American Oil and Gas Reporter - April 2018 - 79

AMERICA: THE ENERGY SUPERPOWER
Certainly, there never has been anything
like it among countries in the Organization
for Economic Cooperation and Development. In fact, the amount of oil production
growth that the United States experienced
between 2012 and 2014 was the largest
continual year-over-year increase in history, exceeding even the best years of
production growth in Saudi Arabia.
The same meteoric rise also occurred
in natural gas, with the United States
adding nearly 1 trillion cubic feet of new
production each year between 2009 and
2013 to become the world's largest producer seemingly overnight.
As a result, the nation has been able
to completely reshape its energy fortunes.
Gone are worries about economy-crippling
shortages and price shocks, concerns
about dependencies on foreign supplies,
and fears of inadequate feedstocks for
high-value domestic industries such as
petrochemical manufacturing and steelmaking. America has gone from being a
major demand center dependent on highcost imports to being a major new supply
epicenter with low-cost resources abundant
enough to share with the world.
Resource plays have not only hit the
reset button on U.S. oil and natural gas
supplies at the same time, but also have
transformed the global market. The United
States has a new function: crude oil,
refined oil products, natural gas and
natural gas liquids supplier to the world.
The benefits are nearly as extraordinary
as the story of the U.S. unconventional
revolution itself. Consider the difference
in world economies today if, as forecast
10 years ago, oil was trading at $125/bbl
and natural gas was selling for $12/MMBtu. The U.S. economy would be limping
along, as would the economies of many
other countries.
Historic Achievement
When scientists look back in 60 years
at what technologies or innovations
changed the way people lived, the shale
revolution will rank among the greatest
advancements of this century. U.S. resource plays have altered the energy markets forever, similar to how the smart
phone and Internet have changed how
we communicate with and relate to our
world. The number one factor that makes
societies economically competitive and
ensures a high quality of life is access to

sustainable and affordable energy. That
is why horizontal resource plays have
massively changed the game.
The United States can be confident
that it not only possesses plentiful energy
supplies to power the domestic economy,
but also can export a portion of those
supplies to allies overseas. Already the
globe's top exporter of liquefied propane
gas and among the top five exporters of
refined crude products, now America
consistently is exporting 1 MMbbl/d of
crude oil and soon will be one of the
largest liquefied natural gas exporters.
That provides security advantages almost
beyond measure, and enables much greater
flexibility in international affairs and
policy making.
Then, of course, are all the economic
benefits (such as more than 1.6 million
newly created jobs). The results are evident
everywhere, whether in Oklahoma and
North Dakota, where tight oil has led to
economic rebirths, or Pennsylvania and
West Virginia, which are benefitting from
growing shale gas production even as
their coal industries decline. Texas is
now the number one state for oil, gas and
wind energy production. Major new transportation, storage, refining and petrochemical infrastructure is being built in
regions across the country, creating jobs
and boosting tax revenues.
In only two short decades since U.S.
operators opened a new class of hydrocarbon reservoirs, oil and gas production
volumes have climbed to historic peaks
and America is positioned to become a
top energy exporter. Where does the shale
gas and tight oil revolution go from here,
and what will U.S. independents-the pioneering companies that set this profound
cycle of disruptive change in motion-do
for an encore?
The industry has come a long way in
a short time, but there is still much more
to learn. We have discovered so much
about the rocks themselves. It is clear
that the wrong development approach
can render a good rock bad, and that no
approach can make a bad rock good, but
operators are challenging that dictum to
some degree by moving outside the fairways to investigate what it takes to make
shale basins' second- and third-tier areas
profitable.
It also is fair to say that the shale
revolution is reinventing geology itself.

We are witnessing a new way of thinking
about rocks and the volumes of potential
hydrocarbons trapped in their three-dimensional spaces. We know there are a
lot more alternatives to accessing those
hydrocarbons, whether conventional
stratigraphic and structural traps or source
rocks and basin centers. This is a paradigm shift away from what geologists
were learning in college classrooms 15
years ago.
Downturn Upside
The first decade of the shale revolution
was characterized by proving up the economics, securing leaseholds and drilling.
That came to a screeching halt in late
2014, when one of the most severe downturns in the industry's history interrupted
the party. Taking the long view, however,
for all the pain the down cycle caused,
the U.S. industry accomplished a remarkable feat. Out of sheer necessity, operators
and service and supply companies swiftly
turned erstwhile high-cost shale gas and
tight oil into some of the world's lowestcost energy supplies.
It could be argued, in fact, that the
past three years' efficiency gains, productivity enhancements and structural
cost improvements constituted the most
rapid transformation in industry history.
Without the extreme pressure to prevail
in the low-commodity price environment,
these stunning improvements may not
have materialized for a decade or two. It
was made possible by innovative thinking
about how to apply technology to better
understand tight rock formations and optimize well construction operations.
The break-even cost in the best tight
oil projects has dropped from $60-$65 to
$25-$30 a barrel. While productivity and
cost probably will not improve as rapidly
during the next three years, experience
suggests additional breakthroughs await
to nudge costs downward and recovery
factors upward, while opening additional
resources for economic recovery.
The industry also has learned how to
take greater advantage of the data it
already has. During the downturn, oil
and gas professionals had more time to
dig deeper into data. Companies began
using sophisticated algorithms and analytical tools to mine datasets and gain
new insights into geology, operational
workflows and engineering designs. That
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