Tag Archives: Shale Oil and Natural Gas Production

Overview of Shale Formation Exploitation

The History of Commercial Fracking

Commercial Fracking began in the early 2000s in Texas in the Barnett Shale.  There are three types of product that come out of shale formations, natural gas, tight natural gas, and light tight oil. Natural Gas and Tight Natural Gas are only distinguished by the geological formation they are found in. Light Tight Oil is defined by it being found in low permeability formations such as carbonate and shale formations. The identification of tight natural gas as a separate production category began with the passage of the Natural Gas Policy Act of 1978 (NGPA).  This was done to remove tight natural gas from existing regulatory frameworks and allow its price to be purely market determined and encourage increased exploitation.

There are two key developments that make fracking possible, hydraulic fracturing and horizontal drilling. Hydraulic fracturing is the injection of high pressure fluids and chemicals to break up formations and permit a flow of natural gas to the surface  Horizontal drilling is the key technology to making fracking commercially possible. Tight oil formations by their nature do not give up their contents easily. They must be broken up by hydraulic fracturing to release oil and natural gas. Horizontal drilling allows a far larger area to be fracked from a single borehole, meaning far less expense compared to previous vertical drilling tech which required many wells to be drilled to access the same formation.

If you want to learn more go to this website which has a great in-depth technical explanation of how fracking works

Where is the Oil and Gas Found

Shale formations in the United States of America are concentrated in Texas and the Appalachian basin. The Bakken shale is also of note, as its proximity to the proposed Keystone XL Pipeline is central to its profitability by reducing its transport costs to the refineries on the east coast and in Texas.  The United States is ranked second in light tight oil and fourth in tight natural gas reserves.

The graphs below illustrates the shale formations in the United States and where the majority of fracking is being conducted.



Shale Production: Reserves and Costs of Production

Currently only four countries are producing from shale formations. Two types of product can be produced from shale oils, natural gas and light tight oil. Natural gas is an actual gas that we familiar with, heating our homes and generating electricity, Light tight oil a grade of oil that is trapped in shale formations, and is one of the higher quality and more flammable types of oil. The United States of America, Canada, China, and Argentina are the four current commercial producers of shale natural gas and oil.  The United States produces the vast majority of both, with Canada in second. New production from shale formations is coming online in Algeria, Australia, Colombia, Mexico and Russia.

The graph below illustrates relationship between prices and the size of reserves. Reserves actually refer to the amount of oil or natural gas that it is profitable or cost effective to recover at current prices. Shale natural gas and tight oil is significantly more expensive to recover than conventional oil. So as the price goes down the size of shale reserves actually decreases. At current prices, $45 – $50 the Canadian tar sands are no longer viable to produce. Oil prices to be $70 – $75 to make it worthwhile to produce. As well much of the shale gas production in the United States is no longer profitable to produce at current oil prices.



US State Department Keystone XL Pipeline report; fig. ES-8 http://keystonepipeline-xl.state.gov/documents/organization/221135.pdf

U.S. Energy Information Administration calculations with data from DrillingInfo, Canadian National Energy Board, Cedigaz, Fact Global Energy China Monthly, Chevron, and Yacimientos Petroliferos Fiscales