CONTENTS INTRODUCTION I. HYDRAULIC FRACTURING A. Microfracture-onomics B. Macrofrackonomics 1. Reserves 2. Production 3. Prices 4. Drilling C. Costs II. REGULATORY AND ENVIRONMENTAL CONSIDERATIONS A. Regulation B. Environmental Costs C. Pavillion, Wyoming CONCLUSION INTRODUCTION
The United States has experienced an oil and gas renaissance thanks to technological innovations that have propelled unconventional resources to the forefront of energy policy discussions. Hydraulic fracturing is part of the suite of technologies that have transformed the energy industry and outlook over the past fifteen years. Commonly called "fracking," (1) the process has been a lightning rod for public and environmental concerns about the expansion of oil and gas development. This Article introduces the economic factors behind hydraulic fracturing. These effects cut across three different scales. First is the minute scale at which microfractures in unconventional reservoirs allow large productivity increases in well investments. The second is an aggregate scale where the market supply of hydrocarbons has changed due to application of the new technology, with implications for global environmental issues. The third and final scale is a human scale, as tradeoffs between additional wells and environmental impacts are considered.
Oil and natural gas are formed in geologic time as organic matter is transformed by heat and pressure. Geologic strata where these transformations take place are referred to as "source rocks." Over time, oil and gas may migrate out of the source rock and into other formations where they are trapped. Those formations are conventional reservoirs. Many times oil and gas are found together, although deposits of only oil or gas occur as well. Exploratory efforts have discovered new conventional reservoirs over time, but production depletes the known reserves. In the course of seeking productive conventional reservoirs, many source rock formations have been located. These rock formations include shales, relatively impermeable sandstones, and coal beds. Depletion, higher prices, and technological advances in exploration and production have made the unconventional resources in source rocks more attractive. Hydraulic fracturing is an essential element of the suite of technological advances that has incorporated unconventional resources into U.S. energy supply. (2)
Hydraulic fracturing has been hailed as a new technology, but the process used today is a distillation of advances made over several decades. Complementary technologies have contributed to the reserve additions and market effects often attributed solely to fracking. Hydraulic fracturing has been used for almost seventy years, (3) though considerable research effort into the mechanics of fractures and the technicalities of how to improve production from fractured reservoirs has been made in the intervening years. The recent propagation of fracking is widely traced to 1998, when a long period of technical experimentation came to fruition in the Barnett Shale in Texas. (4) Similar experimentation has occurred in other areas and formations as well. (5)
But fracking is only part of the innovation. Unconventional resources are unlocked by a combination of technologies. The gains from directional drilling and advanced seismography add to the gains from stimulating reservoirs by fracturing. (6) Fracking is often mischaracterized as a drilling technology. In fact, the process does not begin until after the wellbore is drilled. But many wells would not be drilled at all if they could not be fractured--the productivity of a well depends on all of the technical attributes. Although the combination of horizontal drilling and fracking has been especially valuable in shale reservoirs, the two need not be used together. Fracture stimulation is used in reservoirs with vertical wells, such as the Jonah gas field in Wyoming, and horizontal wellbores are used without fracturing, such as for SAG-D recovery of oil sands in Alberta.
A nontechnical description of hydraulic fracturing helps explain the source of productivity gains. (7) The fracking process always begins after a wellbore is drilled but usually before the well is completed and production begins. The basic idea is to inject a fluid solvent into the target formation at sufficient pressure to crack the rocks. Large pumps on the surface generate this pressure. The solvent exerts the pressure on the formation rocks and carries material (usually sand) down into the fractures that are created. When pumped into the fissures, the sand props the fractures open and keeps them open. Thus, the sand is referred to as the "proppant." Several different sizes of sand are often used. (8) Smaller-diameter material is injected first and pushed further from the wellbore to hold the smallest part of the fracture, with larger-diameter material filling in behind. In reservoirs with very high pressures, sand is not strong enough to hold the fractures open, and more durable synthetic proppants can be used instead. (9) Once the fracture is propped, hydrocarbons flow out of the surrounding rock and into the wellbore.
Four technical innovations differentiate contemporary fracking from its predecessors. First, substantially larger volumes of fluid and proppant are injected: sometimes high-volume fracturing involves injecting millions of gallons of fluid and thousands of tons of proppant. (10) Larger volumes then require larger pumps on the surface. Second, two different types of fracturing jobs--water fracks and gel fracks--have been combined to form "slickwater" fracks. This combination employs the advantage of gel, which carries large amounts of proppant to enhance permeability, as well as the advantage of water, which creates more and cleaner fractures. (11) Third, multistage jobs are an important improvement over earlier open-hole jobs. (12) The ability to isolate sections of the wellbore leverages additional horsepower and gives more control over the process. Fourth, considerable effort has gone into optimizing the chemical additives in the injected fluid. Different additives give the fluid properties that may help it carry more material down the hole, or that may enhance production after the stimulation activity is complete. Fracturing "recipes" vary substantially between formations and different firms. (13) The characteristics of the reservoir dictate the type of fracturing that is required.
The reality of fracturing is not as simple as it sounds, in large part because the action occurs far underground where monitoring is difficult. Even with the aid of microseismic monitoring, engineers rarely know the exact geometry of fractures. (14) Fractures do not necessarily propagate regularly in the deep subsurface where a complex lattice of preexisting faults and fissures can enhance or inhibit the conductivity of artificial fractures. Adding the dimension of time, the fracture morphology becomes even more tortuous; fractures can change over time. The exact topography of the factures complicates the fluid dynamics within the reservoir, which affects the transmissivity of the reservoir. This uncertainty means that engineers constantly learn by experimentation. By studying well logs and production reports, geologists and engineers can devise new strategies to improve well performance, weighing the costs of enhanced treatments against the expected benefits of increased production.
The fracturing fluid is recovered over the course of time. Because the toxicity of the fluid is a primary environmental concern, the degree and timing of recovery is a salient issue. Results vary by formation. Some rocks absorb more of the fluid than others. In some formations, a majority of the fluid flows back during the fracking process, while in others the balance of the water is recovered with the produced hydrocarbons over the course of subsequent weeks and months. In some cases fluid can be treated and reused, while in others disposal is preferred. (15)
Geologic conditions vary from region to region and even between formations within a region. These variations require a period of "learning by doing" as engineers experiment with the technical elements to crack the code of a particular formation and maximize production. For this reason, operators undertake multiwell projects, or drilling campaigns, to give engineers and geologists a chance to figure out how to optimize production. (16) Many considerations affect well design decisions, and fracturing consultants are often retained.
Stimulating a reservoir by hydraulic fracturing increases the initial flow to the wellbore and the production of the well. A key to this process is the exposure of the wellbore to a large area of the reservoir. Consider for a moment the access that a perforated horizontal wellbore provides to the surface of the source rock. Comparing the formation surface area connected to the wellbore by perforations or fractures, the downhole surface area exposed to the resevoir can be increased by as much as several thousand times. (17) Increasing the surface area allows production from less permeable ("tighter") formations, which makes production from shales and other unconventional resources possible. Although more permeability is required for oil than gas, the advantage of well-designed and implemented fracture designs is tremendous--three to five orders of magnitude is not out of the question. The initial production of the well is a function of the initial pressure and exposed area: holding the reservoir pressure constant, fracturing the well can increase initial production rates by a factor similar to the increase in exposed area.
Consider the alternative to fracturing wells. Instead of increasing reservoir contact by fracking, operators could simply drill more wells. To match the contact provided by one fractured well, an operator would...