Oil Industry: New Oil and Gas Production Technologies

Oil Industry: New Oil and Gas Production Technologies

New technologies in the oil and natural gas sectors have enabled the explosion of production growth in the United States known as the Shale Revolution. A combination of hydraulic fracturing and horizontal drilling allows producers to access reserves of oil and gas from low-permeability geological formations that were previously too expensive to extract. Until recently, the United States was the world’s largest consumer of oil, accounting for 25% of global demand. New developments in the U.S. oil and gas industry have stimulated economic recovery from the 2008 financial crisis via new job growth, increased investment in oil- and gas-producing regions, and lower consumer prices of gasoline. Policymakers worry that a significant reduction of U.S. petroleum imports will have geopolitical implications beyond increased U.S. energy security and could alter diplomatic relationships with oil-producing countries. Likewise, there is some concern that reduced export revenues for traditional producer countries may create instability and potentially threaten U.S. security interests. However, these fears are unfounded due to a popular mis-characterization of the role of oil in shaping diplomatic relationships.

The diffusion of new oil and gas production technologies is not limited to the United States. Unconventional hydrocarbon reservoirs are already being exploited in Canada, South America and Africa as price signals send international oil companies to new frontiers in search of higher profits. The most significant of these new production technologies include tar sands and deepwater water drilling. In this section, we look at the different types of new oil and gas production technologies that are changing the energy map, and the implications they have for the environment.

In this section:

• Hydraulic Fracturing
• Horizontal Drilling
• Tar Sands
• Deepwater Drilling
• Seismic Mapping
• Environmental Implications

Hydraulic Fracturing

Hydraulic fracturing is a well stimulation technique that allows energy producers to tap into challenging geographic formations. This technology has been around since 1947, hydraulic fracturing — in combination with horizontal drilling — has spurred the Shale Revolution in the United States. There are over one million hydraulically fractured wells in North America, and the National Petroleum Council estimates that this technology will eventually account for 70% of natural gas production in the United States.

To hydraulically fracture a well, producers inject a mixture of pressurized liquid containing water, chemicals, and a proppant inside a wellbore to create cracks in the rock formation, allowing oil and natural gas to flow more freely.

Hydraulic fracturing has been controversial due to the nature of the technology and its environmental impact, including water depletion and contamination, increased surface pollution, and the potential for induced earthquakes. While these challenges are being addressed at the state and local level in the United States, environmental risks could delay the diffusion of hydraulic fracturing to other countries.

Horizontal Drilling

While directional drilling has existed since the 1930s, its combination with hydraulic fracturing has changed the global energy landscape only in the past ten years. Advances in horizontal drilling technology have allowed producers to reach new depths, enabling the cost-effective exploitation of tight oil/gas formations, in what has been called the “Shale Revolution.” Typical wells for oil and gas production are vertical – drilled straight from the surface of the earth to reach hydrocarbon reserves below ground. Directional or horizontal drilling allows producers more flexibility and precision in reaching and extracting oil/gas compared to vertical drilling. Horizontal drilling also reduces the ecological footprint of a drilling operation above ground by drilling in several directions from a single well pad.

The most important application of horizontal drilling has been in exploiting shale plays across the United States, including:

• Barnett Shale, Texas
• Fayetteville Shale, Arkansas
• Haynesville Shale, Arkansas/Louisiana/Texas
• Marcellus Shale, Appalachian Basin

Horizontal drilling allows oil and gas producers to minimize surface impacts of development — being able to drill multiple wells from a single pad. However, by the same token horizontal drilling has been the subject of property/mineral rights disputes, as drillers have the ability to extract from neighboring parcels. Horizontal drilling has even been the subject of international tensions, most famously in 1990, when Iraq accused Kuwait of stealing its oil through the use of the technology, ushering the start of the First Gulf War.

Tar Sands

Though concentrated in North America, the production of oil from tar sands has broad implications for the global oil market. Tar sands, which are also known as oil sands, are a combination of clay, sand, water and bitumen (a heavier form of oil). Tar sands are mined and processed to extract bitumen, which is then refined into oil. Two tons of tar sands are required to produce one barrel of oil. This process is more complex and capital-intensive than conventional oil extraction.

There are two primary extraction methods for tar sands:

1. Mining: Open-pit mining is the most common form of tar sands extraction. This method requires the use of large hydraulic shovels to dig up tar sands and load them onto trucks carrying up to 320 tons per load. The oil is finally extracted from the bitumen through a combination of heat, water, chemicals, and constant movement.
2. In-situ: This method is used when bitumen deposits are buried too deep for mining to be economical. The in-situ method relies on steam injection to heat buried tar sands and facilitate extraction via conventional wells.

It is estimated that over 2 trillion barrels of oil reserves exist in the form of tar sands, although not all of these resources are economically or technically recoverable. The largest tar sand deposits are found in Canada (primarily in Alberta), Venezuela and several countries in the Middle East. The majority of U.S. tar sands resources are located in eastern Utah, with an estimated 12 billion-19 billion barrels of reserves.

Although the tar sands industry is underdeveloped worldwide, Canadian tar sands already represent 40% of total oil production. The proposed Keystone XL pipeline would deliver Canadian tar sands from Alberta to refining facilities in the Gulf of Mexico. However, environmental opposition has caused significant delays in the project.

The development of tar sands around the world could face a number of environmental and technical challenges. However, if exploitation of this resource ramps up, the global oil market would become more diversified and resilient to price shocks from supply disruptions.

Deepwater Drilling

Advances in offshore — and particularly deepwater — production technologies are shifting the epicenter of oil production from the Middle East to the Atlantic Ocean, dramatically reshaping the global market.

Over the last decade, rising oil prices have made deepwater drilling economically viable. While there is a lack of consensus regarding the depth at which offshore drilling becomes “deepwater,” technological developments have been pushing the limits of what was previously thought to be impossible, thereby redefining the term. However, today deepwater drilling is generally regarded as any depth greater than 1,000 feet.

There are two main technologies involved in offshore oil production; both are capital-intensive and require high levels of expertise to be used effectively.

Semi-submersible platforms: a type of platform with ballasted pontoons that allow the structure to withstand waves. These platforms are more stable than typical ships and usually have large deck areas with control and operations space, helipads and loading docks.

Semi-submersible platform schematic. (Minerals Management Service/Wikimedia Commons)

Drillships: Drillships engage in exploratory drilling before oil and gas production begins. Although drillships are not a new technology (they have been around since the 1950s), new imaging and positioning technology allows for much higher levels of precision during the maintenance and completion of a well.

A drillship digs a relief well in the Gulf of Mexico. (U.S. Coast Guard/Wikimedia Commons)

The recent decline in the price of oil has hurt the profitability of deepwater activities and may stifle future development. Nonetheless, companies continue to produce because they are bound by long-term contracts. Since deepwater drilling requires a high level of technical expertise and substantial capital investment, only a handful of companies worldwide engage in deepwater drilling, including:

• BP
• StatOil
• PetroBras
• Chevron
• Exxon Mobil
• PEMEX

Globally, deepwater accounts for over 100 billion barrels of reserves, or about 10% of total reserves. There are 3,400 deepwater wells in the Gulf of Mexico alone. These wells present regular maintenance and repair challenges as well as environmental and security risks if not adequately protected and reinforced. However, if produced responsibly, the Gulf of Mexico represents the biggest deepwater drilling opportunity, with 30 billion-40 billion barrels of reserves.Brazil also stands to gain from the expansion of deepwater drilling activity, given its more than 30 billion barrels of reserves.Finally, the African continent may be the next frontier for deepwater, with over 30 million barrels of deepwater reserves — the largest portion of which is located in Angola. These three regions make up what has been termed “the Golden Triangle.” To date, Mexico has been the biggest producer in the triangle, but Brazil’s Petrobras has been making strides in improving its deepwater capabilities.

Seismic Mapping

Advances in seismic mapping and imaging technology have made exploration efforts for oil and gas more effective, a factor that helped enable the U.S. Shale Revolution. Ultra-sensitive sound-emitting devices, called geophones, help seismologists bounce sound waves off underground rock formations to uncover hydrocarbon reservoirs. The resulting echoes are recorded and converted into three-dimensional maps that are then analyzed by supercomputers that help cut down on the time and money costs of exploration.

Seismic technology has been around for over 80 years, but advances in digital imagery make it more precise than ever, allowing major companies to explore beyond conventional areas of production into shale, deepwater and tar sands. Because this technology is very capital-intensive and requires a high level of expertise, only a few of the world’s major oil companies have the capability to use it. However, as international joint-venture agreements proliferate, technology transfers are likely to follow.

Environmental Implications

New oil and gas technologies have unlocked vast quantities of previously inaccessible resources that yield environmental benefits, consequences and controversy. While natural gas displaces coal as fuel for electricity, skeptics fear that hydraulic fracturing endangers communities living in close proximity to fracking operations.¹ Environmentalists particularly deplore advanced fracking techniques that threaten water and air quality. The technique requires blasting huge amounts of water, sand and chemicals deep into underground rock formations and consumes vast amounts of water at a time when numerous regions are suffering from drought.

In a 2014 study published in the Annual Review of Environment and Resources, seven environmental scientists synthesize 165 academic studies and databases:

“Public concerns about the environmental impacts of hydraulic fracturing have accompanied the rapid growth in energy production. These concerns include the potential for groundwater and surface-water pollution, local air quality degradation, fugitive greenhouse gas (GHG) emissions, induced seismicity, ecosystem fragmentation, and various community impacts. Many of these issues are not unique to unconventional oil and gas production. However, the scale of hydraulic fracturing operations is much larger than conventional exploration onshore. Moreover, extensive industrial development and high-density drilling are occurring in areas with little or no previous oil and gas production, often literally in people’s backyards.”

The National Resources Defense Council echoes these concerns. Over the past decade, it points out, the oil and gas industry, “has drilled hundreds of thousands of new wells all across the country. These wells are accompanied by massive new infrastructure to move, process and deliver oil and gas, together bringing full-scale industrialization to often previously rural landscapes.”

Ultimately, the team of authors who led the 2014 study cited above conclude that, “Unconventional oil and natural gas extraction enabled by hydraulic fracturing (fracking) is driving an economic boom, with consequences described from ‘revolutionary’ to ‘disastrous.’ Reality lies somewhere in between.”

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