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Tight oil is changing US energy outlook

The “incredible revolution” in US and North American oil and gas supplies means many things, but it will have a positive impact not just for the oil industry, but for consumers and the economy as well. This is the view of Pete Stark, vice president of research for IHS, who was a featured speaker at the IHS Herold Pacesetters Energy Conference on November 13 in Washington, DC. The conference is part of the larger IHS Forum, which includes IHS CERA events as well.

The most significant benefit for the US economy is that net oil imports will shrink to 30% of demand by 2020, said Stark. And most of the remaining imports will be from Canada and Mexico.

“We won’t be subject to having a refinery outage drive up the price of oil by $10 a barrel,” said Stark. “There will be less volatility, and we may see the price of oil go down a little or stay the same. It is not likely to jump significantly.”

The North American tight oil model is a model for the rest of the world, he said, adding that managing costs is critical.

“Costs are a concern since tight oil completion costs now represent more than 50% of total well costs with the horizontal laterals,” said Stark. “What we are discovering is that using more and more proppants doesn’t necessarily mean more oil.”

Greater drilling efficiency means that fewer rigs can be utilized to recover greater volumes of oil and gas. However, Stark sees a slow but steady increase in the US rig count from about 1,300 today to about 2,700 by 2035.

About 94% of North American tight oil resource plays are economical with $90-per-barrel oil, said Stark. Currently a few giant plays make up the bulk of unconventional oil production, but about a dozen plays in the US and Canada will be prominent over the long haul. The Bakken is number one in the US, and the Montney is the top Canadian tight oil play with vast resource potential.

Other major US oil resource plays include the Eagle Ford, Granite Wash, Bone Spring, Wolfberry, Utica, and Mississippi Lime. We are just starting to unlock the potential of the Duvernay in Canada, which is the “star of the future,” said Stark.

“The Granite Wash is an old US gas play, but horizontal drilling has managed to unlock a greater portion of liquids,” he added.

If we add the Canadian oil sands to the total North American potential, we may be able to sustain total production at around 25 million barrels per day for the next 25 years or so.

By 2018 to 2020, Stark said it is likely the US can begin exporting gas liquids. However, this is not the real story, he said. “The real story is that we’ve changed our energy outlook.”

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