Like duelling banjos, the U.S. and Saudi oil producers have been carrying out a spirited contest to see who first cries “Uncle” (My apologies for these metaphors). When crude prices first started to plunge from the $ 100/bbl level, the Saudis, who are OPEC’s main enforcer and swing producer, decided not to reduce output to halt the decline. They assumed that fracking would not be economical below the $ 60-70/bbl level. and that the world price would not go below that. What they did not take into account is that fracking shale is a new technology. It is well known that when a new technology is commercialized, experience gained with continued use in manufacturing will almost always improve economics and yield as improvements are made. That is a good reason why “first movers” will generally have a substantial advantage over “followers” using the same original technology. It is also the reason why the Saudis miscalculated. U.S. producers within a period of less than a year have brought fracking-based crude down to $ 40/bbl or less as new approaches and innovations were applied. This has brought severe hardship to Russia, Venezuela and most other OPEC members whose economy has been sustained on $ 80-100/bbl crude oil. And the glut of crude oil resulting from ever-increasing U.S. production has cut into Saudi exports as regional pricing has seen buyers (including the U.S.) shift to other sources.
The most obvious gains in fracking were due to the fact that some shale formations are easier to “mine” bringing more crude to the surface than from tighter formations. Only about half the total number of rigs are now in operation, bringing up more oil than ever before. Also, experience has allowed many more horizontal spokes from a single well, substantially reducing drilling costs.
And the role of chemicals has also greatly contributed as more experience has been gained. (Chem. and Eng. News. April 13, 2015 Pp. 13-17). These include thickeners and friction reducers which allow the proppant sand – which keeps fracked fissures open – to be delivered way out in the horizontal wells. This requires a delicate approach to achieve the right balance, so that guar and cross-linkers are also added for maximum effect. Other chemicals are now used after the fracturing step to break down the thickened mixture of proppant and oil, 5000 feet down, to better allow the liberated oil to flow to the surface. Microbes grow rapidly inside the well and can result in slime plugging, so that biocides must be used used to continue flow in “aging” horizontal sections. And since some of these chemicals (e.g. biocides) cannot be allowed to get into the cleaned-up fracking water, other chemicals must be applied to destroy the biocides, allowing their critical use inside the well.
And here is another interesting point! There is a huge amount of hydrocarbon-rich shale in the U.S. With improving fracking technology and no need to wildcat for new oil, U.S. producers can keep producing oil for many years ahead. They may decide to curtail some drilling to let demand catch up to supply and make fracking more profitable at, say, $ 60 per barrel. U.S. can now become the “swing producer”. And it would be sensible for the government to stop banning and allow crude oil exports. It’s a brave new world of oil!