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CALGARY — The quick rise of tight oil in the United States and Canada is dominating oil patch chatter as players take stock of what it could all mean — are we on the verge of a global energy revolution, or on a trend that is encouraging, but unlikely to meet lofty expectations? Tight oil is unconventional oil resources extracted by horizontal drilling and fracking technologies.
With production in the United States gushing out of the Bakken and lots of potential in the Eagle Ford and 20 other plays, Canada barely getting warmed up, and other countries looking to copy the North American experience, optimists envisage the biggest game changer for the energy sector in decades.
By offering North America a shot at energy independence, there’s talk of vast political implications, including a new U.S. foreign policy free of Middle East strings and less urgency to find/subsidize alternative fuels. Some argue the growing importance of tight oil could even shine a new light on Canada’s oil sands in the eyes of Americans because they make energy independence achievable.
Robin West, chairman and chief executive officer of PFC Energy, a global consulting firm that specializes in oil and gas, has gone as far as branding the shift as the energy equivalent of the fall of the Berlin Wall.
Companies of all sizes are repositioning themselves, learning how to produce it or buying up those who know how. Investors love the possibilities. New hot spots are emerging and old ones are being revived. Centres such as Calgary are seeing an influx of foreign operators, from the Chinese to the Russians, wanting to get in on the secrets.
But as more is known about tight oil, whose track record as a mainstream movement spans barely of a couple of years, skeptics are emerging, too. They question the new resource’s staying power and whether the North American experience can be easily translated elsewhere.
It wouldn’t be the first time that aggressive forecasts turn to disappointment. Remember coalbed methane? How about Russia’s energy promise? We are still waiting for the next big thing from Canada’s East coast offshore, and energy from the Canadian Beaufort Sea remain a mirage.
So far, tight oil has added about 700,000 b/d of production in the U.S. In Canada, it’s making up for declining conventional production.
A new study by the Belfer Center at the Harvard Kennedy School reflects the bullish view. Author Leonardo Maugeri estimates tight oil fields in the U.S. could push out 3.5 million barrels a day by 2020, raising overall U.S. production to 11.6 million barrels a day, which would put it second to Saudi Arabia as a top world producer.
“The initial American shale play, Bakken/Three Forks in North Dakota and Montana, could become a big Persian Gulf producing country within the United States. But the country has more than 20 big shale oil formations, especially the Eagle Ford shale, where the recent boom is revealing a hydrocarbon endowment comparable to that of the Bakken shale,” he writes in a paper entitled “Oil: The Next Revolution, the unprecedented upsurge of oil production capacity and what it means for the world.”
With most tight oil plays profitable at oil prices in the US$50 to US$60 per-barrel range, Mr. Maugeri argues they are resilient to a significant downturn in oil prices. As technology develops, costs will come down, turning today’s expensive oil into tomorrow’s cheap oil.
Moreover, he believes other countries will emulate the U.S. experience, uncover new tight oil fields and boost recoveries from old ones by applying the same technologies – a combination of horizontal drilling and hydraulic fracturing.
“Oil is not in short supply,” he writes. “From a purely physical point of view, there are huge volumes of conventional and unconventional oils still to be developed, with no ‘peak oil’ in sight. The real problems concerning future oil production are above the surface, not beneath it, and relate to political decisions and geopolitical instability.”
For the rest of this column, please go to the National Post website: http://business.financialpost.com/2012/07/21/will-tight-oil-change-the-world/