Super Fracking & the Next Shale Gale
The shale gas and oil production is the energy story of the last decades; the technological advances of hydraulic fracturing (fracking in the recent vernacular) its chief sub-text. But, as when you’ve read the first part of Stieg Larsson’s ‘The Girl With…’ trilogy, or any good thriller series, you are left wondering what drama is coming next. Well the technological ingenuity of the American ‘authors’ of fracking does not disappoint. Part II – Super-fracking – already has the markets abuzz with anticipation.
If the great shale revolution is to translate into the economic game-changer, however, politicians will need to start debunking the fracking angst being peddled by, what one UK energy minister recently tagged, the “environmental Taliban”.
It was innovative American frack production enhancement procedures that ignited the shale bonanza. But the race is now on for the next generation super-fracking techniques able to release further huge quantities of oil and gas at an even more commercially viable cost.
Techniques currently being tested focus on three major improvements being conducted by the three leading U.S. petroleum service companies, Schlumberger, Halliburton and Baker Hughes. First up, Schlumberger’s “HIWAY” project adds fibers to the mix designed to hold open the cracks created into the shale. This will increase and prolong the fracture conductivity.
Halliburton’s “Rapidfrac” procedure is a sophisticated operation of sections of pipe able to crack a vast volume of petroleum reserve rock. This procedure has the added benefit of using half the water of current fracking procedures, thus reducing both the amount of time it takes to release the reserve and halving the local surface traffic necessary to service the operation. The use of less water is an important development. Small earth tremors are currently being associated with fracking. But seismologists have recently concluded that the tremors are not caused directly by the frack operation per se, but by the injection underground of waste water which changes subterranean pressures. Less water reduces that risk significantly.
Baker Hughes are pioneering “DirectConnect” a procedure which concentrates the power of the drilling targets oil and gas in much deeper formations. It’s a system that also does not need a rig to return to the well head to perform a cleaning up operation, something Baker Hughes’ “frack ball’ technique currently requires. The company is also considering a second method that blasts “super cracks” deep into the rock releasing more oil and gas.
JP Morgan Chase estimate that super fracking techniques such as these could reduce well head costs by a staggering 70 percent, from $2.5 million per well down to $750,000. And there is also a key window of economic opportunity here for the U.S.: exporting American fracking technology worldwide. China is already knocking on the door to buy a huge stake in the U.S. energy-extraction market, especially shale-gas-related equipment and know-how. But over-regulation, delay and market interference by federal and state government could help close that window – and fast.
Shale gas’ contribution to the U.S. GDP in 2010 was over $76.9 billion. By 2015 it is projected to be $111.2 billion, by 2035, $231 billion. According to BP’s latest world energy outlook 2012, America is on course to become “almost totally energy self-sufficient” by 2030, as well as a net natural gas exporter. U.S. gas production has already led to a glut, with domestic gas prices having slumped, leading to a stabilizing effect on global gas prices, and a 50 percent cut in electricity prices for U.S. power industries, with a consequent boost for investments. And real jobs are being created – thousands of them; drilling companies are already struggling to provide sufficient crews. And the still unfolding success story of shale oil looks set to surpass that of shale gas.
As if that were not enough, a substantial sum can be added to the above figures and benefits when fracking technology exports are factored in. As world class as American shale prospect is, China has almost 50 percent more recoverable shale gas than the U.S. America may be ahead of the shale revolution curve, having shot to top spot in world gas production in 2009. But China is already committed to playing catch up. Beijing may currently lack the expertise, but China’s oil giants, Sinopec and CNOC, along with Saudi Aramco, announced in early January 2012 they would be bidding to buy a 30 percent stake in America’s FracTech Holdings LLC. That would effectively kick-start a $2 billion foreign bidding war for a lucrative stake in future frack tech development.
A recent report by Spears & Associates Inc., in 2011, shows that the global fracking market grew by 63 percent to $31 billion with the U.S. accounting for 87 percent of this. In 2012 the worldwide market is expected to expand by a further 19 percent, to a cool $37 billion. By doggedly resisting re-prioritizing energy policies in favour of fossil fuels, the Obama administration is not only stifling major growth in jobs and limiting what frack drilling could achieve domestically, it is also risking a more long-term impact on the U.S. economy.
Even Obama’s own jobs council Road Map to Renewal advocates a more “all-in approach”, to expanded oil-and-gas drilling and expediting pipeline projects. Clearly, the administration is more concerned not to alienate key support from the environmental lobbies, as the latest decision to leave the Keystone Pipeline (probably till after the election) makes clear. President Obama’s announcement on Keystone looks to have already inflicted self-harm with Canada indicating it is not prepared to play ball by exploring the Asian export market for its oil sales.
For those of us who understand just how costly closing the window of fracking opportunity would be to the U.S. economic interest, the November election – and a prospective new direction for energy policy – cannot come soon enough.