Sheila McNulty Interest grows in transferring shale gas success to oil

The big boom in the US’ onshore shale gas play has led to an oversupply of natural gas, putting downward pressure on prices. A number of drilling programs have, therefore, been scaled back to wait until prices rise. And this has left equipment and expertise available at cheap rates for entrepreneurs to take on.

In the meantime, they are tinkering with transferring the shale gas boom into a shale oil boomlet.

PFC Energy, the consultancy, highlights this trend in a new report, entitled Gauging Potential for the Bakken Shale Oil Play.  The Bakken is where this tinkering has been going on, from essentially a standing start in 2000, to a doubling of Montana’s oil production in just three years, to what PFC expects could be potential oil volumes to top 450 mbo/d by 2013, depending on the level of drilling activity.

From the report:

With continued weakness forecast in north American gas prices, a growing number of upstream players are turning to the Bakken – and other onshore oil plays – to leverage the technoloiges and drilling practices that have successfully unlocked the unconventional gas resource plays…In short, too many rigs, too much frac equipment, and too many crews in a world of strong gas well productivity is playing into the hands of the shale oil developers.

PFC believes this trend will continue, given the continued strength in oil prices as a motivator amid concerns over peak oil, energy security and the slow growth in renewables. With the oil shale plays located largely in and around established oil producing areas, the consultancy notes the shale oil plays benefit from proximate infrastructure an low tie-in costs.

Nobody knows how big the oil shale play could eventually be. But few are willing to dismiss it after writing off US onshore gas as a declining play for years only to witness today’s boom.

Oil shale production has been previously attempted in the US in the 1970s, but was eventually abandoned when prices began to fall. [Update: this is different to the type of shale oil production under way in the Bakken - thanks to Ed Reed for his comment and link below, which explains the distinction at more length.]

PFC, however, while cautioning that shale oil is more technically challenging than its gas counterpart, sounds fairly confident on the economic potential (our emphasis):

The economics and size of the prize in the Bakken have motivated a number of parties to target other basins where this success might be reproduced… Will another large shale oil play be found? No one knows. The scope for success is less than natural gas, simply given the enormous viscosity difference between oil and gas. However, the important message here is that the economics are creating very large rewards for those ingenious and bold enough to figure out the technical aspects.

This is a similar backdrop to that of the shale gas boom. Stay tuned for more news in this area.

Related links:

Sharp fall for US natural gas prices (FT)