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U.S. Shale Liquids to Triple, Report Says

U.S. shale liquids production could triple during the next few years, nearing 1.5 million b/d, according to an "Energy Insight" report from a Massachusetts-based energy consulting firm, Energy Security Analysis Inc. (ESAI). The eventual impact on U.S. imports and exports of energy could be significant, but there are still uncertainties and challenges.

ESAI forecasts continued rising investment in shale liquid production, and eventually this will push total U.S. oil and gas liquids output -- onshore and offshore -- to nearly 8.2 million b/d by 2015.

"The rise in production, along with growing output from Alberta oil sands in Western Canada, will sharply reduce required imports from the rest of the world," ESAI analysts said in a July 20 report to their clients. ESAI is projecting the share of Canadian imports to rise to nearly a third of total U.S. imports by 2015.

ESAI equated the expected liquids boom from shale with what it called "the already remarkable increase" in shale gas output over the past five years. From practically nothing, the shale liquid supplies this year are expected to hit 500,000 b/d.

Support for the rapid growth is coming from a combination of factors, including technology advances in drilling and fracturing processes that have reduced production costs and a widening gap between relatively low natural gas commodity prices and robust oil prices. This gap, or "gulf," as ESIA called it, encourages more focus on liquids, the consulting firm said.

The report does caution that there are at least two major challenges for which it is not clear how things will turn out. First, the continuing environmental concerns focused on hydraulic fracturing (fracking), and second, the lack of export infrastructure in several of the newer shale play areas, such as Bakken in North Dakota and Niobrara in northeast Colorado.

Uncertainty and delays in resolving the environmental questions until after the federal Environmental Protection Agency completes its ongoing study of fracking's impact and in getting the added takeaway infrastructure needed from some of the newest shale plays could cause investment in new liquids to dampen, ESAI said.

ESAI is counting on a growing U.S. domestic shale liquids boom in curbing energy imports, but the analysis mentions three contributing factors: energy security, carbon penalties and production costs.

"The disruptions to Libyan production, along with the wider Arab Spring revolt, has intensified concerns over the security of sources of supply," ESAI's analysis said. Meanwhile, California has announced preliminary low-carbon fuel standards that include a series of rules to rate high-carbon intensity crude oil. Finally, there is the issue of production cost.

ESAI concludes in its analysis that what it sees as continuing lower costs for Middle Eastern production, even with long delivery distances, will allow that region to underbid Canadian barrels if the Mideast decides to fight for market share.

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