This Is The Technological Breakthrough That's Making People Wildly Bullish On America

This weekend, we told the story of three bears who are all bullish on America for one reason: Domestic oil and natural gas.

In particular, Hugh Hendry fund manager for Scottish group Eclectica Asset Management, cited “the momentous nature of recent advances in shale oil and gas extraction.”

So what are these great breakthroughs?

As it turns out, the three great advances in shale resource extraction occurred more than a decade ago, according to Dan Steward, a geologist with Republic Energy and a former Vice President of Mitchell Energy.

The first was horizontal well drilling, which infinitely expanded the potential uses of fracking (which has actually been around since the 1949*). Here’s an animation showing exactly what that looks like:

The first commercially viable horizontal drills had already been executed in the 1980s.

But it was not until the late ’90s that mapping technology was created that could determine where fracking would prove most successful.

Microseismic technology (which were originally used to detect seismic activity around mines) involves lowering detectors into a listening well near a fracked well.

Once the well has been drilled, the seismic devices pick up the noise of where the rocks are breaking, and triangulates the sounds to map out the rest of the play.

Here’s an equally nifty animation that demonstrates microseismic mapping.

The final development was the advent of slickwater fracking, the technique now known for being so cheap, yet so controversial.

Slickwater fracks involve adding chemicals known as “friction reducers” to water to allow for more efficient gas extraction.

According to Halliburton and Forest Oil Corp, slickwater fracks allow fluid to be pumped down the well-bore as fast as 100 barrels per minute. Without using slickwater the top speed of pumping is around 60 bbl/min. It also enables extraction in highly pressurised, deeper shales.

In 1997, Mitchell Energy executed the first slickwater frack (.pdf). Steward says it cut down the cost of drilling a well from $375,000 to $85,000.

The ensuing “natural gas revolution” has been more the result of revision after revision of potentially recoverable resources. For example, in 1999, a study estimated 8.4 trillion cubic feet of natural gas were recoverable in the mid-Atlantic Marcellus Shale. By 2006, that had been revised upward to 31.4. (Some some now argue we have reached a tipping point where has caused recoverability estimates to be revised back downward.)

Here’s how that evolution has played out, according to data from Drilling Info:

better gas

Photo: J. David Hughes

So the next time you read something about new innovations in shale extraction, remember this timeline, from Steward:

“By the year 2000, Mitchell Energy had proven shale as a workable and viable. The energy industry recognised it, but financial markets didn’t recognise until 2002, and politicians only realised it in 2006.”

It is these decade-old breakthroughs that have resulted in those cheap prices you keep hearing about.

natural gas


*Update June 6, 2012: The article originally stated fracking has been around since the 1920s — this should have referred to slanted drilling — a precursor to horizontal drilling — first recorded in 1929.  

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