Back in the 1950s, Texan geologist M. King Hubbert predicted that US oil production would reach a peak by 1970, which it did. His successors predicted that global oil production would peak sometime in the mid-2000s, which it almost did. But they might end up all being wrong, thanks to hydraulic fracturing, or “fracking,” which uses pressurised fluids to release energy supplies embedded in shale and other rock formations. Combined with horizontal drilling, fracking is revolutionizing the energy business with global implications that will take decades to play out.
Drill operators in the US have been at the vanguard of the fracking revolution, starting with natural gas. In the early 1990s, the overall rig count held stable, with roughly half drilling for oil and half for natural gas. A decade later, the rig business boomed and accelerated through the 2000s, with the vast majority drilling for natural gas (the orange line in the chart) as fracking was first developed and then widely deployed. Natural gas prices duly plunged.
With US natural gas prices near historic lows, drill operators are moving their rigs to apply the same techniques to oil shale. The share of rigs drilling for oil (the blue line) started to shoot up in 2010, eclipsed natural gas rigs in 2011, and is now at a record high. The drilling boom could be a harbinger of lower oil prices, even as the shift in rigs helps natural gas prices finally find a floor.
Fracking prospectors are developing massive new oil deposits across the US. According to the Government Accountability Office, the Intermountain West’s Green River Formation alone has as much recoverable oil shale as all of the conventional oil reserves in the world put together. Add US shale to Canadian tar sands and North America is poised to be a major energy supplier in the decades ahead.
Cheap and plentiful natural gas is already transforming some industries. The production costs for fertiliser and chemical companies have plunged. Trucking fleets are converting to natural gas for fuel. Electric utilities are swapping from coal to natural gas, which is both cheaper and burns cleaner: in the EIA’s global recent scorecard of developed economies, carbon dioxide emissions have fallen the most in the US because of the shift from coal to gas. A few years ago, the US began building facilities to import liquefied natural gas; the spigots are now being turned the other way. Taken all together, for the first time since President Truman, the United States is now a net energy exporter.
Fracking is going global. Natural gas projects are underway around the world, from Argentina to Poland to China. As environmental and regulatory issues get ironed out, oil projects will undoubtedly follow and add to traditional energy sources like the Middle East and new supplies from deep-sea drilling off the coasts of Brazil and East Africa. Global oil supply is already higher than demand for the first time since 2006.
The global energy markets have long been dominated by a small number of oligarchic countries supplying oil to everyone else. As the rest of the world joins the fracking revolution, energy production will be democratized. So much for peak oil.
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