Shale Oil

Shale oil is a viscous material of high molecular weight containing hundreds of compounds along with Hydrogen & Carbon. Although the terms shale oil and tight oil are used reciprocally worldwide; in the United States, the oil and gaseous industry commonly refer shale oil to tight oil.

Tight oil refers to the production of resources from low permeability tight formations including carbonates, sandstones, and shales. Typical shale oil refers to the production of resources specifically from tight shale formations.

The growing demand for energy and dearth of easily accessible oil & gas reservoirs have pushed petroleum engineers & geologists to think about other unconventional sources of energy.

Advancement in petroleum exploration technology has steered engineers to shift their attention towards shale oil. Gradually, shale oil has become very popular in various countries like the US, that has witnessed a boom in production from 0.4 million barrels per day in 2007 to more than 9 million barrels per day in March 2020. The production rate, however, has fallen to 7.6 million barrels per day in June 2020 due to Coronavirus led disruptions in operations.

Conventional Oil vs Shale Oil

Shale Oil or Tight Oil is an unconventional source of energy and different from conventional oil. The concepts and theories related to petroleum exploration state that the presence of a Petroleum System containing Source, Reservoir, and Seal rocks is mandatory for the generation and accumulation of Hydrocarbon. Source rock is necessary for deposition of organic matter; Reservoir rock is needed to accumulate the migrated Hydrocarbons from source rock and Seal acts as a barrier to check the further migration of Hydrocarbons.

For most of the cases observed, the main type of source rock found for the generation of Hydrocarbons is “Shale”. It is a low-porous and low-permeable rock into which the organic matter gets deposited and in due course of time, with deeper burial, increased temperature and pressure, the deposited organic matter gets converted into kerogen and finally into petroleum.

The main difference between conventional oil and shale oil is the way both get accumulated and collected. Conventional oil is found in the form of porous giant rocks soaked with hydrocarbons found underground in the form of big jars, whereas shale oil is found in smaller batches.

For collecting oil from conventional sources, engineers have to drill a straight vertical well to the reservoir and oil is essentially sucked with the help of pumps or under naturally occurring formation pressure and Darcy flow conditions.

For unconventional sources like shale oil, which is found in small patches, it is difficult to collect all available hydrocarbon from a single well due to Non-Darcy flow, which makes the process economically non-feasible. For the sake of economic feasibility and ease of exploration, the reservoirs need to be hydraulically fractured (fracking) so that isolated patches become interconnected and recovery can be made using a horizontal well.

Worldwide Occurrence of Shale Oil:

As per various leading reports like the ARI & Oil & Gas Journal, total recoverable shale oil resources in leading 42 countries including the US consists of around 10% of the world's total crude oil. As per EIA's assessment Russia, U.S., China, Argentina, Libya, Australia, Venezuela, Mexico, Pakistan, and Canada contains around 345 billion barrels of world shale oil. This assessment is based on previously known shale formations whereas the new assessment will include some more recently discovered shale formations which eventually will increase the reserve assessment figures. Currently, only Canada, Argentina, and the United States are commercially producing shale oil. Other countries are still trying to overcome the technical challenges and operational challenges for oil firms to help them launch the shale revolution in their countries.

Impact on Global Oil Prices and Oil Market due to Shale Oil

A lot of controversies like shale oil is a marginal short-term phenomenon and that its reservoir will not last longer, have been proved wrong. After around two decades of declining production, US shale production supported the country to become a net exporter of oil from being an importer.

US shale oil production is the only reason which balanced the volatility in global oil prices despite a decline in the production of Iran & Venezuela.

The shale oil revolution in the US has attracted other countries too to explore their shale oil reserves but it has not yet been exported. The progress in other potential countries has been slow. Although various prosperous countries like Russia, China, and Africa have the potential, only Argentina & Canada started to explore their shale oil at a reasonable pace with the help of different O&G giants like BP and Chevron.

Oil Price decline due to Shell oil production

A rapid decline in the global oil prices was observed after the mid of 2014 which can directly be related to the enhanced production of US shale oil which started to grow since 2014. Although the US was not exporting shale oil in the international market at that time to net importers, the global oil demand has fallen with the US achieving self-sufficiency and hence importing relatively less. Due to this imbalance caused by relatively less demand and surplus supply, the prices of oil start declining.

With an increasing production in shale oil and declining oil prices, the margin of the shale oil producers is taking a hit. It is worth noting that the cost of producing per barrel of shale oil is higher than other conventional oil production. Hence, the dynamics of shale oil production and consumption challenges the oil industry performance significantly.