Shale oil

Presented to :
Dr. Lamis El Araby
Dinar team
● Omar Mostafa Abdelsalam
● Mohamed Galal Mohamed
● Mostafa Mahmoud Sayed
● Habeba Ahmed
● Dina Ibrahim
● Amira Shawky
● Hebatallah saeed
What is Shale oil ?

● It is a type of oil Formulated over millions

of years ( 100 millions of years) when the
sea divided North America Continent.

● This division leads to death of living

organisms in the sea where debris and
organic materials deposited over sea bottoms
and lake beds
● By the Effect of Pressure and temperature
over years these organic materials are
transformed into Oil known as shale oil or
tight oil or light oil.
What is Shale oil ?

● The resulting oil can be used :

○ Immediately as a fuel.
○ Upgraded to meet refinery feedstock specifications by adding hydrogen and
removing impurities such as sulfur and nitrogen.
● The refined products can be used for the same purposes as those derived from crude
oil.
● Shale oil's concentration of high-boiling point compounds(more solid than crude oil)
is suited for the production of middle distillates such as kerosene, jet fuel and diesel
fuel additional cracking can create the lighter hydrocarbons used in gasoline.
How is shale oil produced?

● Shale Oil is rock that contains bituminous materials

released as a petroleum-like liquid when heated.
● Shale oil extraction is highly complicated and costy
than crude oil extraction as shale oil lies more
deeply than crude oil .
● Shale oil extraction involves a special drilling
technique( Vertically then at acurve at 90 degrees
then horizontally) followed by retrouting.
● As shale oil is less fluid than crude oil, becoming
pourable at temperatures between 24 and 27 °C
(75 and 81 °F), while conventional crude oil is
pourable at temperatures between −60 to 30 °C
(−76 to 86 °F); this property affects shale oil's
ability to be transported in existing pipelines.
How is shale oil produced?

● Retorting: Heating at high temprature.

● The resultant liquid must then be separated and
collected.
● Traditional and current mining methods have
been used to extract the shale before retorting.
● An alternative but currently experimental
process referred to as in situ retorting involves
heating the oil shale while it is still underground,
and then pumping the resulting liquid to the
surface.
Where is shale oil?
● Global technically recoverable oil shale reserves have
recently been estimated at about 2.8 to 3.3 trillion
barrels (450×109 to 520×109 m3) of shale oil located in:
● United States: the largest reserves (almost 75%)
which is thought to have 1.5–2.6 trillion barrels.
○ It is estimated that the Green River Formation in
the western U.S. contains nearly 2 Trillion barrels
of oil.
○ Recoverable estimates range from 500 billion to
1.1 trillion.
○ Even a middle-of-the-road estimate of 800 billion
barrels is 3 times the proven reserves of Saudi
Arabia.
Source: RAND Corporation, Oil Shale Development in the United States: Prospects
and Policy Issues;
http://www.rand.org/pubs/monographs/2005/RAND_MG414.sum.pdf
 Shale oil production history

late 19th
In the 1830s-
early 14th In 1694 18th century- early 21st 21st
10th In 1596 1840s
century century. early 20th century century
century
century

• The Arabic • It was also • The personal •The British Crown • Shale oil was •Modern shale oil • shale-oil •The discovery of •In response to
granted a patent to extraction industries extraction plants crude oil in the rising petroleum
physician reported to physician of three persons who used to light were established in
Masawaih al- have been used Frederick I, the streets of were built in Middle East during prices at the turn
had "found a way to France and in
Australia, Brazil mid-century of, extraction
Mardini (Mesue in Switzerland Duke of extract and make Modena, Italy Scotland.The oil was
and the United brought most of operations have
the Younger) and Austria Württemberg great quantities of at the turn of. used as fuel, as a
pitch, tarr and oyle lubricant and lamp oil; States. China, these industries to commenced, been
first described a wrote of its out of a sort of stone. the Industrial Estonia, New a halt, although explored, or been
method of healing Later sold as Betton's Revolution had Zealand, South Estonia and renewed in the
extracting oil properties. British Oil, the distilled created additional Africa, Spain, Northeast China United States,
product was said to demand for lighting. It Sweden and maintained their China, Australia
from "some have been "tried by served as a substitute
kind of diverse persons in for the increasingly Switzerland extraction and Jordan.
bituminous Aches and Pains with scarce and expensive produced shale oil. industries.
shale". much benefit. whale oil.
Difference between shale oil and crude oil

Point of comparison Crude Oil Shale oil

Form Liquid More solid

Extraction simple More complicated

Production cost Per barrel: Per barrel

11$ in Iraq Very expensive - 70 $ to
17$ in Saudi Arabia 90 $
21$ in Kuwait
Exhaustibility after plant 70 % - 90 % will be exhausted 30 Years
opening during the (More flexibility in
1st year, remaining in 5 years controlling supply)
 Shale oil Advantages/Disadvantages

Advantages: Disadvantages:
● Easy reply in supply in case of price ● High production cost : special extraction
techniques
increase/decrease ● Shale oil contains polycyclic aromatic
hydrocarbons which are carcinogenic, The World
Health Organization classifies shale oil as Group
1 carcinogens to humans.
Financial investment
• The majority of independent producer, are dependent on a continual supply of
external finance in order to invest and produce
• In macroeconomic US shale has introduced a credit channel to the oil market.
• Until now, the financial resources of the national oil companies and the large
supermajors mean that the oil market has been largely insulated from the vagaries
of the banking system. But the small, heavily-indebted, independent producers
that characterise the shale industry change all that.
Oil flow from East to West
In terms of the west, two developments are important.
• First, the demand for oil in the west is falling. Oil consumption in the US and Europe peaked about 10
years ago and has been on a downward trend ever since. the EU’s consumption of oil in 2035 is
projected to be back down to levels last seen in the late 60s.
• The second factor is the huge growth in the supply of energy in the west, particularly North America.
Over the past 5 years, the US on its own has accounted for almost two-thirds of the increase in the
global supplies of oil and gas. Also the growth of Canadian oil sands.
• The impact of these two factors has had a huge impact on the dependency of the US on energy imports.
in 2005, the US imported more than 12 Mb/d of oil; US import demand has more than halved over the
past 8 years.
• US expected to become self-sufficient in energy by the early 2020s and in oil by the early 2030.
• the fast growing economies of the Far East, particularly China and India, are becoming increasing
dependent on imported energy. such that by 2035, China looks set to import around three-quarters of
the oil it consumes and India almost 90%.
• the sources of demand that are likely to drive energy markets over the coming years are in the east and
funds will travel from east to west.
Geo-political implications.
● The reduced dependency of the US on oil imports will affect its relationship with
some of the key oil producers.
● China’s increasing reliance on energy imports to fuel its future growth is likely to
have an increasing influence on China’s foreign relations.
● OPEC remains a central force in the oil market: but its ability to stabilise the market,
related to its important to consider the nature of the shock driving the change in oil
prices and, in particular, whether it is a temporary or persistent factor.
Geo-political implications.
● The oil market has been at the centre of economic news over much of the past year: what should
we make of the US shale revolution; how will the rebalancing of the Chinese economy affect
demand; and most obviously, what are the implications of the dramatic fall in oil prices over the
past year or so?
● The implications of these developments are far reaching. For policymakers, responding to their
impact on the prospects for demand and inflation; for financial markets, involved in the trading
and financing of oil flows; and most fundamentally of all, for businesses and families across the
world that rely on oil to fuel their everyday businesses and lives.
● Oil flows from east to west: most obviously, oil is produced in the Middle East and flows to
Europe and America. The counterpart is that money flows in the opposite direction, leading to
well-known issues associated with petrocurrencies and petrodollars.

● OPEC stabilises the oil market: for example, in 2008/9 with the global economy in deep recession,
and oil prices plunging from $145 to $35, OPEC cut production by nearly 3 Mb/d helping to
stabilise prices. Similarly, OPEC raised production sharply in 2004 when global demand suddenly
surged.
Geo-political implications.
● The oil market has changed very significantly over the last 10 or 15 years. The principles and
beliefs that served us well in the past are no longer as useful for analysing the oil market. We
need an updated set of principles reflecting the New Economics of Oil.
● Two changes in particular have had a profound impact on the economics of the oil market.
● The most significant change stems from the US shale revolution: the rapid growth of on-shore oil
production in the US, typically using hydraulic.
● fracturing (or fracking) techniques to extract oil from shale and other types of so-called tight
rocks.
● The second major change is occurring more slowly and arises from the increasing concerns about
carbon emissions and climate change. Such concerns are, of course, nothing new. But increasing
prominence is being given to them, in China and the US as well as Europe, and momentum for
increased action is growing – particularly this year as the Paris talks approach. If that sense of
urgency translates into policies this could have significant implications for the long-run demand
for all fossil fuels.
Geo-political implications.
● From a near standing start in 2010, US shale oil production has increased to around 4.5 Mb/d today.
Cost structures vary greatly across different regions and different plays, but most estimates suggest
that the majority of US shale oil lies somewhere broadly in the middle of the aggregate cost curve.

● Although US shale oil accounts for less than 5% of the global oil market, the rapid growth in US shale
oil was the key factor driving the collapse in oil prices last year: US oil production on its own
increased by almost twice.

● the expansion in global oil demand. Moreover, the different production techniques and financing
structures found in the US shale industry have the potential to have a lasting impact on global oil
market dynamics.
New Economics of Oil

To consider what this might mean, let’s revisit the the basic principles
we outlined and see how they are affected by recent developments.
Revisiting Principle 1: Oil is an exhaustible
resource
● In very rough terms, over the past 35 years, the world has consumed around 1 trillion barrels of
oil. Over that same period, proved reserves of oil have increased by more than 1 trillion barrels.

● Put differently, for every barrel of oil consumed, another two have been added.
● Total proved reserves of oil – reserves of oil which, with reasonable certainty, can be economically
recovered from known reservoirs – are almost two-and-a-half times greater today than in 1980.
● Existing reserves of fossil fuels – ie oil, gas and coal – if used in their entirety would generate
somewhere in excess of 2.8 trillion tonnes of CO2, well in excess of the 1 trillion tonnes or so the
scientific community consider is consistent with limiting the rise in global mean temperatures to
no more than 2 degrees Centigrade.1 And this takes no account of the new discoveries which are
being made all the time or of the vast resources of fossil fuels not yet booked as reserves.

● There are many caveats and qualifications to this type of simple calculation.
● Most importantly, not all fossil fuels are alike: coal is the highest-carbon fuel and burning current
reserves of coal would account for 60% of those emissions. It follows that coal is likely to be more
affected by future climate policies than either oil or gas.
How might this change our understanding
of the oil market?
● Importantly, it suggests that there is no longer a strong reason to expect the relative price of oil to
increase over time. As with other goods and services, the price of oil will depend on movements in
demand and supply.

● From the supply side, it might still be natural to assume that the relative price of oil will increase
over time as it becomes increasingly difficult (and costly) to extract. The most easily accessible oil
is extracted first, forcing energy companies to dig deeper and deeper in increasingly difficult
environments.
● But this increasing difficulty needs to be set against technological progress. The oil industry, as
with any other successful industry, is continually innovating and implementing new techniques
and processes.
How might this change our understanding
of the oil market?
● The poster child for these advancements in recent years has been the US shale industry. The
use of increasingly sophisticated drilling techniques and huge improvements in cost efficiencies
has allowed previously uneconomic resources of oil to be recovered. Productivity gains within
the US shale industry in recent years have been mind-boggling. Productivity growth, as
measured by initial production per rig, averaged over 30% per year between 2007 and 2014.

● The key point here is that the nature of fracking is far more akin to a standardised, repeated,
manufacturing-like process, rather than the one- off, large-scale engineering projects that
characterise many conventional oil projects. The same rigs are used to drill multiple wells using
the same processes in similar locations. And, as with many repeated manufacturing processes,
fracking is generating strong productivity gains.
Revisiting Principle 2: Oil demand and
supply curves are steep
● First, the nature of the operation in which the same rigs and the same processes are used
to drill many wells in similar locations means the time between a decision to drill a new
well and oil being produced can be measured in weeks rather than years.
● Second, the life of a shale oil well tends to be far shorter than that for a conventional well:
its decline rate is far steeper. Comparing production data taken from a typical US shale
well, in this case in the Bakken in North Dakota, with that from a Deepwater well in the Gulf
of Mexico (GOM). Daily production from the shale well declined by around 75% in its first
year of production – a really steep rate of decline. The corresponding rate of decline for the
GOM well was far slower.
● An important consequence of these characteristics is that the short-run responsiveness of
shale oil to price changes will be far greater than that for conventional oil. As prices fall,
investment and drilling activity will decline and production will soon follow. But as prices
recover, investment and production can be increased relatively quickly.
Revisiting Principle 2: Oil demand and
supply curves are steep
● Equally important, the very high rates of decline of shale wells mean that operating costs in the
shale industry – i.e. the variable cost associated with producing a barrel of oil – are a relatively
high ratio of total costs. The high decline rates mean, in effect, that shale operations have
relatively low fixed costs. This high ratio of variable costs to total costs increases the short-run
responsiveness of shale oil.

● In contrast, more conventional operations tend to have a significant fixed investment

component, for example, in the form of operating platforms, pipelines etc. These sunk costs
mean that the variable cost of producing an extra barrel of oil is materially lower than the total
(all in) cost, dampening the responsiveness of conventional supply in the short run.

● To be clear: shale oil is the marginal source of supply only in a temporal sense. The majority of
shale oil lies somewhere in the middle of the cost curve. As such, further out, as other types of
production have time to adjust and oil companies have to take account of the cost of investing
in new drilling rigs and operating platforms, the burden of adjustment is likely to shift gradually
away from shale oil towards other forms of production, further up the cost curve.
Controversy points of view
Regarding ability of shale oil to compete OPEC crude oil
and control price increase:
1-Dr. Faisal Al-Fayek (Energy affairs advisor and former
OPEC director of energy studies) on interview with
arlarbia channel mentioned that:
Shale oil can never affect the demand on Crude oil
produced by OPEC + countries Despite :
▪ flexibility of supply of Shale oil over Crude oil

▪ Summer season ( Relatively high temperature and

better weather conditions)
▪ Maintenance and Renewal of extraction plants of
shale oil in Asia and America.
Controversy points of view
Regarding ability of shale oil to compete OPEC crude oil
and control price increase:
America can’t increase shale oil production over 11
millions barrel per day which is considered a decline in
their production that reaches 13.1 millions barrel per day
before COVID-19 although prices increase exceed prices
before COVID epidemic.
Dr. Faisal Returned this to Preference of Producing
companies to distribute profit of price increase this year to
shareholders instead of investing in development and
extraction process to compensate losses during COVID.
 Controversy points of
view
2- Not Only OPEC consultant but Main producers of
American shale oil stated that:
• Although President Joe Biden has urged U.S. oil
companies to step us production.
But Pioneer Natural Resources ,Devon Energy and
Continental Resources the main players in Shale oil
extraction in America agreed that Growth in shale oil
production in 2022 will not exceed 5% which is
considered lower than usual annual growth that was
20% before COVID-19 despite.
Controversy points of
view
Controversy points of view
The shale oil producers prefers to distribute profit over shareholder

Scott shield Pioneer Natural Rick Muncrief, Devon Energy CEO said
Resources CEO in an interview with in an interview on Bloomberg TV “The
Bloomberg who stated that shale oil market is tight, let’s be patient, let’s be
main producers will not change their disciplined, We are still recovering from
strategy however was he price of oil a pandemic; we can’t forget that.”
even if it reaches 200$ .
 Controversy points of view
Regarding ability of Shale oil to control the price of oil :
Devin McDermott, an analyst at Morgan Stanley stated that “U.S. shale has lost twice
already in a head-to-head battle with OPEC,’’ . Independent producers are “focused on
cleaning up balance sheets, lowering break even prices and returning cash back to
investors -- not looking for growth.’’
• The message from shale country is loud and clear: the independents won’t repeat the
mistakes of the past by flooding the world with cheap oil. Record cash flows will go right
back to investors through dividends and buybacks, CEOs are saying.
• The unprecedented oil-price crash of 2020 exposed an industry that burned through
more than $200 billion over the previous decade to make America the world’s biggest
crude producer, leaving little left for shareholders. Even after the rally in oil stocks over
the past year, U.S. energy companies are just 3.6% of the S&P 500 Index, down from
more than 12% a decade ago.
 Controversy points of view
Regarding ability of Shale oil to control the price of oil :
• Jeff Wyll, a senior analyst at fund manager Neuberger Berman Group LLC which has
about $400 billion of assets under management said “The growth experiment failed,”,.
“We are in a new paradigm.”
The U.S. will add between 750,000 and 1 million barrels of daily output this year,
according to recent estimates from the Energy Information Administration, Rystad
Energy AS, ESAI Energy LLC and Lium LLC. But that’s less than a third of the International
Energy Agency’s forecast for global demand growth, meaning it won’t be enough to
tame the oil rally.
• It’s down to Saudi Arabia and the United Arab Emirates, the only two OPEC countries
with significant spare capacity, to fill any supply gaps, according to Pioneer’s
Sheffield. Crucially, independent U.S. drillers are still extremely wary of elbowing in on
too much of the market share controlled by OPEC and its allies, which waged two price
wars with shale in the space of less than 10 years.
Controversy points of view
Regarding environmental concerns:
• Both mining and processing of oil shale involve a variety of environmental impacts,
such as global warming and greenhouse gas emissions, disturbance of mined land,
disposal of spent shale, use of water resources, and impacts on air and water quality.
• Both conventional approaches to oil shale processing use considerable water.
• The total energy and water requirements together with environmental and monetary
costs have made production uneconomic.
• Shale oil contains polycyclic aromatic hydrocarbons which are carcinogenic, The
World Health Organization classifies shale oil as Group 1 carcinogens to humans.
Sources: http://ostseis.anl.gov/guide/oilshale/index.cfm; http://www.oil-price.net/
After analysis of various points of view we
found that
● The future and the control of world oil supply depends mainly on OPEC crude oil
and will remains so for the near future because of the preference of customers
for it over shale oil and low production cost .
● Although shale oil represents a reservoir and safety stock for United states fuel
but it isn’t practical as it’ s extraction process is costy and needs technology and
states economy is unstable as well as price is out of their control so united states
can’t invest more or cover any losses if price decrease.
● The direction of the world now for green energy and Both crude oil and shale oil
affect environment so also the future will not be for shale oil on long term.