Shale Oil and Its Costs

In spite of the warnings made by ecological organizations over possible damage to the environment that their exploration could cause, the United States embarked on the mass production of oil and shale gas to satisfy its energy needs and reduce in this way its dependency on imports to support its own market.

Like the “gold fever” of the 19th century, the rush after oil and shale gas intensified in a particular way in the last four years. More than 60 private North-American companies invested in technology and projects for the exploration of identified reserves, not concerning themselves with environmental risks, and not taking the high costs the processes of production require much into account.

In fact, experts consider the production of shale oil to be a very costly process, which also requires much energy. It is a lot cheaper to extract oil by the conventional process in the Middle East and the cost of production is one of the factors in discussions in the United States, but not sufficient reason to lead businesses engaged in [the process] to desist.

With respect to the preservation of the environment, the process used to extract oil from shale has sustained a series of controversies from environmental movements in various countries: France, Bulgaria, Ireland, Northern Ireland and certain states in America have succeeded in banning by law the use of the method.

The production of gas and petroleum from shale is made using a method called hydraulic fracturing or fracking, which consists of injecting water with various chemical products under high pressure at more than 1000 meters deep. This method raises the bituminous shale, a thin sedimentary rock, and transforms it into organic liquid chemical compost from which the hydrocarbons can be obtained.

After four years of intense activity, the result as announced by the Bank of America in July, was that the United States had outpaced Saudi Arabia and Russia to become the largest world producer of oil, with a daily figure of 11 thousand barrels a day in the first trimester of this year. The price of oil on the oil market had already started to decline in June, descending from $115 to the range of $85 per barrel, a drop of $30 per barrel in less than two months.

Inevitably, various countries that depend on the exportation of oil had to revise and lower their state budget because their accounts had less revenue to pay for planned expenses, and the new reality introduced unforeseen budget deficits.

Countries strongly dependent on revenues from the exportation of oil and gas have had to make adjustments to meet the new challenges, represented on one side by the beginning of mass production of shale gas in the United States and, as a consequence of this, an increase of the product supply on the market and a drop in the demand. This projected situation for the oil market makes for an uncertain future, which has led the Angolan government to intensify, as it has been doing for some time now, the bet on diversification of the economy.

As the largest exporter of oil in the world and most influential member of the Organization of Petroleum Exporting Countries (OPEC), Saudi Arabia, with a monetary reserve estimated at $700 million, is seen as being in the most comfortable position in relation to the others. However, it is not this, clearly, which is in question. The big question — which OPEC is following with attention — is in knowing henceforth how the market will behave. In other words, the experts are particularly focused on the new North-American industry of oil and shale gas, and are watching to see up to what point, facing the high costs of the process — an activity involving a formula using more than 600 chemical components — the project has guaranteed sustainability. One can estimate that a barrel of shale oil would cost between $60 and 80 (equilibrium price) in the United States, against $20 for the production of oil in Iraq, for example.

It is too early to say the “shale revolution” has already avenged. Skeptics can see a series of disadvantages when looking at the production of oil and shale gas, among which are the elevated costs it requires. The more optimistic [people] point to the long-term return on investment. But still, it would be really long term.