The Earth contains large amounts of hydrocarbons that are not contained within what might be called conventional reservoirs. These unconventional deposits are often difficult to access, relatively expensive to develop and require advanced technologies to make production possible.
Unconventional hydrocarbons represent the future of fossil fuel supply. Arguably the most exciting unconventional deposits are those provided by shale gas and shale oil, hydrocarbons generated and retained by fine grained sedimentary rocks.
With conventional hydrocarbon reserves being rapidly utilised, a future in which demand for conventional deposits outstrips supply is inevitable. Hence, attention is turning to unconventional resources to satisfy our present and future oil and gas needs.
Shale oil is similar to petroleum, and can be refined into many different substances, including diesel fuel, gasoline, and liquid petroleum gas (LPG). Companies can also refine shale oil to produce other commercial products, such as ammonia and sulphur. The spent rock can be used in cement.
Energy developments in the United States are profound and their effect will be felt well beyond North America and the energy sector. The recent rebound in US oil and gas production, driven by upstream technologies that are unlocking light tight oil and shale gas resources, is spurring economic activity with less expensive gas and electricity prices.
The low prices give the industry a competitive edge, and steadily maintain the role of North America in global energy trade. By around 2020, the United States is projected to become the largest global oil producer (overtaking Saudi Arabia until the mid-2020s) and starts to see the impact of new fuel-efficiency measures in transport.
Global energy demand grows by more than one-third over the period to 2035 in the New Policies Scenario, with China, India and the Middle East accounting for 60% of the increase. Energy demand barely rises in OECD countries, although there is a shift away from oil, coal (and, in some countries, nuclear) towards natural gas and renewables.
Impact to Key Stakeholders
This paper discusses the impact of shale oil of corporate procurement for the 3 key stakeholders, namely Government, Oil Company, and Environment Conservation.
1. Impact for the Government
(a) Government will need to understand the likely economic payback from creating policies to encourage exploitation of shale oil (both on its own and relative to other unconventional resources).
(b) With a lower oil price, the financial investment case for renewables becomes relatively less attractive. Government will have an important choice to make as to how to realise the benefits from shale oil production a way that balances potentially conflicting objectives of energy affordability and de-carbonization.
(c) Government in the OPEC nations and other major net oil exporters need to assess the likely impact of shale oil on global oil prices and their own revenues, budget and economies.
(d) Another priority is mitigation of long-term impacts on governments revenues more generally of oil price below current projections.
2. Impact for Oil Company
(a) Oil companies have to assess their current portfolios and planned projects against lowest oil price scenarios. They need to understand the likely impacts of lower oil-price on the investment case for high cost project.
(b) In additional they need to review their business models and skills in the light of shale oil’s industrialised production process which makes very different demands of operator than today remote and challenging locations.
(c) Businesses that support national and international oil companies with services and equipment need to consider the implication for their strategy and operating models as their clients shift focus from offshore to onshore operation with very differently for the services and capabilities required.
(d) Major downstream operations, such as refineries and petrochemical plants, which rely on oil and oil products, need to consider new sources of supply and the potential for lower feedstock price. Both of which may influence the performance of existing assets and investment decisions in new ones.
3. Impact for Environment Conservation
The areas of concern for environment protection and conservation are:
(a) Land use and waste management
(b) Water management
(c) Air pollution management
(d) Greenhouse gas emissions
(1) A publicly available, comprehensive and detailed analysis of the regulatory framework concerning shale gas and tight oil extraction is not available and should be developed.
(2) The regulatory framework concerning hydraulic fracturing, which is the core element in shale gas and tight oil extraction, has a number of gaps. Most importantly, the threshold for Environmental Impact Assessments to be carried out on hydraulic fracturing activities in hydrocarbon extraction is set far above any potential industrial activities of this kind, and thus should be lowered substantially.
(3) The coverage of the water framework Directive should be re-assessed with special focus on fracturing activities and their possible impacts on surface water.
(4) Regional authorities should be strengthened to take decisions on the permission of projects which involve hydraulic fracturing. Public participation and Life Cycle Analysis assessments should be mandatory in finding these decisions.
(5) Where project permits are granted, the monitoring of surface water flows and air emissions should be mandatory.
(6) Because of the complex nature of possible impacts and risks to the environment and to human health of hydraulic fracturing consideration should be given to developing a new directive at European level regulating all issues in this area comprehensively.