Economics and Technology Drive Development of Unconventional Oil and Gas Reservoirs

Abstract

This article, written by Editorial Manager Adam Wilson, contains highlights of paper SPE 146765, ’Economics and Technology Drive Development of Unconventional Oil and Gas Reservoirs: Lessons Learned in the United States,’ by C.P. Flores, SPE, PB Energy Storage Services, and S.A. Holditch, SPE, and W.B. Ayers, SPE, Texas A&M University, prepared for the 2011 SPE Annual Technical Conference and Exhibition, Denver, 30 October-2 November. The paper has not been peer reviewed. Advances in technology and better economics have supported the exploitation of unconventional reservoirs in the United States. The concept of the energy-resource triangle put forth by J.A. Masters in 1979 explains that unconventional oil and gas are abundant but the exploitation of these resources is particularly sensitive to both technology and commodity prices. Here, the effects of technology and various geopolitical and economic events on US unconventional production are assessed in the context of Master’s resource-triangle theory (RTT). History of Commodity Prices—Oil- and Gas-Price Fluctuations Traditionally, commodity prices have been the result of the supply and demand in the markets; however, on occasion, organizations have restricted production to try to affect prices. The fluctuations in oil prices are also related to various political events. Major critical petroleum-related events from 1861 through 2006 explain fluctuations in oil prices. The Pennsylvania oil boom in the 1860s saw prices reaching a peak of USD 104.35/bbl (in 2006 dollars) until the oil boom began in Texas with the discovery of the Spindletop (1901) and East Texas (1930) fields. The boom in Texas originated a period of stable, low prices sustained by product availability. In 1931, oil prices fell to a low of USD 8.66/bbl (in 2006 dollars) and continued to be relatively stable until the oil crisis in the Middle East during the 1970s. The Yom Kippur war in 1973, the Iranian Revolution in 1978–79, and the Iraq invasion of Kuwait in 1991–92 caused spikes of USD 14.99/bbl (in 2006 dollars), USD 88.13/bbl (in 2006 dollars), and USD 29.71/bbl (in 2006 dollars), respectively. In 1998, the Asian financial crisis saw prices fall to USD 16.22/bbl (in 2006 dollars), but, in 2006, oil prices quadrupled, reaching USD   65.14/bbl. The increase in oil prices continued until recently with prices of approximately USD 70/bbl. Political, economic, or social events are, among other parameters, responsible for oil-price fluctuations. Historically, periods of high prices have benefited the exploitation of unconventional reservoirs because these reservoirs require costly stimulation methods to produce at economic rates. The link between periods of high price and development of unconventional reservoirs supports the RTT.