Shale Oil and the Pros and Cons of Fracking

Shale oil drill using fracking

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Table of Contents
Table of Contents

Shale oil is a high-quality crude oil that lies between layers of shale rock, impermeable mudstone, or siltstone. Oil companies produce shale oil by fracturing the rock formations that contain the layers of oil. 

Since 2014, U.S. shale oil has created a boom in domestic crude oil production. Shale oil comprises more than a third of the onshore production of crude oil in the lower 48 states. As a result, the United States became the world’s largest crude-oil producer, according to the Energy Information Administration. U.S. reliance on foreign oil imports has fallen from 9.8 million barrels per day in 2013 to 8.6 million b/d in 2019. 

Key Takeaways

  • Shale oil production makes the United States more energy independent. 
  • Storing barrels of shale oil helps prices remain more stable. 
  • Shale oil extraction (fracking) benefits from innovative drilling techniques. 
  • Fracking causes ecological damage to the environment.

How Shale Oil Is Produced and Extracted

First, oil companies drill vertically into the shale formation. After operators drill the well, they curve it at a 90-degree angle. At this kickoff point, they drill horizontally. 

This technique allows them to access 10,000 feet of the reservoir rock. They then pump high-pressure bursts of water, sand, and chemicals to fracture the shale and release the oil. The sand holds the fractures open. That allows the oil to seep into the well.

Companies in Texas used horizontal drilling in the 1990s. It became more affordable when Brigham Oil & Gas successfully split a single horizontal leg. The company fracked each leg independently, providing a higher return on the investment. This technique propelled North Dakota field production from 7 million barrels in January 2010 to 46 million in October 2019.

The Bakken Field in North Dakota and Montana is the largest producing shale oil reserve. The field has layers of dense, oil-bearing rock about two miles underground. In these fields, drillers use multistage fracking to create longer cracks. They perforate short segments of the production casing. That allows them to concentrate the bursts of water in targeted spots.

Don't confuse shale oil with oil shale. That is rock suffused with kerogen, a precursor to oil.

Pros of Fracking

Shale oil extraction methods are more flexible than traditional oil well drilling. The initial drilling only accounts for 40% of the total cost. Extracting the oil costs roughly $1 million for each well. That made shale oil extraction profitable when oil reached $100 a barrel.

Shale oil companies have increased productivity since 2014. That's allowed them to stay in business despite lower oil prices and keep drilling. When they stop extracting, they store the oil in the ground. They call these wells DUCs for ​drill and cover. They can safely wait until oil prices return to $60 a barrel. At that point, they can start extracting oil from the wells they've already drilled. That will keep prices from rising much above that price level. The latest oil price forecast shows they will remain in that range.

That's important because oil prices are determined by much more than the laws of demand and supply. Investor sentiment has more influence on oil prices. They trade oil on global commodities exchanges. Traders can bid the price of oil down or up, depending on their assumptions of factors affecting oil. They created an asset bubble in oil in 2008. They drove the price of West Texas Intermediate up to $145 a barrel. These traders are the main factor that makes oil prices so high.

That was despite the Great Recession. Prices dropped to $30 a barrel later that year, simply because of fear, not a significant change in supply or demand. The volatility in oil prices made gas prices in 2008 do the same thing.

In 2011, oil prices rebounded to $100 a barrel. As prices remained in that range, shale oil producers started drilling wells. They flooded the market, driving prices down in 2014. By that point, they had learned how to extract more cheaply. That created a U.S. shale oil boom that led to a bust. 

Shale oil has reduced the price of oil by 10%. That's a total savings of $4 billion. As a result, gasoline prices fell. This helps low-income families more since they spend a higher proportion of their income on necessities such as transportation.

Cons of Fracking

Fracking is controversial for three reasons. First, it uses a lot of natural resources. Before drillers can extract the first drop of oil, they must pump in 800 truckloads of water. They also use hundreds of truckloads of other material. Unless the water is already on site, it must be trucked in. There it is stored in huge tanks before the fracking can begin. The composition of the fracking fluid is proprietary to each company.

Second, fracking can affect drinking water. Fracking liquids can leak into a community's groundwater either by accident or if they are incorrectly disposed of. If the fields are near groundwater reservoirs, the fracking fluid can be directly injected into drinking water. In areas with low water availability, the drillers are competing with nearby communities for this necessary resource.

Fracking may also cause earthquakes. The U.S. Geological Survey reports that Oklahoma has more earthquakes than California.  They cause earthquakes by pumping wastewater into special disposal wells. The high-pressure pumping may trigger shifts in the fault lines. As a result, the quakes can occur far from the disposal wells.

  • More flexible.

  • Increased productivity.

  • Reduced oil and gas prices.

  • Uses a lot of natural resources.

  • Can affect drinking water.

  • May cause earthquakes.