A second revolution, barely begun, will permit a fuller utilization of conventional oil deposits by greatly improving upon traditional enhanced recovery efforts.
The technological advances that produced the shale oil revolution – horizontal drilling coupled with fracking – can also be applied to conventional oil extraction. The subject is discussed in our new book, The Price of Oil.
Several countries are already experiencing this new phenomenon, which we call the conventional oil revolution. It mainly relates to mature oil fields in decline and is part of efforts to enhance conventional oil recovery factors. Countries with the most to gain are those with high reserves and existing conventional oil production. We firmly believe that the combined impact of both the shale and conventional oil revolutions will have an overwhelming international impact on oil, by far the most important primary commodity in human use.
Though the conventional oil revolution has mostly been going unnoticed, the application of the “shale technologies” to traditional oil extraction is surprisingly prevalent. The essence of the revolution is precisely to renew output from established, ageing, tired fields, much like the usual enhanced oil recovery (EOR) methods (through the injection of steam, chemicals or gas). Admittedly, the issue raises complications in distinguishing between conventional and unconventional oil, and the difficulties in isolating the effects of purely shale revolution technologies, as opposed to other EOR methods, on renewed conventional oil.
In any case, horizontal drilling and fracking, used in combination but sometimes independently from one another, are very useful in formations that are still considered conventional but are “tighter” than those where traditional extraction methods would suffice. Many of the efficiencies born from the shale revolution – e.g., the continuous drop in the number of days needed to drill horizontal wells – will also speed up the conventional revolution. A major enabler will also be the fact that the conventional plays have already experienced significant development in regions with essential infrastructure in place and well-versed with the regulatory routine.
The Return of US Conventional Oil
The initial stages of the conventional oil revolution in the US can be seen by an analysis of historical conventional oil production. It has been reported over and over that oil production in the US was on the decline for many decades, most of it conventional oil, before a rebound occurred in 2008. While it is true that the comeback can almost entirely be attributed to the shale oil revolution, closer inspection reveals that conventional oil too is on the rise. As seen in Figure 1, conventional oil production declined from about 9 million barrels per day (mbd) in 1985 to 4.3 mbd in 2008. But from 2008 to 2014, output of conventional oil increased from 4.3 to 4.5 mbd, with an anticipated further rise to 4.8 mbd by 2016. A look at the production data of the individual oil producing states shows that output has been revived in most of them, even those that are not shale producers. Though the total increase from 2008 to 2014 is modest in terms of volumes, it is nonetheless an impressive turnaround considering the decades-long, downward trajectory of US conventional oil production. The upward bounce is primarily explained by the application of shale oil methods to conventional oil. The US experience since 2008 forms the basis of our quantitative future outlook for the conventional oil revolution internationally.
The World Is Not Far Behind
The conventional oil revolution will not be solely a US phenomenon. There are thousands of currently lagging conventional plays around the world that can benefit from the shale oil techniques. And despite the notorious attention it receives in the US, it can be said that the market for hydraulic fracturing is truly global. Of all the frack jobs carried out outside North America, around three quarters are used for conventional oil (with the remainder applied to unconventional gas formations).
There are many examples of the conventional revolution in action, from oil fields in Indonesia to Mexico. In Russia, horizontal drilling and fracking have boosted recovery rates in mature conventional oil fields, and is likely responsible for the country’s still-growing, total conventional oil output. The technological advances from the shale revolution have also contributed to a conventional oil revolution in the Gulf of Mexico. The intensive past activity in these areas has resulted in high decline rates, but the perfection of the shale technologies is proving ideal for rejuvenation of these mature fields. Logically, some producers find this option attractive compared with the higher risk, higher cost alternative of developing new discoveries.
Most of the world’s conventional oil occurs in carbonate or sandstone rocks. It is the carbonate formations in particular that can increasingly benefiting from shale technologies. Specific cases where the potential is high are conventional fields like the famous North Sea Graben province, the Bay of Campeche in Mexico (home of the supergiant Cantarell oil field), the vast pre-salt formations in the Espirito Santos Basin of Brazil, and the richly endowed Persian/Arabian Gulf.
The Global Revolution in 2035
Although the conventional oil revolution is to unlikely to result in an important geographical shift of supply sources, clearly it will favor nations with especially high R/P ratios and tiring, mature conventional oil fields. These characteristics apply to Canada, China, Iran, Kuwait, Libya, Mexico, Russia, Saudi Arabia, United Arab Emirates and Venezuela.
The major assumption in our projection of added supply is that the rest of the world (ROW) is equally successful in exploiting its share of conventional oil by 2035 as the US has been since the start of its conventional oil rebound. Between 2008 and 2016, the shale technologies have led to a US conventional oil rise of around 0.5 mbd.
Imagine now that the ROW is correspondingly successful by 2035 (i.e. at less than half the US speed) in applying the related technologies to its share of conventional oil reserves as the US has been until now. This would yield an addition of conventional oil amounting to 19.7 mbd by 2035 (Table 1), which is close to a quarter of global 2014 output and comparable to the rise in global oil output over the 20-year period between 1994 and 2014 (21.6 mbd).
In this perspective, our projection appears as truly revolutionary – a game changer for the oil markets.
Table 1: Speculative ROW conventional oil rise by 2035 resulting from spread of shale extraction methods, mbd
Global 2014 oil output
Global rise, 20 years (1994-2014)
US share of oil reserves, BP (annual)
US conventional oil production rise, 8 years (2008-2016)
ROW conventional oil production rise, 20 years (2015-2035)
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Roberto F. Aguilera is an adjunct research fellow at Curtin University, Australia. Marian Radetzki is Professor of Economics at Luleå University of Technology, Sweden. Their new book, The Price of Oil, is published by Cambridge University Press.