global shale | Market analysis
Figure 1: Shale gas and other natural gas production in selected countries, 2015 and 2040
Source: EIA
have turned production on and off in response to varying prices. The number of horizontal rigs in operation, at almost 400 in April 2016, remains roughly 70% below the peak of late 2014 when prices were at a high. Declining activity is reflected also by a drop of almost two thirds in demand for frack sand, according to a recent Bloomberg report. However, investment in new and promising areas in the Permian and Anadarko Basin of Oklahoma, Marcellus and Utica has continued despite the downturn in prices. To illustrate this, almost half the money spent on acquisitions in US shale oil this year went to the Permian basin in West Texas and a significant fraction went to the “STACK” area of Oklahoma.
Figure 2: US tight oil production selected plays Source: EIA
Strategies for the future US shale producers, drillers and field service companies have survived the past two years of falling and low prices of oil and gas through a combination of cost reduction, efficiency gains and technological advances, which has raised the productivity as well as the output of each well. Since 2012, for example, the average peak output per oil well has increased by 122% in the Permian basin, 67% in Eagle Ford and 78% in the Bakken fields, according to the Financial Times. In Marcellus, the average shale gas rig added production of 11.4 million cubic foot of natural gas a day in August 2016, a rise of 19% on the year. Overall production increases have been truly staggering – over the past eight years EIA data shows natural gas produc- tion in Utica shale rose more than twenty-fold, Marcellus nearly thirteen fold, and Eagle Ford’s by 260% (Figure 3). There is plenty of evidence to point to significant
Figure 3: US dry shale gas production Source: EIA
Wood Mackenzie, 60% of US shale oil is economically viable at a crude price of $60 per barrel: Eagle Ford is said to need a Brent crude price of $48 a barrel to break even while parts of the Permian Basin are though to be viable at $39 a barrel. These numbers have increased the attractiveness of investing in US shale oil compared with recent mega oil projects in deep water. Adaptability, flexibility and resilience are the hallmarks of US shale exploration and production. US drillers are highly responsive to changes in price and
12 PIPELINE COATING | December 2016
operational cost reductions. Concho Resources, for example, told investors at a recent Barclays Conference that it had cut the cost per foot of its wells by 40% since the first quarter of 2015. Exxon claims to have cut unit development costs on its Permian acreage by 70% over the past two years. And Pioneer Natural Resources is reported to have reduced production costs per barrel by 26% since 2015. According to energy consultants Wood Mackenzie, production costs in US shale oilfields were cut by up to 40% in the past two years. These dramatic cost reductions came not only from squeezing field service company suppliers but, more importantly perhaps, from permanent savings due to technological refinements in horizontal drilling and hydraulic fracturing and well design. Continental Resources is said to have cut the time taken to drill a well in the “STACK” shale oil area by 44% in 2015. EOG Resources, for instance, runs drilling and cementing operations on multiple wells on the same site simultaneously. In addition, the latest generations of rigs are faster, more mobile and cheaper to run. The industry also has
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