Technology driving US energy revolution

July 1, 2012
In this month's cover story, several of the analysts and industry leaders interviewed allude to the role of recent advances in shale drilling and completion technology as a "game changer."

In this month's cover story, several of the analysts and industry leaders interviewed allude to the role of recent advances in shale drilling and completion technology as a "game changer." Certainly there can be no doubt that modern horizontal drilling techniques and multi-stage hydraulic fracturing technology, combined with the right commodity prices, have made shale and other unconventional resource plays economic.

Dr. Joseph Stanislaw has written a brilliant report detailing how technology is radically reshaping supply, demand, and the energy of geopolitics. I heartily recommend it and will summarize some of the content here. Stanislaw, one of the three founders of Cambridge Energy Research Associates (CERA) in 1983, is an independent senior advisor on energy and sustainability to Deloitte LLP, which released the report.

To illustrate how the energy industry is changing, Stanislaw writes: "The United States has become the number-one producer of natural gas in the world. This is due to combining horizontal drilling and hydraulic fracturing technologies, a combination that has been in widespread use for just four years – and that has allowed gas from shale formations to go from accounting for just 2% of America's natural gas production in 2001 to over 30% today."

He continues, "As a result, natural gas prices have been falling in the US for years. Given appropriate policy and smart investments, North America could eventually achieve the goal of energy independence – with enough domestic supplies to meet American needs – though crude oil prices would still be at the mercy of world markets. The fundamental question Americans now face is: Can they capitalize on this extraordinary opportunity?"

Let's hope the answer to that question is, "Yes, we can. And we will."

There are numerous challenges to overcome to achieve energy independence, not the least of which is a perception among many in the public that the oil and gas industry is greedy, doesn't care about the environment, and doesn't have their interests at heart. This misperception can be overcome through education. And by that I don't mean pouring more money into advertising or lobbying efforts in Washington. It has to start at the grassroots level in our schools, and elementary school students are not too young to learn that oil companies aren't villains and that our industry cares about the environment as much as Greenpeace does. However, oil and gas industry fathers and mothers also understand that unless we pursue a practical policy of balancing the critical need for energy with the desire to protect the environment, we will have neither.

Let's continue with a few more remarks from Joe Stanislaw:

"Cutting-edge technology – hardware and, especially, software – is unlocking geological potential in places and in ways hardly imaginable even a few years ago. Energy companies now rank among the most important – and sophisticated – technology companies in the world.

"Equally impressive is the evolution of renewable and alternative energy technologies. The renewable energy market is expected to reach as high as $800 billion by 2015 and to generate 17% of the world's electricity by 2030.

"Or take exploration: Our ability to process and analyze massive amounts of three-dimensional data about the ocean floor has allowed the energy industry to discover vast new fossil fuel deposits. Technological innovations in drilling then allow producers to access these deposits, many of them located in remote, once-forbidding places – beneath the Arctic icecap, for instance, or at extraordinary depths."

The United States has long been the world's oil glutton, says Stanislaw, consuming about a quarter of global energy supplies, despite having just 5% of the world's population. However, this is changing. We are producing more and consuming less.

Since 2008, surprisingly, US domestic oil output has climbed 12%, primarily as a result of oil-rich shale plays like the Bakken and other previously uneconomic unconventional resource plays, along with deepwater discoveries in the Gulf of Mexico. Production is expected to continue to climb for years to come, as the US exploits these resources.

With these developments, the US is poised to lose its dubious ranking as the world's leading oil importer – an honor that is expected to go to the European Union by 2015 and China by 2020.

Stanislaw concludes, "If, five years ago, you had asked – 'Which country in which region of the world can be totally energy self-sufficient?' – no one would have guessed the United States. Yet now, the revelation of North America's massive shale gas and oil reserves, combined with the technological innovations that unlock their potential, are helping bring into focus the tantalizing prospect of energy independence for the United States."

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