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Page added on June 24, 2012

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For oil executives, the fracking revolution raises spectre of a gas flashback


I don’t know any oil executives who use Twitter, but if they did, their “trending” hashtag might be #gasflashback. Behind this virtual podium, their tweets would focus on what is now the most anxiously-asked question in the oil patch: “Can the fracking revolution do to oil prices what it has done so ruthlessly to North American natural gas?”

No one in the business wants to say that the answer is yes. That’s because the oil data that’s coming in every week is scary enough to instill the usual human response to change: denial. Although some circumstances on the oil side are different than natural gas, North American oil prices could easily come under further pressure over the next year or two, just like a #gasflashback.

Nevertheless, changes are afoot to counter the pressure, and opportunity always accompanies such turmoil.

Oil fundamentals today are showing very similar characteristics to natural gas a few years ago: A rapid increase in productive capacity; weak domestic consumption that can’t absorb the rising output; old takeaway infrastructure (for example, pipelines) that is not adapting quickly enough to match new sources of supply with shifting demand; and a fenced-in continental marketplace that inhibits exports to higher-value global markets.

Rapid production growth, the number one antagonist, continues to astound with every new data point received. From North Dakota to Alberta, Saskatchewan to Oklahoma, new light oil barrels from horizontally-fracked wells keep flowing in greater quantities every month. If there is one chart that turns this story into Technicolor, it’s Figure 1, the long-term production profile for Texas.

In the peak oil years, between 1981 and 2001, the Lone Star state, the largest producer of oil in the US, was witnessing a steady output decline of 75,000 B/d every year. The declining trend began slowing down last decade, but the real drama started less than 18 months ago, when the combination of high prices and innovation really kicked in. Texas is now growing its rate of oil output by 35,000 B/d, every month, for an annualized growth rate of 425,000 B/d per year! To put this in perspective, that’s the equivalent of one-third of Libya’s oil production developed and brought to market in 12 months. It’s also close to China’s incremental consumption in 2011 (505,000 B/d).


More at The Globe and Mail

2 Comments on "For oil executives, the fracking revolution raises spectre of a gas flashback"

  1. Arthur on Sun, 24th Jun 2012 11:50 am 

    The fracking revolution will be short-lived, nevertheless it is able to counter the depletion rate of conventional oil and hence the price drop, greatly enhanced by deteriorating economic conditions. Expectations are that by 2020 US shale oil production will be at a 3 mbd level, not enough to offset the 3-4% yearly decrease from global conventional oil production.

  2. Arthur on Sun, 24th Jun 2012 11:57 am 

    BTW prices at the pump here in Holland have come down some 15 euro cent per liter during the past few months. And we don’t do no (large-scale) fracking here in Europe yet. It is likely that deteriorating economic conditions are the main driver behind recent drop in fuel prices. This matches quite nicely with the reported substantial drop in traffic jams in Holland.

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