The much-heralded “energy renaissance” that is projected to lift the US into the position of the world’s largest energy producer and exporter before the end of the decade has become a familiar trope in much of the discourse about the global energy economy.
Relatively recent advances in exploration and drilling technology, we are told, have provided the structural foundations for momentous changes of an industry-wide scale. Substantial leaps in 3D seismic imaging capability have revealed to the US that it had far more oil and gas than had previously been imagined, while the refinement of hydraulic fracturing and horizontal drilling technology has provided the means by which to access these new and by most accounts massive reserves hidden beneath shale formations, often miles beneath the earth’s surface.
Indeed, the “shale boom” is perhaps one of the most commonly employed of the various short-hand expressions used to describe the phenomenon that is currently taking hold. The use of the term would seem justified by a precursory look at the numbers. For instance, this year Ernst & Young estimated that among the 50 most active US drillers, investment in shale-based reserves ballooned 20 percent between 2011 and 2012 to $186 billion. With domestic oil production about 43 percent higher than it was in 2008, the larger picture would appear similarly optimistic.
A few other facts contribute to a legitimate argument for the move towards shale. Much like the human brain, the US is producing energy from shale reserves at some ten percent of the country’s estimated reserve capacity. At the same time, the nation is clearly better-equipped than perhaps any other to ramp up production, with an estimated 95 percent of all drilling rigs on US soil capable of performing the horizontal drilling so crucial to the unlocking of shale reserves, well ahead of any other nation.
Despite the near-continuous procession of bullish sentiment on American shale, supported as it is by what looks like irrefutable evidence, investors would do well to approach this or anything else bearing the label of “boom” with caution.
Those who have been more skeptical of breathless claims about the future potential for shale have pointed to equivocations that are embedded in the discourse surrounding it. For instance, the very notion of “reserves” is even more malleable and subject to manipulation with shale production than with the more traditional forms of crude extraction.
This is because shale reserves are substantially less homogenous in nature than other kinds of deposits. The very quality of the deposits referred to as “reserves” varies greatly, and depends on the amount of saleable oil and gas that can be extracted, and how much refining it will require to do so.
The uneven geological distribution of shale deposits in terms of breadth and depth means that more wells need to be drilled to access more fragmented reserves. Because of the fragmentation, shale wells also operate on shorter life spans and produce less per well, adding a substantial premium to the cost of doing business.
This also makes shale energy particularly susceptible to the supply/demand balance, as well as the fluctuation of prices for varieties of crudes like WTI, Brent, and OPEC. The outlook for shale will remain promising, at least for as long as energy consumers can enjoy a discount on the price of benchmark crudes, and for the time being there is no shortage of short to near-term probabilities that can keep barrels selling for over $100 per. But it is by no means inconceivable that the trend could swing the other way, with lower crude prices resulting in sudden and drastic reductions to the profit margins of the smaller drillers who are currently making the best of US shale. OPEC, for example, has recently grumbled about boosting its crude output in order to lower global prices, precisely because of the bite that North American energy production has been taking out of its own profits.
None of this is to throw water on the exponential interest and excitement that has gathered around unconventional energy sources like shale. Irrespective the form and direction taken by the trend, shale is undoubtedly here to stay even if it turns out not to be quite the holy grail that it has been portrayed as. With this in mind, the following is an overview of the most promising shale plays currently driving recent trends in the US:
The Marcellus Shale:
The Marcellus Shale is located in the Appalachian Basin and stretches underneath a number of Northeastern States, with the biggest prospects located in New York, Ohio, Pennsylvania, and West Virginia, with much smaller portions in Maryland and Virginia. The Marcellus is primarily a gas play, with recoverable reserves estimated at some 400 trillion cubic feet.
The Devonian Shale:
Also part of the Appalachian Basin, the Devonian Shale includes Eastern states of Kentucky, Virginia, and West Virginia, with recoverable gas reserves estimated at 14 trillion cubic feet.
The New Albany Shale:
Located in the Illinois Basin, the New Albany Shale lies underneath Illinois, Kentucky, and Indiana, with recoverable gas reserves estimated at 11 trillion cubic feet.
The Antrim Shale:
Northern Michigan’s Antrim Shale play is part of the Michigan Basin, and is suspected of containing some 20 trillion cubic feet of recoverable gas.
The Hayneseville Shale:
Part of the Mississippian Basin, the Hayneseville Shale, with at least 75 trillion cubic feet of gas, is found underneath Texas and Louisianna.
The Eagle Ford Shale:
One of the more commonly known shale plays, Eagle Ford is located in the state of Texas, as part of the Texas Maverick Basin. It is one of the more household names among shale plays, though its recoverable reserves are estimated at only 21 trillion cubic feet of gas.
The Fayeteville Shale:
The Fayeteville plays is in the Arkoma Basin, and is relegated mainly to the state of Arkansas, and is thought to hold some 32 trillion cubic feet of recoverable gas.
The Woodford Shale:
The Woodford play streches through two different basins, the Arkoma and the Ardmore, in the state of Oklahoma, with estimated recoverable gas reserves of 22 trillion cubic feet.
The Barnett Shale:
The Barnett, one of the US’s most talked-about oil & gas plays, is located in Texas, as part of both the Permian and Forth Worth Basins, and is thought to containt at least 40 trillion cubic feet of gas.
The Bakken Shale:
Also one of the nation’s most talked-about shale plays due to the fact that its reserves are oil rather than gas, the Bakken is found in the Williston Basin, primarily underneath North Dakota but also a portion of eastern Montana. It is suspected of containing some 4 billion barrels of shale oil.
The Monterrey/Santos Shale:
The Monterrey Shale, part of both the Los Angeles and San Joaqin Basins in California, could still turn out to be the behemoth of shale plays. Once drillers figure out how best to access its reserves, they can look foreward to what by many estimates could be at least 15 billion barrels of recoverable oil.