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SUBJECT:The technology behind booming oil and gas production from 'tight formations', and how it will change energy markets.
SIGNIFICANCE:Improvements in oil and gas drilling and completion technologies, particularly hydraulic fracturing, have increased the profitability of natural gas and oil found in tight formations, making production from these reservoirs economical. The potential additional reserves unlocked by this technology are huge: in the United States alone, out of 2,552 trillion cubic feet (tcf) of potential gas resources identified in 2010, shale gas accounted for 827 tcf of the total, more than double 2009 figures.
ANALYSIS: Advances in horizontal drilling and hydraulic fracturing technologies have revolutionised North American gas markets and significantly boosted the region's recoverable oil reserves. Moreover, the oil and gas production surge enabled by unlocking hydrocarbons production from 'tight formations' looks set to accelerate -- with profound market and policy implications.
Key insights.
The marriage of two technologies -- horizontal drilling and hydraulic fracturing -- has unlocked profitable oil and gas production from 'tight formations'.
Gas production via these methods has altered the market, eliminating projected US demand for imported liquefied natural gas (LNG).
It is also producing a major surge in US 'oil shale' production, which is likely to accelerate as new plays are explored.
Environmental concerns about 'frac treatments' are frequently exaggerated, but valid; remedial measures are possible.
Technological breakthrough. Tight formations are defined by their relatively low porosity and permeability. That is, although a formation might be laden with hydrocarbons, its impermeable nature means that pore space can be as tight as a single molecule. Consequently, production requires the introduction of fractures to form 'migration pathways', which allow the oil or gas to flow to the wellbore. Production challenges qualify these hydrocarbon resources as 'unconventional'. Although the basic concept of fracturing tight rock to release oil and gas has been used since the 1950s, and the use of water to force open fissures in producing reservoirs led to the commercial development of early oil plays in Canada and United States, production from tight reservoirs was uneconomical.
It took improvements in both fracturing techniques and in horizontal drilling, and the combination of these two technologies, to make production from these reservoirs profitable. In addition, the boom, particularly in the United States,...