Oil milestone:
Fracking fuels
half of U.S.
output
by Matt Egan @mattmegan5
March 24, 2016: 12:40 PM ET
The rise of fracking has reshaped
the global energy landscape.
It recently hit a new milestone in the U.S.
Fracking now accounts for more than half of all
U.S. oil output, according to the Energy
Information Administration. It's a stunning feat
considering fracking made up less than 2% of
American oil production in 2000.
Hydraulic fracturing technology, more commonly
known as "fracking," paved the way for drilling
into America's enormous shale deposits. It has
fueled a dramatic boom in U.S. oil production.
Back in 2000, there were just 23,000 fracking
wells pumping about 102,000 barrels of oil a day.
Now there are 300,000 fracking wells, churning
out 4.3 million barrels per day.
Fracking "has allowed the United States to
increase its oil production faster than at any time
in its history," the EIA said in recent report.
U.S. output has nearly doubled over the past
decade and America only trails Saudi Arabia and
Russia globally.
That surge in American crude is one of the main
reasons why there is a global glut in oil that
keeps getting worse. The excess supply caused
oil prices to peak in mid-2014 and crash as
much as 75% since then.
"Prices are where they are because shale has
been so phenomenally successful. It's changed
the whole pricing paradigm," said Tamar Essner,
director of Nasdaq's energy team.
Related: Epic oil glut gets worse
So how does fracking work?
Fracking involves shooting a mixture of mostly
water and sand under high pressure against a
rock formation until it fractures. The sand fills
the fracture, forcing crude oil out of the rock
formation.
Fracking has been criticized for its potential
environmental consequences, including water
contamination and earthquakes. These concerns
were summed up in a 2010 HBO documentary
called "Gasland" that focused on communities
impacted by natural gas fracking.
Shale oil is not a new discovery. It's actually
been around for 60 years. What's new is that the
technology has vastly improved in recent years.
Innovation has made previously-expensive
fracking much more efficient. High oil prices
before and after the Great Recession lured tons
of investment dollars into this space, fueling a
technological revolution. Investors were also
motivated by extremely low interest rates to
borrow cheap and invest in this technology.
The fracking revolution first hit the natural gas
space, fueling a wave of production in giant
shale fields such as the Barnett and Marcellus
spread across Texas, New York, Pennsylvania
and Ohio. But a supply glut quickly formed in
natural gas, causing prices to crater.
Related: Saudis to take control of largest U.S.
refinery
Days of $100 oil gone for now
thanks to fracking
Fracking then spread to shale oil fields, led by
the Eagle Ford and Permian Basin of Texas and
the Bakken formation of North Dakota. This
turned out to be a game changer because it
brought about a ton of new supply that was
cheaper to drill than deepwater projects or even
the Canadian oil sands.
"The incremental amount of new supply was
really underestimated. I don't think any OPEC
member took shale seriously until maybe two
years ago," said Essner.
The other game-changing characteristic of
fracking shale oil is how fast the entire process
is. While deepwater production in places like the
Gulf of Mexico require tons of lead time, shale
wells can be drilled and start pumping oil
relatively quickly.
The "fast-cycle" nature of shale is one of the
reasons many believe the days of $100 oil are
gone for now.
Lately, shale drillers have dialed down pumping
and U.S. oil output has declined a tad in recent
months because oil prices fell as low as $25 a
barrel.
However, everyone expects some of these oil
fields to be easily switched back on the minute
oil prices hit levels where they can make money.
For some shale oil fields that price can be as
low as $40 a barrel.
"It puts a ceiling on how far and how fast prices
can go up," Essner said.
CNNMoney (New York)
First published March 24, 2016: 12:32 PM ET
source: money.cnn.com/2016/03/24/investing/fracking-shale-oil-boom/index.html?iid=SF_River