The current oil glut and the future of production is and will be driven by "tight oil", as made famous by the US oil shales.
Conventional oil reserves are big pockets of oil and gas that can be drilled straight down into, and can produce large amounts of oil for decades. Tight oil requires a lot more work for a lot less reward. Instead of one large reservoir, the fields are small pockets spread out over a larger area. Drilling straight down into them is not practical or economical at any price. It was not until horizontal drilling became established, and hydraulic fracturing was employed that these fields started being looked at. And when the price in the twenty tens surged to well over a hundred dollars a barrel, there was enough profit to develop those fields. With the surge of the US shale fields, other countries started to look in their own backyards. There are vast shale fields in Russia, Canada, and Argentina.
Conventional oil reserves are big pockets of oil and gas that can be drilled straight down into, and can produce large amounts of oil for decades. Tight oil requires a lot more work for a lot less reward. Instead of one large reservoir, the fields are small pockets spread out over a larger area. Drilling straight down into them is not practical or economical at any price. It was not until horizontal drilling became established, and hydraulic fracturing was employed that these fields started being looked at. And when the price in the twenty tens surged to well over a hundred dollars a barrel, there was enough profit to develop those fields. With the surge of the US shale fields, other countries started to look in their own backyards. There are vast shale fields in Russia, Canada, and Argentina.
The future of global oil is these tight fields. There are tens of billions of barrels. The current issue is the economics. A typical oil well in the US Bakken or Eagle Ridge field only produces about a hundred barrels per day. And because of the specialized drilling and hydraulic fracturing required, the cost per barrel at those fields is around $60. The more economical Permian basin in Texas still costs about $40. Both are a far cry from the big Arab fields that cost less than ten bucks a barrel.
Tight oil is also why US rig count data is so important. Conventional US oil is in decline, with most fields being fully mature. So it requires thousands of wells for oil shales to swing US production a million barrels one way or another. So when the rig count drops by 80% in a few months, it is a forecast of the US supply constraints in the future.
Tight oil is also why this current price devaluation can not continue for much longer. Global conventional crude has peaked. Tight oil is making up the difference, and will keep increasing as a percentage of total oil. Petro companies can not run those fields at a loss, so to meet global dand in the coming years the price of oil will be pulled up by production costs if nothing else.
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