Hydraulic Fracturing: The State of the Art
Fundamentally, propped hydraulic fracturing is a process used to make oil and gas wells produce oil and gas faster. It does not create hydrocarbons or increase formation permeability – it simply makes wells produce existing reserves more quickly. In almost all cases in North America and many other parts of the world with long history of oil and gas production, hydraulic fracturing means the difference between an economic and a sub-economic well.
It took many years for the industry to realize that, by pumping hydraulic pressure into a subsurface hydrocarbon filled rock, one could create a crack that would make it much easier for oil, or gas, to flow out of the rock. Today virtually all wells require this process to produce commercial quantities of gas (or oil). It has taken the industry the last 20 years to figure out that horizontal wellbores combined with hydraulic fracturing are the key to producing commercial quantities of natural gas from shale formations.
This realization, combined with advancements in the ability to pump multiple fracture treatments in tight rock and shale formations has led to a huge boom in gas production. Shale and tight gas now account for over 2/3 of the daily gas produced in the United States, and this has led to 87% of US natural gas supply to be produced domestically. It is important to realize that this gas production wouldn’t be possible without hydraulic fracturing.
If we assume that it costs about the same amount of money to drill a well of similar deviation, architecture, size and location, regardless of hydrocarbon type, pay thickness or reservoir permeability, then we can also safely assume that the well will need to have similar productivity (in terms of revenue per day) in order to be economic, regardless of fluid type or reservoir permeability. This creates a problem, as it is obviously much easier to get an economic well in a 100 millidarcy, md oil reservoir than it is a 0.01 md gas reservoir.
So let’s stimulate the 0.01 md gas reservoir and make it produce the gas faster. This can be easily done and indeed this type of situation was the very backbone of the fracturing industry until quite recently. How productive this type of well can be comes down to reservoir contact, or to put it another way, inflow area. This is the area of contact between the wellbore and the reservoir, through which the hydrocarbons flow into the wellbore. Quite obviously, the larger the inflow area, the greater the productivity – larger diameter wellbores produce more than smaller diameter wellbores, for instance.
One way of increasing reservoir contact is to drill horizontal wellbore rather than vertical. Another way is the drill multilaterals. Yet another way is to create a hydraulic fracture. The relative inflow areas of common wellbore configurations are given in Table 1. As one can see from this table, even some quite complex wellbore configurations still only have a fraction of the inflow area of a very small hydraulic fracture.
Table 1: Surface area for different well geometries
For a given hydrocarbon production rate, there is an approximate inverse relationship between permeability and inflow area – as the permeability goes down by an order of magnitude, so the inflow area has to increase by an order of magnitude. Consequently, there is a progression to larger and larger fractures as permeability decreases:
- For high permeability conventional gas (above 1 md), economic wells can be made (in most circumstances) without having to fracture. However, this does not mean that fracturing is not beneficial – it can turn a good well into a great well – but it is not essential.
- For low permeability conventional gas and “good” tight gas (0.01 to 1 md), a well can be made economic with a relatively small and cheap hydraulic fracture.
- As the formations get really tight (0.1 ?d to 0.01 md), very large hydraulic fractures have to be placed, often with two or more on a wellbore, if the net pay is sufficient. At the lower end of this range, it may be necessary to drill horizontal wellbores in order to place several fractures in the net pay.
- As the permeability decreases even further, into the range of shale gas formations (1 to 100 nd), even placing multiple fractures along a horizontal wellbore becomes insufficient. In these cases, the only way to get sufficient inflow area is to deliberately target extensive areas of natural fractures, into which the hydraulic fracture can propagate and also to place anywhere up to 40 of these treatments along a horizontal wellbore.
- This relationship between permeability and fracturing strategy is also true for oil, except that the permeability ranges are two orders of magnitude greater.
This issue of inflow area or reservoir contact is the fundamental reason why fracturing has become the only viable completion method in tight gas, shale gas and shale oil formations. It is also the reason why as the industry has moved from conventional to unconventional and on to shale, “frac jobs” have become bigger, more complex and more common. Indeed, probably more than 75% of North America’s gas industry only exists because of the success of hydraulic fracturing.
The massive growth of the hydraulic fracturing industry, especially in the USA and Canada, is illustrated in Figures 1 and 2.
Figure 1: Global market size for hydraulic fracturing in oil and gas fields
Figure 2: Number of fracturing treatments per year
Recent Trends in Fracturing Activity
North America – Land
The downturn in the global oil and gas industry that started in late 2008 and went through all of 2009 has now completely worked its way through the system, as illustrated in Figures 1 and 2. Activity is once again threatening record levels and once again independent operators are being forced to wait several months for hydraulic fracture treatments. Pricing has also increased, as illustrated in Figure 3. In early 2008 the average price of a frac job was between $110k and $120k. In mid-2009, this dipped to as low as $80k, but is expected to be as high as $150k by the end of the year. However, this measure of the buoyancy of the market is a somewhat blunt instrument, as treatments have changed significant since 2008.
Figure 3: Average cost per fracturing treatment
Up until 2008, the boom in the fracturing industry was driven by the gas price and the development of techniques that allowed the economic exploitation of shale gas reservoirs. However, the gas price has remained fairly stagnant since 2009 and the current boom is driven by the steady rise in the price of oil. Consequently the major boom areas are no longer the Barnett shale and the tight gas fields of the Rocky Mountains. This time, the boom areas are conventional oil plays like the Permian basin, oil shales like the Bakken and liquids-rich gas shales such as the Eagle Ford and the Granite Wash. As a result, the drilling and service sectors have moved considerable resources towards these areas and away from the boom areas of as little as 4 years ago.
The market is once again capacity limited, and although the service companies are adding capacity as fast as they are able, this is tempered by the knowledge that a sudden collapse in oil price could leave them high and dry with enormous CAPEX exposures. Although estimates vary, there is around 12,000,000 HHP currently in the North American market, up around 25% from last year and about 6 times the total available in 2004. Approximately 50% of this belongs to the three big fracturing service providers (Halliburton, Schlumberger and Baker Hughes), another 20% to the next three “up-and-coming” independent service providers (Frac Tech, Trican and Weatherford) with the remaining 30% split amongst a couple of dozen minor companies. For a while it looked as if the 2009 downturn would drive a number of the independent service providers under, but the rise in oil-related activity came just in time to turn things around. The global market share trend over the last few years (which is heavily dominated by North America) is illustrated in Figure 4.
Figure 4: Market share in hydraulic fracturing
The trend in market share that saw the independents gaining at the expense of the big three fracturing companies throughout 2006, 2007 and 2008 has largely been halted, as the commodity-style fracturing of the shallower shales such as the Barnett has been replaced by the more technology-intensive, deeper and hotter liquids-rich gas shales and also the Bakken oil shale.
Whilst under-capacity in the market is good for the service providers, it is bad for the operating companies as they have increasing numbers of wells waiting to be fractured. This time, however, it is not just the availability of fracturing equipment that is holding back the industry:
- Proppant The granular material used to keep the hydraulic fractures propped open is in very short supply. Although the majority of treatments are still performed using specially-selected natural sand, an increasing proportion of treatments are performed using the much stronger – but also much more expensive – artificial proppants. This is necessary as formations such as the Hainesville, Eagle Ford and Granite Wash are considerably deeper than the standard-setting Barnett shale, requiring correspondingly stronger formations. Sales of frac sand and resin-coated frac sand have risen threefold since 2006, whilst sales of artificial proppants have doubled. Currently, the industry faces severe shortages of all these products and the ability to fracture a well is as often determined by availability of proppant as it is by availability of equipment
- Guar polymer A shortage of guar polymer is a new phenomenon. The polymer is widely used as a viscosifying agent for the fluids used frac treatments and has the advantages of being cheap, easy to use and environmentally-friendly. It extracted from the guar bean, the vast majority of which are grown in India. With supply unable to keep pace with demand – and a supply sector unused to responding to the rapid swings in demand associated with the North American oil and gas industry – many service providers are developing artificial alternatives. However, it is unlikely that these will be as cheap as guar and making them as environmentally-friendly will be a major challenge.
North America – Offshore
In the Gulf of Mexico, activity continues to be affected by the Macondo incident. Before this event, the three major fracturing service providers maintained 9 fracturing vessels in this market. Since Macondo, whilst Superior have entered this market with two vessels acquired as part of the Department of Justice’s conditions for the Baker Hughes acquisition of BJ Services, two of the older vessels have been decommissioned and Schlumberger have withdrawn both of their vessels and placed them elsewhere around the world. This leaves a total of only six vessels. Whilst the shallow water sector of the market has begun to see an increase in activity, the far more lucrative deep water market is still largely shut down.
Nevertheless, the offshore segment remains relatively small. Globally, the offshore fracturing market accounts for about 5% of total activity, with the Gulf of Mexico accounting for about 20% of that, The other big offshore fracturing markets being Brazil, Mexico, the North Sea, West Africa and the Arabian Gulf.
The Rest of the World
Outside of North America, the fracturing industry continues much as has over the last few years. The sector of the industry has always accounted for around 10% of global activity and has always been far more influenced by oil prices than by gas prices, as illustrated by the relative proportions of oil and gas formations treated given in Figure 5.
Figure 5: Formation treated with hydraulic fracturing in different regions
International fracturing activity continues to be heavily dominated by oil well stimulation for two main reasons. First, the world’s third largest fracturing market is Russia, which accounts for about one-third of non-North American activity. This market is almost exclusively oil and this is reflected in the overall numbers contained in Figure 5. Second, outside of North America, natural gas is still very abundant and easy to extract. While there may be considerable technical advantages to fracturing these high permeability formations, there is no economic necessity to do so. This, combined with the ever-increasing mobility of gas from places such as Qatar, Algeria, Russia, Saudi Arabia, Norway, Australia, Indonesia and Nigeria due to the world expanding LNG carrier fleet, means that there has been little need to extract gas from tight and shale gas reservoirs.
While there has been considerable speculation on the advent of shale gas exploitation in places like North Africa, Eastern Europe, China and Argentina, so far words have failed to translate into action.
However, one sector of the market that is increasing and is expected to increase is fracturing of carbonate formations, especially offshore in areas such as the North Sea (Central Graben), Mexico (Bay of Campeche), Brazil (pre-salt formations in the Espirito Santos basin) and the Arabian Gulf.
The Environmentalist Onslaught
Despite EPA having conducted several historical reviews of hydraulic fracturing, and clearing the process as recently as 2004, cap-and-trade proponents in Congress directed a new study in 2010. However, this time the internet tools of facebook, privately funded documentaries such as Gasland, and the national media have fueled a frenzy of anti-fracturing sentiment previously unknown. There has been a concerted effort, including articles in the NYTimes to associate “fracking” with a variety of ills, the most insidious of them all that drinking water aquifers might be contaminated. Others include spreading radioactivity and, of course, attacking the very rationale for doing it in the first place. Shale gas, the target of the recently enormous enhancement in industry activity may not be what is cracked out to be.
The latter is easy to dispel. There has never been an energy resource that escalated its market share from essentially zero to 25 percent in just five years. This is what shale gas has done in the United States natural gas supply. Outside of North America, the regulatory authorities have reacted to media speculation with widely differing courses of action. Almost simultaneously, whilst the UK Government endorsed hydraulic fracturing, the French Government made it illegal.
A composite schematic of fracture treatments mapped by Pinnacle in the Marcellus Shale (Figure 6) shows the fracture heights and the depth of groundwater aquifers. Each stage of fracture treatment is plotted with the red line representing the mid depth where the fractures originate. The shallowest point and deepest points are plotted. At the top, the blue is a plot of the deepest groundwater. As can be seen readily, the fracture treatments are well confined heights, at least a mile below the deepest groundwater. The chance of propagating a fracture upward into groundwater is nil.
Figure 6: Fracture height and groundwater aquifers, mapped in the Marcellus shale region
Ultimately, the frenzy of arguments over hydraulic fracturing distill to this single fact: Either the world wishes to utilize its natural gas resources, or it doesn’t. For development of shale or tight gas goes hand-in-hand with hydraulic fracturing. Saying “no’ to hydraulic fracturing really means you are saying “no” to natural gas production.