strohmyer, 7/24/12).

I think the letter writers have wildly overblown fears of this essential technology for the production of oil and gas. With over one million wells fractured in the past 60 years and tens of thousand more being fractured each year, you would think that widespread environmental damage would be readily apparent based on the remarks in the letters. The truth is quite different. There are no confirmed reports of any damage at all. The gas in water wells alluded to by Ms. Strohmyer is a natural phenomenon as has been demonstrated by state regulatory agencies and predrill testing. The movie “Gasland” preferred to omit this fact in order to make their case against fracturing more compelling.

Comments are made in both letters about the dangers of the chemicals used in hydraulic fracturing. One letter mentions benzene, which is not used at all. The other alleges that carcinogens and other nasty things are used but none are identified. I encourage both authors to look at fracfocus.org to see what chemicals are really used. The number of these chemicals is certainly not 596 (toxic or not), as Ms. Fleming alleges. Whoever came up with that number must have added up all the products offered by all the fracturing companies without acknowledging that every company has essentially the same set of chemicals in their product line. For example, common table salt would then get counted 25 to 30 times. The website lists about 30 or so chemicals that are actually used in hydraulic fracturing. From the website, you can access the Material Safety Data Sheet (MSDS) on each chemical and see what health and safety issues might arise with the use of that chemical. An MSDS on every chemical used must be on location whenever a well is fractured. The authors could also learn something about the fracturing process itself from this website and the myriad of state regulations that are in place to ensure it is carried out safely in an environmentally sound way. Included in the regulations for Montana is the requirement to disclose the chemicals used in the frac fluid, and this includes the water and the sand, which together comprise about 99.5 percent of the system.

Ms. Strohmyer must think wells are brought on production by letting them blow like a gusher. There are no large releases of gases and liquids as she suggests, and the produced fluids are contained. Air quality monitors in areas such as Ft. Worth, Texas, and Pennsylvania, where hydraulic fracturing is occurring on a wide scale, show no elevated levels of any chemicals of concern. Those working everyday at fracturing locations are not getting sick and in fact have lower levels of time off for illness than what most industries experience.

There are no confirmed reports of groundwater contamination arising from hydraulic fracturing. Ms. Fleming states that the “dead zone” at Pavillion, Wyo., has been attributed to fracturing. This definitely is not so. If she read the preliminary EPA report on the tests conducted there, she would find no evidence of drinking water contamination via fracturing. The EPA found a trace of a chemical often used in frac fluids in one of eight samples taken from two deep test wells at Pavillion, one at 783 feet and the other at 981 feet. Interestingly enough, the same chemical, also used in cleaning supplies, was found in several laboratory water samples. The EPA test wells were drilled to just above the gas sand that is being produced in the Pavillion field. The production wells, all vertical, are only 1,000 to 1,500 feet deep. No frac fluid chemicals were found in the many water wells (typically 300 feet deep) that have been sampled by the EPA.

Pavillion, with its shallow vertical wells, is not a good example of wells that are drilled horizontally and fractured in shale formations many thousands of feet deep. There is no way that a fracture could propagate through thousands of feet of solid rock to a freshwater aquifer located a few hundred feet below ground level. Fractures are more likely to be less than a hundred feet in length. There is plenty of evidence to back this up.

A nationwide ban on hydraulic fracturing would have consequences. You could say goodbye to the Bakken, the Marcellus and to all other shale development. You could also say goodbye to natural gas produced in this country. About 90 percent of natural gas wells and the majority of onshore oil wells would not be drilled at all. Natural gas is used in this country to generate electricity (25 percent last year to coal’s 42 percent), to heat homes, to cook, and for various industrial enterprises. Natural gas exceeded coal as the nation’s primary source of energy in 2011. A frac ban would lead to dramatically increased use of coal for electricity and jeopardize the availability of natural gas for domestic and industrial use. Renewable energy development would also be hindered because gas-fired power plants are needed to back up solar and wind when the sun doesn’t shine and the wind doesn’t blow. If Ms. Strohmyer gets her way, I hope she is around to take the credit when everyone’s gas and electric bills skyrocket.

Ron Clark
Livingston

Emerging markets have also revived America’s role as a big commodity producer. Soaring grain exports have raised farmers’ incomes to record levels, and regulators fret about incipient bubbles in agricultural land. At the same time, surging oil prices have triggered a gusher of new output. In 2011 crude-oil production reached its highest level since 2003, of 5.7m barrels a day (b/d). Production in the Gulf of Mexico is almost back to the levels reached before the Deepwater Horizon oil spill of 2010.

In recent years, techniques have been discovered to release gas from densely layered rock formations known as shale. These techniques—horizontal drilling and hydraulic fracturing, or fracking—have released so much shale gas that its price has tumbled (see our special report). Now the same methods are being applied to race after oil.

In 1999 North Dakota’s rig-count stood at zero after small pockets of conventional oil had run out. Now the Bakken oilfield is pumping out more than 550,000 b/d of shale oil, and Williston, the town at the centre of the field, is booming. It used to take five minutes to cross town; now the weight of oil traffic means it takes 20, according to one resident of this remote corner of a thinly populated state. At Walmart, crowds of shoppers have pressed all the trolleys into service; and its vast car park, like many other similar sites in town, provides a temporary home for fleets of camper vans housing workers flooding to the region’s oilfields. New homes, hotels and “man camps”—row upon row of workers’ huts—are springing up all around.

This year shale oil should contribute some 720,000 b/d to America’s total production. And shale-oil deposits in Texas, Ohio, Nebraska, Colorado and Kansas could eventually contribute as much as 5m b/d, according to the most optimistic forecasts. The Bakken field may well hold more than people think, and Ohio’s Utica shale has barely been tapped.

America is the world’s third-largest oil producer. The deep waters of the Gulf of Mexico could yield substantially more oil (perhaps 1m-2m b/d on top of the 1.3m b/d currently produced). America has plenty of other places where it might look if unfettered drilling were allowed, such as the east and west coasts and restricted parts of the Gulf of Mexico. Oil production in Alaska could also be expanded. America now imports 9m b/d; by “going back onshore” and exploiting all its options, optimists think it could produce 7m more b/d in a decade or so. Daily net imports of crude oil this year are the lowest since 1995, and will probably keep falling in the coming years (see chart 3).

Not so long ago, terminals were still being built in America to import liquefied natural gas (LNG). Now the country is enjoying a bonanza of domestic gas. Americans pay less than $3 for 1m British thermal units, where Europeans and Asians often pay more than $10. Accordingly, America is now planning to send the stuff abroad. Michael Levi of the Council on Foreign Relations thinks that exports of 60 billion cubic metres a year would yield revenue of $20 billion, though higher imports of other goods would offset the benefit to the trade balance.

“America’s economy. Points of light – Amid the gloom there are unexpected signs of boom, especially in energy.” (2012-7-14). The Economist. Retrieved 2012-7-24.

Congratulations to the Bakken Oil Business Journal’s Advertising team member Larry Mosbrucker of New Salem, ND. Larry is the brains and entrepreneur of Stop Sensor, and contestant in this years Innovate ND Program. Larry garnered the Idea Champion title, and won the Value-Added Ag and Advanced Manufacturing category. North Dakotans sure know how to work, and bring a new level of entrepreneurship to business. Congratulations Larry!

Read the full article here by ND Commerce

Innovate ND Awarded Cash Prizes

Lt. Gov. Drew Wrigley and Commerce Commissioner Al Anderson announced five new Idea Champions at the sixth annual statewide Innovate ND program last night in front of a crowd of 130 people at the Ramada Plaza and Suites in Fargo. The 2012 Innovate ND Awards Ceremony was hosted by the ND Department of Commerce and the Fargo Moorhead West Fargo Chamber.

A panel of 10 private sector judges made the final selections out of a field of 20 finalists on Tuesday afternoon before announcing the five winning teams that each received $15,000 in cash and a valuable package of in-kind professional services to help them launch and grow their business. Cash prizes were made possible by the generosity of private sector business.

“Innovate ND is an exciting program that highlights hardworking innovators of North Dakota’s first-in-the-nation economy,” Lt. Gov. Wrigley said. “Our economic future is in the hands of creative, problem-solving individuals with a promising idea and the commitment to building their business right here in North Dakota.”

The five winning entries, unranked, are:

    • Equinox Analytics, Bismarck, ND
    • StopSensor, New Salem, ND
    • Theratainment, Fargo, ND
    • Webcast America, West Fargo, ND
    • Zoovio, Mandan, ND

The winners of the category awards and the winner of the People’s Choice Award were also named.

The winner of the People’s Choice Award went to Gimme Hockey. This is an idea a website for players and hockey camp organizers for promotion, selection, registration, payment, and review. An online database gives prospective customers the ability to sort camps based on the following criteria: skill level, gender, age, date, location, price, and/or name. More than 2,000 total votes were cast. For the fourth year, the $500 cash award was sponsored by the North Dakota Chamber of Commerce.

Category winners each received $500 each provided by industry sponsors. The winners in each of the five categories are:
Value-Added Ag and Advanced Manufacturing – StopSensor, New Salem, ND
Energy and Technology Based – Solargy Lights, Neche and Grand Forks, ND
Retail-Based – Bag’Em Outdoors, Hankinson, ND
Youth Entrepreneurship – Video Promoting ND, Argusville, ND
Women/Minorities/Rural Entrepreneurship – Collapsible Urine Hat, Bismarck, ND

“Our goal with Innovate ND is to help entrepreneurs turn business ideas into functional businesses,” Anderson said. “To date, nearly 800 people with 400 ideas have participated in the program and 125 new businesses are operational or in the development stage as a result.”

Partners from across the state provided technical assistance to 74 teams and 160 participants in the competition this year.

All finalists completed an extensive written summary and made an oral presentation in front of the panel of judges. In selecting winners, judges looked at five criteria: innovation, commercial viability, investment opportunity, entrepreneur team and quality of presentation. The People’s Choice Award was determined by online voting and the category winners were determined by the sponsor of the category.

Innovate ND was launched in November 2006 by the governor and was coordinated by the Governor’s Office, the North Dakota Department of Commerce, the UND Center for Innovation, and the NDSU Technology & Research Park. Forum Communications was the lead sponsor for Innovate ND. Participants paid $250 to enroll in the program.

The program was made possible by more than $200,000 in private-sector contributions and in-kind professional services donations as well as appropriated funds from the Department of Commerce. For more information, see www.innovatend.com.

By: Bob van der Valk
June 5, 2012
Dateline: Terry, Montana

The Irving Oil refinery in St. John, New Brunswick, Canada became the third oil refinery on the East coast to receive 72,000 barrels of Bakken crude oil in a delivery on June 2, 2012.

Irving Oil owns and operates a 300,000 barrrels per day (b/d) refinery and Bakken light, sweet crude delivery is expected to complement the refinery’s feedstocks, which could include both sweet and/or sour crude oil. Bakken crude should help boost St. John refinery’s refining profit margin known in the industry as the crack spread. Bakken crude oil is currently priced at about from $7 to $10 a barrel discount to the benchmark West Texas Intermediate (WTI) crude oil. Railroad tank car freight charges run at about 12-$15 a barrel to the East coast.

Irving could receive about 10,000-15,000 b/d of Bakken Oil crude when the rail delivery operations stabilize in Canada.

The other two Northeast refineries receiving limited volumes of Bakken crude are Phillips 66’s 238,000-b/d Bayway refinery via Global Partners and Sunoco’s 330,000-b/d Philadelphia refinery via Sunoco Logistics.

Bayway refinery is expected to raise its Bakken crude oil intake to about 57,000
b/d in the summer. The Philadelphia refinery is receiving about 20,000-30,000 b/d of Bakken crude oil, and volume could increase in the future, depending on the fate of the
Philadelphia refinery sale to Delta Airlines.

North Dakota March crude oil production jumped by 10.14% from the previous month to 575,489 b/d, according to the latest data issued by the North Dakota State Industrial Commission. About 95% of North Dakota crude production is from the Bakken field.

The information in this article was previously published by Oil Price Information Service (OPIS).

Bob van der Valk is a petroleum industry analyst working and living in Terry, Montana. He can be contacted at (406) 853-4251 or e-mail: tridemoil@aol.com

His viewpoints about the petroleum industry are posted on his web page at: http://www.4vqp.com/pages/12/index.htm

A video criticizing the current U.S. administration’s business and energy policies has gone viral, as American gear up for election season.

Americans For Limited Government (ALG), a non-partisan group, launched ‘If I wanted America to fail’, inspired by Paul Harvey’s essay, If I Were The Devil, slamming President Obama’s policies on a raft of issues, from housing to mining.

The video starts with the haunting words:

“If I wanted America to fail, to follow, not lead; to suffer, not prosper; to despair, not dream; I’d start with energy.
I’d cut off America’s supply of cheap abundant energy.
I couldn’t take it by force.
I’d make Americans feel guilty for using energy that heats their homes, fuels their cars, runs their businesses and powers their economy.
I’d make cheap energy expensive so that expensive energy would seem cheap.
I would empower unelected bureaucrats to outlaw America’s most abundant sources of energy.
After banning its use in America, I would make it illegal for American companies to ship it overseas….”

Testimony of Karen A. Harbert
President & Chief Executive Officer
Institute for 21st Century Energy
U.S. Chamber of Commerce

Tuesday, April 17th, 2012

Thank you, Chairman Hall, Ranking Member Johnson, and members of the Committee. I am Karen Harbert, President and CEO of the Institute for 21st Century Energy (Institute), an affiliate of the U.S. Chamber of Commerce. The U.S. Chamber of Commerce is the world’s largest business federation, representing the interests of more than three million businesses and organizations of every size, sector and region.

The mission of the Institute is to unify policymakers, regulators, business leaders, and the American public behind common sense energy strategy to help keep America secure, prosperous, and clean. In that regard we hope to be of service to this Committee, this Congress as a whole, and the administration.

I appreciate this opportunity to discuss an issue area that gets very little coverage in the public policy debate, the potential benefits and the existing obstacles to greater development of the nation’s vast unconventional oil and natural gas resources. There has been much discussion about America’s oil reserves recently, but rarely does it accurately capture the full extent of our resources. The country’s unconventional oil resources are some of, if not the largest the world and one of the single greatest assets we as Americans possess.

We have hundreds of years of oil supply stored in unconventional formations in the United States. In fact, the three states of Colorado, Wyoming and Utah alone contain more oil from oil shale than all of the conventional oil contained in the Middle East. This resource is so vast that when made commercial, it has the real potential to completely alter the global oil markets and secure America’s energy future at the same time. Yet it is the current policy of our government to ignore the value of these resources, sacrificing the revenue, jobs and huge security dividends Americans would realize from developing them.

Historical Context

After the Arab oil embargo, the price of a barrel of oil almost doubled between 1973 and 1974. By 1980, the price of oil had increased more than tenfold since 1972. In response, the United States, along with most of the Western world, reshuffled its energy policy with a focus on weaning itself off imported oil to insulate it from another supply disruption. Efforts were made by the Department of Energy and private industry to begin a Research and Development (R&D) program to foster technology that could economically produce our unconventional oil resources, primarily focused on our vast oil shale deposits. Canada began similar programs to develop its huge supply of oil sands in Alberta.

However, between 1980 and 1986 oil prices declined by more than 60%, falling by nearly half between 1985 and 1986 alone. In the United States, this decline served as justification to stop virtually all federal R&D focused on unconventional oil. Canada however, maintained its commitment to developing unconventional resources and has seen oil production more than double between 1982 and 2008. Over that same period U.S. domestic oil production declined by 43%.

Yet in 2009, the United States began to see an increase in domestic oil production, the first year-to-year increase since 1985. Innovation in the private sector has generated this nascent renaissance. The combination of hydraulic fracturing and horizontal drilling has catalyzed an energy revolution in America, enabling the economic production of trillions of cubic feet of natural gas from shale formations around the country. More recently industry has evolved these technologies further to produce millions of barrels of oil, putting us on a path that could quite possibly make the United States the largest oil producer in the world once again. If the federal government were to allow access to the country’s tremendous unconventional resources, our production levels could completely reshape the current geopolitical paradigm that has existed for more than 40 years.

These innovations originated in the oil fields of north Texas in the late 1970s, when an experienced and single-minded oilman named George Phydias Mitchell defied the conventional wisdom in the industry, the advice of his employees, and sometimes even the will of his shareholders and invested millions of dollars attempting to produce gas from the Barnett shale formation. Under his direction, Mitchell Energy pioneered the use hydraulic fracturing to unleash methane from this thin, but dense shale formation. Ultimately Devon Energy purchased Mitchell Energy in 2001 and married Mitchell’s experience fracking shale formations with its experience using horizontal drilling technology to make it the pioneer of shale exploration and production.

While it was risk-taking entrepreneurs in the private sector like George Mitchell who created these innovations, the federal government has also played a role in making the technology more efficient and safer, as well as accelerating its development. In 1991, the National Energy Technology Lab collaborated with Mitchell Energy’s first horizontal well in the Barnett and brought a significant body of technological knowledge and experience to Mitchell’s operation, informed by its own work in the Eastern Gas Shales Project started in 1976. The federal government lacks the mission or technical capability to develop these commercial technologies. First movers in industry tend to lack broader data and comparative experience that can be applied to use of their technology to improve efficiencies. Together though, cooperative work between the National Laboratories and the private sector has helped accelerate technological innovation. This is the same type of cooperation that Americans expect when it comes to the development of our unconventional oil assets, but are no longer receiving.

Federal Energy Policy Impact on Competitiveness

Current federal policies that hamper production not only threaten our energy security, but also severely undermine our competitiveness. The International Energy Agency (IEA) projects that global energy demand could increase by nearly 50% by 2035. It also projects that fossil fuels will account for 80% of the world’s energy supply, only slightly down from today’s 86%. Fossil fuels, and oil specifically, will continue to fuel the world’s economies, and countries that are realizing the most economic growth are thinking and acting strategically to ensure future supplies will be available to maintain economic growth and competitiveness.

International competitors are not only increasing their own production, but they are exploiting the tie between their governments and their oil companies to invest in new oil reserves in other countries. It is very difficult for a private corporation, no matter how large it may be, to compete against central governments. These other countries are taking positive steps to ensure they have the energy resources to fuel economic growth well into the future.

However, the United States is set on an opposite course. Under this administration, more than 86% of federal OCS lands and 83% of federal interior lands are completely off limits to energy exploration. In 2008, the Department of Interior’s Bureau of Land Management (BLM) proposed making up to 2 million acres of public lands available for commercial oil shale leasing in Utah, Colorado, and Wyoming and 431,000 acres available for oil sands leasing in Utah. In February 2012, the BLM retreated from that proposal and significantly reduced the acreage available for industry to undertake research and development activities. Specifically, BLM reduced the acreages for oil shale activities in Colorado, Utah and Wyoming by over threequarters, from 2 million to 461,965 acres. In addition, BLM reduced available acreage in eastern Utah for activities related to oil sands development by nearly 80%, from 431,000 to 91,045 acres.

Not only has the federal government been reducing access to the country’s energy resources, but it has also been making it more difficult and expensive to produce on the areas that remain available. New and proposed regulations will add to the cost of production, making it even less attractive for industry to invest and produce oil in the U.S. The largest publicly traded oil companies are increasingly looking overseas to the remaining areas that have not already been locked up by other countries’ national oil companies.

Demand for oil will continue to increase as the global economy recovers and the developing world’s thirst for energy only grows. The claim that U.S. oil production is rising is accurate but the reason is even more telling. Production of oil from federal lands is down 11% from 2011 compared to 2010 but has increased by 14% on private and state lands. The picture is equally as lopsided for production of natural gas, which is down 6% on federal lands but is up 12% on private lands. The most significant reserves are located on public lands so this trend is not sustainable over the long term. Without increased access to federal resources, we will see a return to more of our demand being met by imports.

And, of course, we are paying more for what we do import. Our net imports of petroleum and related products rose to $331 billion in 2011, accounting for 60% of our total trade deficit and about two-thirds of the trade deficits increase from 2010.

In short, America’s access to oil, our predominant source of energy, is declining at home and abroad. The same cannot be said for our global competitors, and our ability to compete, generate investment and revenue and foster economic growth is tremendously diminished as a result.

Market Influence on Innovation and Production

The recent significant increase in domestic oil production has not occurred in a vacuum. It is important to note that geologists have been aware of the shale resources that have spurred increased domestic production for decades. However, it was not until sustained increases in global demand put oil prices on a relatively predictable upwards trajectory did it become economical to commercially deploy the new technology to produce shale oil resources at the levels we are now seeing.

After oil prices climbed to a record-high $143 per barrel in July 2008, the U.S. and the world entered an economic recession that significantly curbed demand, causing oil prices to plummet 60% over the next seven months. Since then, much of the world began positive economic growth again, led by developing economies like China and India, resulting in a gradual increase in oil prices until last year. Over the past three years, we have seen oil prices triple. However, because demand was down in the U.S. and the increase was gradual, most Americans did not really notice it until recently. The recent political turmoil in North Africa and the Persian Gulf created fears of further instability and supply disruptions, and prices climbed precipitously. It is important to understand that even if the political unrest subsides and global supplies are unaffected, increased global demand has essentially recalibrated the oil market. Given today’s market fundamentals, it is difficult to see prices returning to the low prices seen in 2009.

This presumption has created a level of certainty necessary for the private sector to invest billions of dollars over the past three years in oil-bearing shale formations. It also creates the necessary certainty for the private sector to invest in our other unconventional resources like oil shale and oil sands if it were allowed access to those resources.

Impacts of Fuel Prices on Business & the Economy

Fuel prices have taken an increasingly central role in the political and legislative debate over the last few months, and for good reason—it is a drag on economic growth and acts as an effective tax on American families and business. The cost of transporting goods, getting to work and even driving to the grocery store has increased 140% since January, 2009.

Every one cent increase in the price of gasoline costs Americans roughly an additional $1 billion per annum. The average American household spent $4,155 on gasoline in 2011, consuming 8.4% of median household income, the highest since 1981. Additionally, each $10 increase in oil prices can knock a few tenths of a percent off any increase in GDP. The quicker the increase, the more pronounced the impact on economic growth. Because of the recent global recession, the cumulative amount of money spent on oil has become a larger share of global GDP since most other areas of economic output have remained constant or declined. In 2011 oil accounted for more than 5% of global GDP, a level not seen since 2008 when oil was selling at $150. Based on 2012 projections from IEA, oil’s share of GDP could approach 6% in 2012, the highest mark since the tumultuous 1970s.

Higher energy prices erode expendable income for America’s families and marginal profits for America’s businesses. At a time where we are just beginning to realize positive economic growth again, these price increases can have a profoundly negative impact. U.S. policy alone cannot recalibrate global oil markets on its own. However, U.S. policy can absolutely have a positive impact on U.S. prices just as it has had a negative impact.

As energy costs increase, businesses have less money to pay employees, new or existing. If prices remain elevated long enough, the unemployment rate can be expected to rise. This, of course, would be on top of the current prolonged high unemployment rate. As the administration and some in Congress have made calls to raise taxes on the oil and gas industry, it is also important to remember the consumer and job impacts such policies would have.

While it is factually accurate to say that there are very few mechanisms at the federal government’s disposal to lower fuel prices immediately, it is not accurate that the government can do nothing to affect prices in the future. A signal to the global energy market that the U.S. is committed to accelerating the development of its vast conventional and unconventional oil resources would not go unnoticed. It is also not true that increased U.S. production could never be large enough to impact global prices and any claim to the contrary demonstrates either unawareness of the country’s massive unconventional oil resources or a willful attempt to hide our potential. One need only look back to the first half 1980s to see the impact the addition of oil production from Alaska’s North Slope and other areas such as the North Sea had on putting downward pressure on the world price of oil, contributing to the collapse in global price in 1986. The acceleration of oil sands production in Alberta in the early 2000s is another, more recent example. Similarly, our unconventional resources have the potential to be the gamechanger the U.S. economy needs and upon which our future competitiveness can depend.

Potential Benefits of Increased Unconventional Production

According to a recent Inventory of U.S. Energy Resources produced by the Institute for Energy Research from official U.S. government data, the country has an estimated 2.7 trillion barrels of in-place oil shale and oil sands resources, more than 80% of which is located on federal lands. At current levels of consumption, these resources would meet our demand for more than 380 years. These resources are twice the size of the entire world’s proven conventional oil reserves of 1.3 trillion barrels. However, current technology would only allow for production of a fraction of the total resources. The Energy Information Administration estimates that the Green River Formation in Colorado, Utah, and Wyoming contains 800 billion barrels of recoverable oil.

A white paper released last month1 by Anton Dammer and James Bunger updates previous government estimates and finds that by developing our oil shale and oil sands resources as Congress instructed in 2005, over the next 25 years we could realize a gain in oil production of 1.1 billion barrels, increase economic growth by $153 billion, increase government revenue by $31 billion, and avoid sending overseas $129 billion for imported oil.

The paper noted that original government estimates that were delivered to Congress in 2007 were much higher but the current administration has been adversarial to development of these resources, eroding any progress that had been made in the previous administration. The paper recounts that a Task Force consisting of the Departments of Interior, Energy, and Defense had worked to fulfill Congress’ mandate through 2008. The Task Force inventoried unconventional resources, current R&D work being conducted, and the state of current technology and recommended a strategic plan for accelerating the development of these resources. Additionally, the Department of Interior finalized a Programmatic Environmental Impact Statement (PEIS), produced a Resource Management Plan, promulgated new leasing regulations, and awarded six Research, Development, and Demonstration leases to industry. Implementation of Congress’ mandate was on underway and on schedule at the end of 2008.

Since then, the current administration has essentially killed this effort against the will of Congress. The Department of Interior has withdrawn the leasing program, publicly suggested that terms of existing leases and the Resource Management Plan are under review, and chose not to defend itself in a lawsuit that has killed the leasing program. Moreover, the Unconventional Fuels Program at the Department of Energy has been de-funded and abandoned. The Department of Interior’s new PEIS severely limits new acreage. These actions have spoken loud and clear to the private sector…do not invest your capital in the development of unconventional oil production.

Similar to what has happened in the production of oil and natural gas from shale formations, industry has been forced to focus on development on state and private lands. While the current hydrocarbon boom demonstrates that industry’s innovation and perseverance can sometimes trump governmental obstinace, it should not have to do so. Our energy future is being compromised by the administration picking energy favorites and trumping the nation’s strategic interests.

Industry has developed many different potential methods to develop both oil sands and oil shale resources. In both cases hydrocarbons are trapped in no viscous elements. While oil sands contain producible hydrocarbons, oil shale must be chemically converted to produce hydrocarbons. Because Canada had the foresight to maintain a commitment to unconventional R&D and production, there is a tremendous body of commercial technology that supports oil sands production. As the technology has evolved, it has become more efficient and has considerably lessened its environmental impact. In fact, Albertan oil sands development has become so common-place that it no longer even merits the designation of “unconventional”.

In the initial stages of oil sands production, soil was mined from the surface and then manufactured into crude oil. Recently however, there has been a major shift towards in situ, or “in place” production, whereby heat either through steam or other mediums is applied to the oil sands bitumen to increase its viscosity to the point that it is produced via traditional oil drilling techniques. In situ production has significantly reduced land disturbance and environmental footprint. While U.S. oil sands are chemically divergent from those in Canada, the innovation and experience in Alberta provides a tremendous starting point for production here…if and when the government was to allow access to our oil sands resources.

Lack of access and economic conditions have prevented oil shale development technology from progressing as far as that for oil sands. However, like oil sands, crude oil can be produced from oil shale through surface mining or via in situ methods. Because shale is solid rock, oil shale kerogen must be exposed to higher temperatures to render its hydrocarbons. Industry does believe that knowledge gained in the Albertan oil sands will directly benefit development of U.S. oil shale…if and when the government was to allow access to our oil shale resources. Unlike production of oil and natural gas from shale formations, there is relatively little oil shale to develop on state and private lands. Without access to federal oil shale resources, industry has very little incentive to invest capital into technology when it has no reason to expect that it will ever be able commercially produce oil shale deposits and recoup its R&D investment.

As such, the policy pathway to realizing even a portion of this huge asset is to allow access to our unconventional resources for production. Congress made its will known through its overwhelmingly bipartisan support for the Energy Policy Act of 2005. This administration has ignored its mandate and refuses to move forward with production of unconventional oil on federal lands. Unless this near-sighted approach changes, our largest strategic assets will remain subterranean potential assets until this, or subsequent administrations decide to allow access to these strategic assets and secure our energy future.

This is a post by Piccolo, a petroleum engineer working in the petroleum industry.

The Bakken formation in North Dakota and Montana has generated a lot of buzz in the past year. Reserve numbers in the billions of barrels, even tens or hundreds of billions show up in press reports and blogs. Now the USGS has weighed in with a comprehensive assessment of the resource. So just how much will this oil accumulation help the world’s largest importer of oil? Is it time to relax or is this just another small blip in the long-term decline of domestic production? We’ll examine these questions and others below the fold, using data from the IHS database.

Figure 1 – Location of the Bakken Formation in the Williston Basin, adapted from esask.uregina.ca/entry/williston_basin

Overview of the Bakken

The Bakken formation is an oil-bearing strata covering parts of Montana, North Dakota, and Saskatchewan. Oil was first produced from the Bakken more than 50 years ago. Production was mainly from a few vertical wells until the 1980’s when horizontal technology became available. Only recently after the intensive application of horizontal wells combined with hydraulic fracturing technology did production really take off.

The Bakken is one of many hydrocarbon producing formations in the Williston Basin, a sedimentary basin covering parts of three states and two provinces. The total layer of sediments in the basin can be up to 15,000 ft thick, and within that, the Bakken itself reaches a maximum thickness of about 150 ft., but is thinner in most areas. The depth to the top of the Bakken can vary from a few thousand feet in Canada to more than 10,000 feet in the deeper areas in North Dakota. In terms of geologic age, it was deposited during the upper Devonian and Lower Mississippian periods about 360 million years ago. The entire stratigraphic column for the Williston Basin is shown below. Figure 2 indicates 15 primary producing formations in the basin, including the Bakken.

Figure 2 – Williston Basin stratigraphic column from Wikipedia

To learn more about the intricacies of the Bakken, continue reading here.