The U.S. Shale Revolution
The “Shale Revolution” refers to the combination of hydraulic fracturing and horizontal drilling that enabled the United States to significantly increase its production of oil and natural gas, particularly from tight oil formations, which now account for 36% of total U.S. crude oil production. This new production capacity has reduced the United States’ dependence on oil imports from overseas and continues to provide an important economic boost as the country recovers from the 2008 recession. Oil and gas constituted 1.6% of the United States’ GDP in 2011 and is growing. The development of shale formations has been correlated with a rise in employment, with the oil and gas industry adding 169,000 jobs between 2010 and 2012.1
U.S. shale basins. (U.S. Energy Information Administration)
The United States is now a leading oil and gas producer, as global supply has diversified away from the Middle East. Reduced imports of hydrocarbons improve the U.S. trade balance and minimize direct financial support for oil exporting regimes which may act counter to U.S. interests. Through the increase of domestic oil production, net petroleum imports have dropped to 27% of total U.S. consumption, the lowest figure since 1985.2 Politicians hope that the shale boom could foster an era of U.S. “energy independence,” whereby domestic production satisfies consumption. However, as oil is priced in a global market, as long as the United States remains connected to global markets, it will always be vulnerable to price shocks. Even if the United States continues to cut its imports of petroleum to nearly zero, a supply interruption in the Middle East would force global oil prices upward, hurting U.S. consumers. While this “one great pool” logic is true for oil, the market for natural gas is more regionally disjointed and therefore presents a unique set of challenges.
Geography and Geology of New Production
The United States is now the world’s largest producer of dry natural gas, producing 20% of the world’s total supply, 40% of which is derived from shale.3 There are three major shale plays that account for over 70% of total production.
Tight oil production in the United States. (U.S. Energy Information Administration/Drilling Information)
There are several reasons why the development of shale oil and gas has taken off in the United States. The United States is unique in that the owner of the land owns the hydrocarbon resources underneath the property — unlike elsewhere in the world where governments own subsurface mineral rights. The oil and gas industry has access to capital and has abundant expertise with U.S. geology. Regulations in the United States promote the development of oil and gas and provide a stable and predictable permitting process. Finally, the U.S. benefits from having a large infrastructure network able to handle the expansion of the oil/gas sector. Although these factors have contributed to a recipe for success in the United States, each new geological and political situation will demand a unique approach to developing shale resources elsewhere in the world.
Global shale basins. (U.S. Energy Information Administration)