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Technology still driving oil boom Producers continue to refine development techniques for tight oil, while pipeline companies are bringing more capacity online Eric Lidji For Petroleum News
In 2012, the United States experienced the largest single-year increase in daily oil production since Col. Edwin Drake started the oil industry more than 150 years ago.
And Alaska had nothing to do with it.
In 2013, the U.S. Energy Information Administration expects domestic production will again increase by record levels. And Alaska won’t have anything to do with that, either.
The EIA expects domestic oil production to hit 7.25 million barrels per day this year, up 815,000 bpd over 2012, and to hit 7.82 million bpd in 2014, the highest level since 1988.
In a recent publication examining the key drivers behind the growth in domestic oil production expected over the next two years, the statistical arm of the U.S. Department of Energy points to technological improvements in developing tight oil formations in North Dakota and Texas, a continental pipeline system adjusting to the new geography of oil production, and production increases from a slate of new Gulf of Mexico developments.
As for Alaska, the EIA expects oil production to drop to about 504,000 barrels per day in 2013, down from 526,000 bpd in 2012, and to keep falling to 474,000 bpd in 2014.
Tight oil is king The increases in the Lower 48 come as producers are finding the best way to develop tight formations.
While the combination of horizontal drilling and hydraulic fracturing is responsible for making tight oil formations economic at current oil prices, the EIA points to a range of technologies responsible for bringing down the cost of tight oil development, and therefore increasing production this past year and likely for the next two years, as well.
Those technologies include: multi-well pads allowing producers to achieve economies of scale for both drilling and completion, horizontal laterals up to two miles long allowing greater contact with oil-bearing formations, micro-seismic imagining that improves the understanding of formations, drill bits designed specifically for shale and tight formations, and “walking” rigs that decrease the time needed to move from one pad to another.
These efficiency gains have quickly increased the economically recoverable tight oil resource base in the Lower 48, but the pace of growth should start to slow as the industry finds the optimal use for each technology, according to the EIA. Additionally, as producers run through the “sweet spots” of each play, they will be required to move into less productive regions, requiring more drilling and completions to maintain production.
Pipeline capacity up It takes wells to increase oil production, but it also takes pipelines.
Within the past three years, capacity to the distribution hub in Cushing, Okla., increased by some 815,000 bpd, a boost primarily attributable to the 590,000 bpd TransCanada Keystone pipeline connecting Alberta to Oklahoma through Nebraska. The second phase of the project, which completed the link from end to end, came online in early 2011.
The EIA expects pipeline capacity to continue improving in 2013 and 2014, as several interstate projects launched at the beginning of the tight oil boom start to come online.
Those include the 250,000 bpd Enbridge/Enterprise Seaway expansion now online, the 700,000 bpd TransCanada Gulf Coast project planned for the fourth quarter and the 450,000 bpd Enbridge/Enterprise Seaway twin scheduled to come online in early 2014.
In addition to new pipelines, the EIA also noted how the 96,000 bpd ExxonMobil Pegasus pipeline reversed direction in 2006 to accommodate the new geography of oil.
Federal GOM returns While onshore tight oil is the primary driver of the expected increases, oil production from the federal Gulf of Mexico increased 6 percent in 2012, and should keep rising.
The 13 projects that came online in 2012 have a combined peak production of 195,000 bpd and the EIA is tracking another 16 projects due to come online in 2013 and 2014.
The federal Gulf of Mexico should also see an increase in 2013 as the industry bounces back from Hurricane Isaac. While average daily production increased last year, production on an annualized basis actually fell as a result of shut-ins caused by the storm.
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