The supply surprise

The supply-side revolution in energy technology is equally impressive. Thanks to advances made possible principally  by advanced software, the International Energy Agency (IEA) estimates that unconventional resources like shale gas now account for about half of the world’s natural gas resources, while unconventional oil production will reach 10 million barrels a day by 2035. Conservative estimates put the world’s oil reserves at four times the total consumed throughout history, while more optimistic forecasters place the multiple at ten or even 12. The IEA estimates that $20 trillion will be spent on unconventional sources of gas and oil between now and 2035.

Wildcatters near Santa Barbara, California, first found “brown shale”—an oil-rich, porous, lightweight rock—in the Orcutt oil fields in 1901. But for the next century, the various owners of Orcutt drilled 2,000 vertical wells, bypassing the shale in order to get at the liquid oil beneath. By 2004, the field was thought to be in terminal decline and was sold to Breitburn Energy Partners. Breitburn quickly determined that the brown shale, just 900 feet deep, was a vast potential resource. Applying the latest technology, Breitburn was able to nearly double Orcutt’s output to 90,000 barrels a month.

What made this possible? Today, the modern day version of wildcatters are energy technology entrepreneurs—geoscientists and software engineers who drill wells on computer screens before drilling in the field. They create three-dimensional images of the underground—a kind of MRI of the earth—that reveal hidden oil deposits. Offset angle drilling then allows drillers to penetrate previously inaccessible deposits, directionally guiding drill bits at angles between 45 degrees and 80 degrees into spaces between old vertical wells where crude still remains in shale reservoirs.

Fracturing technology developed over decades, but when combined with horizontal drilling, it has come to dominate in just four years. Nearly every day, potential shale oil and gas reserves are discovered in such unlikely places as Pennsylvania (which now produces more natural gas than Texas), Poland, Israel, and Ohio—names not normally associated with the oil field. And many of these are not small fields, but what are known in the industry as “elephants” holding one billion barrels or more. So much oil is coming out of the Bakken formation in Montana/North Dakota—discovered in 1951, but “unlocked” by the new rock fracturing and horizontal drilling technology only in 2008—that it has outstripped the existing pipeline capacity to move it to refineries. Railroads such as BNSF and Canadian National have been pressed into service to move some of the crude. At latest count, Bakken is said to hold 18 billion barrels of recoverable oil.

And in many ways, this is just the beginning of the unconventional revolution. Companies are continuing to pioneer innovative exploration methods. In Long Beach, California, Signal Hill Petroleum has buried 6,000 small yellow canisters containing sophisticated equipment so sensitive it can record the vibrations of a person walking past. The devices work in tandem with a fleet of hydraulic “vibroseis" trucks. By producing vibrations, the trucks create images of formations as far as three miles underground. Meanwhile, new technology based on radar and sonar techniques will drastically reduce the cost of hydraulic fracturing and increase its efficiency.

Shale gas has been dominating headlines, but its fossil twin, shale (or “tight”) oil is also experiencing a technological revolution—helping raise U.S. crude oil output by 18 percent since 2008. For years, tight oil—which is extracted from dense rock—had been a very marginal business. In 2000, production was only about 200,000 barrels per day, 3 percent of total output. Today it is about a million barrels per day. The dramatic increase in tight oil has been made possible by the same technologies, hydraulic fracturing and horizontal drilling, that enabled the explosive growth in shale gas production. Thanks to new technology, the U.S. has become less dependent on petroleum imports from unstable countries.

The revolution is not only taking place on land, but is occurring offshore as well. Deepwater exploration has been revolutionized by the ability of powerful computers to crunch seismic data 15,000 feet below the sea floor. The result has been a boom in deepwater drilling: In 2000, there were just 20 deepwater drilling vessels. Today, there are over 200, and deepwater wells are supplying eight percent of the world’s oil—a figure expected to double by 2020. Here, too, technology leaps are taking place in the field: The invention of super strong alloys, for instance, allow drill bits to go into hot, high-pressure fields deep in the earth’s crust. Shell, meanwhile, is deploying the world’s largest vessel—a 500-meter, all-in-one behemoth that explores, extracts, liquefies, and compresses from small gas fields.>>>

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