Frack to the future.

• Author: Maugeri, Leonardo
• Position: Oil production

The world has been caught by surprise by the United States' shale-oil boom. Analysts and experts are still clashing about both its true extent and the possibility of extending a shale revolution beyond North America. In just a few years shale oil could make the United States the world's top oil producer. But a shale revolution is unlikely in the rest of the world, due to some unique factors that characterize the U.S. oil and gas patch. The single-minded focus on the future of shale oil, however, risks obscuring another evolving dimension of the global oil picture that defies the past pessimism spread by peak-oil theorists who claimed that shortages loomed: beyond the United States, the world's oil-production capacity is also growing much faster than demand.

So far, this imbalance has been offset by two things: continuous outages of existing oil supply affecting several Arab and African countries, and the recurring fears of escalating crises in the Middle East. But supply capacity is bound to grow in the future as well, so that unless demand rebounds strongly in the next few years, a significant downturn of oil prices may well occur. The connections among a number of factors--the U.S. shale boom, the global rise of oil supply, and the inner volatility of oil prices due to temporary outages and political crises--provide a somewhat contradictory picture of the global oil market. These contradictions may, in turn, trigger unexpected changes in the direction of the oil market. All of these changes may have deep and sometimes paradoxical consequences for U.S. energy security.

There are several issues in the current debate over the boom in so-called U.S. tight and shale oil (hereafter referred to as shale oil) that serve to reinforce extreme and seemingly irreconcilable attitudes. One of the central questions revolves around the real potential of this boom and can be formulated simply as follows: Is oil production from shale formations just a temporary bubble, or is it capable of significantly altering the U.S.--and possibly global--energy outlook? To answer this question, I studied more than four thousand shale wells, along with the activities of about one hundred oil companies involved in shale-oil exploitation. The main results of this analysis are multifaceted. On the one hand, the large resource size and the ability of the industry to develop it through steady improvements in technology and cost suggest that the United States may become the largest global oil producer in just a few years, and maintain a high output for many years to come. The U.S. shale-oil boom is thus not a temporary bubble but a long-term, transformational phenomenon.

However, the unique characteristics of shale oil--the drilling intensity in particular--make it vulnerable to both price drops and environmental opposition in new and populated areas. What's more, shale development benefits from some specific factors that are especially present in the United States but not worldwide, and that makes the global extension of a shale boom unlikely, at least in this decade. Even with a steady decline of crude-oil prices (for example, from $85 per barrel in 2013 to $65 per barrel in 2017), the United States could be producing 5 million barrels per day (MBD) of shale oil by 2017. With the present output of 1.5 MBD, that would more than triple the current production. More than 90 percent of such production will come from just three large shale-oil formations: Bakken-Three Forks (North Dakota), Eagle Ford (Texas) and Permian Basin (Texas). Together with a relatively resilient production of conventional oil, an increasing production of natural-gas liquids (NCLS) and a steady output of biofuels (NCLS and biofuels are considered part of the overall oil production in most statistical sources), the United States could become the leading oil producer in the world by the end of 2017, with an overall oil production of about 16 MBD and a sheer crude-oil production of 10.4 MBD.

Reinforcing this prospect is the resilience of U.S. conventional-oil production, once deemed bound to decline irreversibly. In fact, thanks to the extensive application of advanced technology to mature and once-declining oil fields, U.S. conventional-oil production is also doing better than generally expected.

Among the fourteen main oil-producing states or areas of the United States, so far nine have already witnessed a reverse of their declining oil production. What's more, the relative decline in the Gulf of Mexico is just a result of postponed development following the Deepwater Horizon incident in 2010. Yet the driving force behind the U.S. oil boom--namely, its huge shale-oil potential--depends crucially on the U.S. oil industry's ability to bring on line an astonishing number of wells each year. In fact, the extremely low porosity of shale reservoir rocks limits the...