UTx | DmOuNyCDAF4

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Welcome back. Module 10 covers unconventional fossil fuels. This is the fifth module on fossil fuels.
And we'll look at extraction techniques for shale oil and shale gas and tar sands. So let's get started.
Now let's talk about unconventional fossil fuels. A new trend as we get to harder and harder places to
reach for getting our oil, gas, and coal. Unconventional fossil fuels are comprised of several sources.
Unconventional coal includes coal to liquids. Unconventional natural gas includes coalbed methane, or
coals and gas, gas liquids and shale gas. And unconventional petroleum includes the tar sands-- also
known as the oil sands-- heavy oil, oil shale, and shale oil.
And I'm going to talk about shale gas, tar sands, or oil sands, oil shale, and shale oil for this lecture.
Let's start with shale gas. Shale gas is a global resource. There are many countries that have it. There
is abundant resources in the United States and Canada, as well as in South America, Northern Africa,
Europe, Australia, China. Any country that's gray doesn't mean they don't have shale gas. It just means
the reserves haven't been mapped out yet.
So this is a global resource, but is mostly a US phenomenon. Production has not really been taking off
except in the United States. In the United States, we have many shale basins. The Barnett shale in
North Texas is the first shale that really took off in recent times with productive activity for natural gas.
There's also the Eagle Ford shale in south Texas, the Bakken shale in North Dakota, and now looming
large is the Marcellus shale up in Pennsylvania and New York.
We have shale basins in many places in the United States. We have an abundant resource. And the
question is, are the prices and technologies at a point now where we can extract this economically?
Well, the key is new production technologies and high natural gas prices have enabled economic
production of shale gas. The key changes were hydraulic fracturing of the shale, which uses jets of high
pressure water that cracks the shale, as well as proppants like sand, solid pieces and bits that keep the
cracks open so the gas can flow. That combined with horizontal drilling, which enables high productivity
along the seams, and increases the output per drilling pad.
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So these two combined, where you go down under the ground, turn sideways for directional drilling to
get more extraction along the seam, as well as the new techniques of hydraulic fracturing with
proppants, has made a big difference.
Shale production has been a good news story in terms of gas production. It does have environmental
risks. I've outlined them here. There's 11 different points of risk through the shale production process,
the life cycle.
The first one is land disturbance from the pad itself. The second are the quantities of freshwater use.
The third risk is drilling through the aquifer. The fourth are the effects from the fracturing process itself.
The fifth is a wastewater retrieval followed by wastewater storage, followed by wastewater
transportation to treat the water and dispose of it, which is also a risk for water transportation.
Wastewater treatment is a risk. Wastewater reinjection is a risk. Then there's flaring and gas leakage at
the pad itself as well. And I'll go through each of these.
If we look just at the pad itself, a typical pad's about five acres in size. If you have a super pad that has
dozens and dozens of wells, it might be 20 acres, something like that. But a typical drilling pad's about
five acres.
We have many, many tens of thousands of these pads the United States. If you fly into DFW airport and
look out your window, you'll probably see a couple thousand of the drilling pads on your approach to the
airport. They're rectangular white pads. It's not concrete. It's more like a caliche dirt that's been cleared
of vegetation. And there'll be some tanks and pipes, and maybe some trucks other equipment on it. So
these are not a scar on the land, but visible, I would say, from the air.
You have to worry at the pad about leaks and flaring. And when you have leaks, you have to worry
about the greenhouse gas emissions of the leaked gas, and the air quality consequences of that from
the wells.
You also have emissions from the pumps and the diesel trucks. A lot of equipment there, and it has
emissions. You also have to worry about sand you're going to use for proppants. But sand will blow
away from the hoppers becomes a dust storm or an eye sore as well, or the air quality problem.
You also have to worry about the flaring. There's a lot of flaring going on these days because gas is
cheap and pipelines are expensive. That's a source of noise, light pollution, and other environmental
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impacts. And as we talked about, flaring is wasted energy. And it's as high as 30% in places like North
Dakota. Up to 30% of the gas pulled out of the ground is flared, and doesn't find useful purpose.
The drilling process also has environmental risks. The well goes through the aquifer. And as you punch
through the aquifer, you must property case your well to the right depth below the aquifer so that you
don't introduce risks of contaminating the water.
Drilling will last anywhere from something like 10 to 30 days. It's actually the same risk in drilling for
hydraulic fracturing as for conventional oil and gas drilling. But because you're drilling the well for
hydraulic fracturing, you might have higher pressures and different chemical mix. So the risks might be
slightly different. But basically, it feels like the same as for conventional oil and gas.
The fracturing process itself is a well completion process. There's drilling, then completion, and
fracturing is a way to complete the well. A mix of frac fluids is used to do the fracturing. That's anywhere
from two to 9 million gallons per well. The proppants, the sand we talk about, is approximately a half
million pounds of sand per well, plus chemical additives mixed with the water, which all are injected at a
rate of thousands of gallons per minute, which is a tremendous flow of water into the system.
There are public concerns about induced seismicity. That is injecting the water at high rates at a high
pressure in the frac site might cause earthquakes, but actually that's probably not really a problem.
There's also concerns about frac fluids seeping into the aquifer from the frac site. It could seep up
thousands of feet to the aquifer potentially, but that's probably also not really a problem. The bigger
risks tend to be at the drilling or at the surface where you have the water, not as the fracking location.
The chemical additives comprise about 2% of the frac fluid's mixture. So your frac fluid's mixtures is
mostly water and sand, about 98% water and sand. And then the other 2% are things like acids and
antibacterial agents, and clay stabilizes and breakers, and surfactants to help scrub the gas off the
rock, things to improve the productivity of the well, and also mitigate the growth of things that aren't
desired.
The fractions of the chemicals actually grow as water use decreases. So as operators get better at
completing the wells, they use less water. But the chemical mix stays the same. So the relative fracture
of the chemicals grows as they use less water for well completion. And liquids-rich shales tend to use
more acids and gels or higher chemical fractions compared to the dry wells. Dry gas needs less acids
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than the wet gas does to produce.
If you do hydraulic fracturing at shale formations, you typically get a lot of the water back out of the
ground. You put millions of gallons in, you get millions of gallons back. That wastewater has three
components. Their drilling amounts, which are use to lubricate during the drilling process and the
completion, is flow back water and produced water, all of which comes back out in total in millions of
gallons per well. A lot of that wastewater is often stored on site in ponds or pits, which is a challenge
because that water can leak back down into the aquifer. Therefore, pits should be lined to prevent
those leaks.
Leaks have happened. Although they are infrequent, it is one of the risks. The risks of water
contamination are actually higher from the wastewater collection at the site than it is from the fracking
or the drilling process itself.
Then trucks can be used to haul off that wastewater, those frac fluids in the produced water and flow
back water taken off to be disposed of or treated. Those trucks introduce noise and air pollution and
dust. They do damage to roads. There are risks of accidents. And they can do physical property
damage or cause of death on these roads. So this is one of the real risks of the trucks.
And then if the truck has an accident and then has a spill, there's a risk of water contamination from
that. So this is another environmental impact of all the trucks. Those trucks are also used to bring the
water to the site in the first place in some instances.
Even specialized wastewater treatment facilities are not always able to treat the wastewater to the right
level before returning that water to the waterways. So that means these wastewater volumes are really,
really dirty produced water from the shale wells can overwhelm the treatment infrastructure capacity. It
passes through the wastewater treatment facility, then gets returned of the river. And that ends up
being river pollution or water pollution.
It's also a form of inter-basin transfer. The water is taken from one shale gas site in one river basin, and
then disposed of in a wastewater treatment plant in another river basin. So you're moving water around
from one river to another.
And then injection is another method of wastewater disposal. Instead of treating it and putting it in the
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river, you can inject it back underground. Some states allow wastewater injection to specified location.
Texas does and Ohio does, but Pennsylvania does not, for example. They don't have the right geology
or the right regulatory set up.
The United States has about 150,000 wastewater injection wells across the entire nation. About a third
of them are in Texas. So Texas is set up with a really robust infrastructure for wastewater injection. And
generally that works just fine. However, if you inject that water at a fault, you can induce seismicity. And
in fact, there been several events of induced seismicity from wastewater injection related to the shale
gas production.
So it's not the fracking that does the induced seismicity. It's the wastewater reinjection later that causes
the earthquakes. However, reinjection generally is easier and probably cleaner than treatments.
Considered one of the environmentally preferred modes of disposal.
Even better would be wastewater reuse where we take the wastewater from one well and use it again at
subsequent wells. That's environmentally better but not necessarily easier, depending on where you
are.
The good news in shale gas is that the technology's working, and shale gas has seen increases in
production. These new technologies have enabled big turnaround in US domestic production. We
peaked with our gas rush in the '70s and dropped back down. We peaked again in 2003 and dropped
back down. And now we're turning around. It's on the way up, mostly from shale. So shale's been a
good story for domestic production.
Let's talk about unconventional petroleum. Petroleum's a little more complicated story than the shale
gas, although shale's a part of it. We should first talk about what petroleum reserves and resources
mean. They mean slightly different things. The petroleum resources are the total petroleum in the
Earth's crust. The unproved reserves is that subset of the total resource that includes probable and
possible reserves, reserves we might be able to get to someday with the right technology and the right
prices. And then the proven or proved reserves is a subset of the total resource that we can actually
extract today with reasonable certainty using today's prices and today's technology.
So we tend to think of oil reserves as that last term. But there are bigger reserves out there that we
don't know how to get to yet or can afford to get to, but might someday. And then there's the total
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resource in the crust, which we won't be able to get all of, for sure.
The resource for unconventional petroleum sources is absolutely massive. Saudi Arabia has a couple
hundred billion barrels of conventional petroleum. Canada has about 173 billion barrels of conventional
and tar sands reserves in total. And Venezuela has 87 million barrels of conventional petroleum
reserves, and another 200 or so billion barrels of extra heavy oils in the Orinoco belt.
United States really doesn't have that much conventional petroleum. But we do have tens of billions of
barrels of oil sands, and another couple hundred billion barrels of shale in places like Colorado and
Utah and Wyoming. And now we have this new shale oils-- the shale liquids, kind of like shale gas--
adding another tens of billions of barrels. So our resource is quite large if you include the
unconventionals.
If we talk about oil sands, there's two approaches to production. There's mining, where you remove a
couple hundred feet of overburden. You scrape the oil out with trucks and scoopers, kind of like you
would for coal. Oil sands mining is a little bit like coal mining. You move the oil in trucks.
The second method is in-situ for deeper deposits, which has the advantage of having less topographic
disruption. Instead of mining the surface, you can drill a couple of holes and drop wells to go down. You
have an injection well and an producing well. The injection well's for injecting steam in what's called
SAGD, or Steam Assisted Gravity Drainage. Steam is injected into the well. It makes the oil sands turn
into more of a liquid form that then can flow out of the producing well.
Tar sands production has severe water impacts. Significant water is used for the mining and in-situ
production. And you need something like a handful of barrels of water per barrel of what's produced out
of the oil sands.
There's also massive tailing ponds that are used to collect the used water from the mining. And these
contain hazardous contaminants, and they have things like mercury and different acids. And there are
risks of leaks from those ponds into the groundwater or other surface water. And these ponds are
significant sources of methane emissions. The long-term management of tailing ponds is one of the
main challenges for the oil sands mining industry, is what the nation of Canada says.
Oil shale in the United States is a large domestic resource, that we have a lot of in Colorado and Utah
and Wyoming. It covers a couple different river basins. And if you look at it from the side in the bottom
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left, it's a cutaway diagram, it shows that the shale actually sticks out of the ground in a couple of
places, so we know it's there. It's hundreds or thousands of feet below ground in most places. And the
seam itself might be 1,000 feet thick or so. It's an abundant resource. It's like a rock, a hard oil rock. Not
an oil sand.
And the same kind of thing. Just like the oil sands, it can be produced by mining, by scraping the
surface away and taking the rock out like you would for coal. Or through in-situ methods where wells
are drilled, high temperatures are put into the system to melt the rock and get it to flow out of producer
wells. So you could do in-situ production with less topographic disturbance but more energy investment,
or use the surface methods to remove the rocks from their site.
One interesting fact is that the energy density of oil shale is about the same as potatoes. Oil shale has
something like three to seven million BTU per ton of shale. Potatoes are about three and a half million
BTU per ton of potatoes. And be hard to think about mining for 800 billion barrels of potatoes. But the
truth is, if we had 800 billion barrels of potatoes buried under the ground, we'd probably go try to mine
them. So it's not very energy dense source, but it is available.
The shale oil formations have actually been boosting US total reserves. So there's oil shale like I just
showed you in Colorado. And then there's shale oil, which is like the shale gas. Slightly different
geology, slightly different things. The shale oil or shale liquids that come out with the gas wells have
actually boosted our US total reserves.
Over history, the four largest fields in America have been Alaska's Prudhoe Bay, the west Texas
Spraberry field, the east Texas oil field and Kuparuk field in Alaska. But now, the Bakken in North
Dakota and the Eagle Ford in Texas are each expected to yield at least four billion barrels of oil apiece,
which makes them the fifth and sixth largest US fields in history. And we are still upgrading and counting
some of the other fields being found that might make it into the top four list.
Shale oil and shale gas, or shale liquids and shale gas, are produced together. Oil wells produce gas.
Gas wells produce liquids. So the term of art has changed from gas rigs and oil rigs to now just drilling
rigs. Major gas companies produce a lot of oil. Major oil companies produce a lot of gas. So this is sort
of a mixed story now. We used to have oil companies and gas companies. But now it's really mixed.
And as a consequence of all this coproduction, US energy production's up in total since 2009 for oil and
gas, but also solar wind and biofuels and biomass for other reasons.
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Just as shale gas has seen increased production, shale oil has enabled increased domestic petroleum
production as well. US oil production peaked in late 1970, early 1971, and has been dropping
essentially for 40 years, until it turned around a few years ago. Those increases are a consequence of
the shale production.
One interesting phenomena from this is that US oil and gas prices have separated. Oil and gas prices
have traveled together for the most part for decades, up and down together. Not the exact same price,
but they fall at the same trend. Until about four years ago, gas prices separated from petroleum. Gas
prices dropping while petroleum prices went up.
And this is because of the shale phenomenon. Shale formations, for the most part, are giving us
gasses, not liquids. So we've had extra abundance of gases despite tight markets for the liquids. And a
separation of the markets between the US and the world, so our gas prices are lower. And this is a
unique trend that might last for a couple decades. It's unusual for gas and oil.
Just as gas prices have separated from oil, US gas prices have separated from global gas prices. It
used to be that the European and Japanese and US prices traveled together over time, kind of with
their volatility up and down. And then at one point, US prices around 2004 were actually higher than in
Europe and Japan. But then we started a downward trend while in Europe and Japan went up. So these
prices went together until one point, US went down and Europe and Japan went up.
So now we pay something like $4.00 per million BTU for gas in the United States. European Union pays
some like $12.00. Japan pays something like $14.00 So we have a distinctive price advantage for gas
based industries like power and chemicals in the US compared to other countries or other regions of
the world.
This sustained price separation of oil and gas and of US and global gas prices will be good for the US in
my opinion. It probably won't end for a few decades because it will take a decade or two for other parts
of the world to start their shale production as well.
And it means onshoring of gas-intensive industries. We have seen offshoring of gas-intensive industries
like fertilizer and chemical manufacturing to other countries for the last decade. Now they're coming
back to the US because our gas prices are cheaper.
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It also means reduced imports of petroleum and increased exports of petroleum products. Which
means additional revenue for producers and a good economic balance of trade for the United States.
Thus the good news.
The bad news is that this growth in gas and abundance actually complicates the growth of renewables.
We'll talk about renewable energy later. But one thing we find is sometimes renewables are competing
with natural gas. And so when natural gas is cheaper, it makes that competition tougher for the
renewables.
To get more data, more explanation, and more help understanding the concepts we covered in today's
topic, make sure you go do the online exercises, and then I'll see you at the next lecture.
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