Overview Over the next five years, low energy prices will continue
to provide domestic manufacturers with a considerable advantage on world markets, especially as the manufacturing process becomes more automated and energy intensive. Con- tinued advances in technologies like robotics and computer- controlled production lines will make labor a less pertinent factor to overall manufacturing costs. Instead, manufacturers must focus on obtaining the most effective technology, cheap fuel and electricity, and access to efficient transportation and distribution infrastructure. Tese factors will help US manu- facturing return to growth in the coming years.
New Extraction Technologies Shale gas has stimulated the natural gas boom in the
US over the past five years. Shale gas is natural gas reserves trapped under rock, clay and mineral formations. Historically, shale reserves were more difficult, and therefore more costly, to tap than other natural gas resources. As a result, shale gas extraction had been limited for most of the 20th century. However, over the past three decades, collaboration between the Department of Energy (DOE) and the energy industries has yielded fruitful breakthroughs in natural gas extraction technology, particularly hydraulic fracturing. Hydraulic fracturing, commonly known as fracking, is
a process where pressurized fluid is used to drill into rock formations to extract fossil-fuel reserves. Similar technology has been in use since the 1860s, although its first major com- mercial applications occurred in the 1950s. Nevertheless, shale gas extraction via fracturing remained costly and inefficient compared to tapping into conventional natural gas reserves. Since then, steady government research grants and subsidies supported more effective fracturing technique development, culminating in Mitchell Energy establishing the first economi- cally viable shale gas well in 1998.
areas, shale formations and other geographic obstacles that a drilling rig cannot easily reach. In addition, directional drill- ing improves the overall efficiency of the drilling process. Over the past two decades, energy firms have increasingly used directional drilling to extract shale gas resources. Te EIA esti- mates that since the early 1900s, horizontal wells have grown from about 9% of total wells drilled to over 50% in 2010.
Surplus Production Over the past five years, shale gas production in the US has
skyrocketed due to technological development in hydraulic fracturing and horizontal drilling. According to latest data from the EIA, natural gas extracted annually from shale gas reserves increased from about 2.0 trillion cubic feet (TCF) in 2007 to 8.5 TCF in 2011, which represents an average annual growth rate of 43.8%. Over the period, natural gas extracted from shale gas grew from 8.1% of total natural gas production in the US to 29.8%. Since 2003, the US has had a surplus of natural gas, and the production boom in recent years has further widened the surplus. EIA 2012 data shows that the US produced 4.3 TCF in surplus natural gas, compared to 1.6 TCF in 2007. As a result of surplus production, domestic natural gas
prices have plummeted. From 2007 through 2012, natural gas prices in the US declined from $6.3 per thousand cubic feet (MCF) to $2.7. Over the same period, international natural gas prices increased from $6.8 per MCF to $8.7, representing a complete divergence from domestic prices. According to the EIA, domestic natural gas prices are expected to increase to $3.4 per MCF in 2013, still far below the estimated interna- tional price of $10.0 per MCF. Similar to natural gas, crude oil prices were significantly
lower in the US than on the international market. Domestic crude oil production has grown strongly over the past five years, as advances in horizontal drilling techniques bolstered well
Natural gas extracted annually from shale gas reserves increased from about 2.0 trillion cubic feet (TCF) in 2007 to 8.5 TCF in 2011.
Directional (horizontal) drilling is another technique that
has contributed to the emerging feasibility of shale gas in the US. According to the DOE, horizontal drilling can increase the accessible fossil-fuel reserves of a well 2%. Using current Energy Information Administration (EIA) estimates on total petroleum reserves, an increase of 2% results in an additional 465.3 million barrels of accessible crude oil. In comparison, the US produced 2.4 billion barrels of crude oil over 2012. However, the main benefit of directional drilling is that it pro- vides access to hard-to-reach fossil-fuel reserves. Directional drilling creates curved wells, allowing gas extraction firms to access gas reserves located under lakes, railroads, protected
12 Energy Manufacturing 2013
output. According to data from the EIA, US crude oil produc- tion increased from 5.1 million barrels per day (bpd) in 2007 to 6.5 million bpd in 2012. In particular, hydraulic fracturing fueled a surge in production from the Bakken Formation in North Dakota. From 2007 to 2012, crude oil production in the state achieved fivefold growth, increasing from 124,000 bpd to 662,000 bpd. In 2013, US domestic crude oil production is expected to continue to increase, totaling 6.8 million bpd. While crude oil output growth helped lower prices, infra-
structure shortages were the most important driver behind cheap crude oil in the US. Te bulk of Bakken crude oil was shipped to Cushing, OK, a major oil hub that stores oil shipped
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