Energy Outlook: What U.S. tight oil means for Alberta
Surge in light oil unlikely to affect dynamics of global supply, IEA says
Big reports can be tough to digest. In the coming weeks, we’ll delve into global themes found in the International Energy Agency’s 2011 World Energy Outlook one at a time and relate them to Alberta’s energy sector. First up: the U.S. renaissance in light oil.
Skinny:
The geological analogue to shale gas, “tight” oil is found in reservoirs with low permeability. The Bakken formation that underlies much of North Dakota and extends into Saskatchewan, Manitoba and Montana is the epicenter of the American onshore oil renaissance.
Production in the basin started in the 1950s, but really only picked up in the last decade, hitting 90,000 barrels per day in the early 2000s.
Advances in horizontal drilling and hydraulic fracturing techniques have since seen production surge, averaging 310,000 barrels per day last year and hitting a peak of 423,000 barrels per day in July 2011.
What to Expect:
More drilling. Bakken wells are characterized by steep declines in production. “Constant drilling activity is essential to production growth,” the IEA notes.
In 2010, the number of rigs in the region doubled to 160, plumbing 700 new wells and increasing monthly average oil production between January and November by 120,000 barrels per day.
Check out this map from the U.S. Energy Information Administration for a good sense of how rapidly development has accelerated in the region.
Who Wins:
Along with added oil sands volumes, the surge in light oil production has contributed to the storage glut at Cushing, Oklahoma, leading to record discounts for benchmark West Texas intermediate compared to international grades of crude oil.
While not exactly good news for Canadian producers of heavy oil and oil sands, who increasingly view the Gulf Coast as a new and lucrative market, the dearth of infrastructure is a boon for those in the business of liquids transportation.
Expect more pipeline proposals to materialize as Bakken growth accelerates. Not the transnational jobs that are increasingly prone to encounter resistance, but smaller, incremental additions to existing networks of the sort Enbridge is planning with its Flanagan South and Wrangler proposals. The Calgary firm is one of several players, along with Alliance Pipeline and Plains All American, busy working to lay pipe into the Bakken.
Who Loses:
Potentially Canada. The revival in light oil production in the U.S. is not limited to North Dakota. The same drilling techniques that opened the region to a flurry of exploration are rapidly being applied to other prospective plays, including the Eagle Ford in Texas (production there averaged only 10,000 barrels per day in 2010, the IEA says), regions of Colorado, Utah and Wyoming, plus the Cardium and Exshaw plays in Canada. (Read this for a primer on Canadian forays).
The U.S. Department of Energy recently pegged recoverable tight oil resources in the lower 48 at a whopping 24 billion barrels. The IEA estimates daily production could hit 1.4 million barrels by 2020, but the agency isn’t convinced the supply growth will at all hinder oil sands output, which it sees rising to 2.9 million barrels per day by the end of this decade, by reducing U.S. demand for imported barrels.
The onshore revival in light oil “is unlikely to affect the dynamics of global oil supply significantly,” the agency says in its outlook. “For this new source of oil to have a wider impact, production would need to take off in other plays or in other parts of the world.”
Incidentally enough, Spain’s Repsol YPF SA announced a massive new find of shale oil in Argentina this week.
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