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Global boom in tight oil production may be overplayed: BP's Ruhl

Highlights

Some predictions of surging global production of light, tight oil fromunconventional source rocks may be overblown, with a of number ofenvironmental and political question marks still hanging over the industry,delegates at a London oil conference heard Monday.

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While some oil market forecasters have predicted tight oil productionjumping to 10 million b/d by 2030, many countries hoping to exploit theirshale and tight oil potential will find it difficult to replicate the pace ofsuccess in the US, BP's chief economist Christof Ruhl said.

In particular, the competitive advantage of the US' open economy cannotbe matched by other big shale resource holders, such as China and Russia. BP estimates that there are some 240 billion barrels of technicallyrecoverable tight oil globally. Asia has 50 billion barrels of tight oil,versus 70 billion barrels in North America.

"It's not just about resources...there is a huge role for policy andpolitics in determining the speed for which these resources will come online," Ruhl told the oil conference.

Citing BP's 2030 oil market outlook, Ruhl said tight oil will likelyexpand by 7.5 million b/d to reach around 9 million b/d by 2030, accountingfor nearly half of the 16.1 million b/d of global supply growth forecast forthe period.

North America will continue to dominate global tight oil output, withlimited growth outside the region and, by 2030, tight oil should reach 9% ofglobal supplies, he said.

But US tight oil growth is expected to slow after 2020 due to high costsand drilling activity required to sustain output as well as environmental andother issues, Ruhl said.

BP is forecasting US tight oil production of around 4.8 million b/d by2020, when output growth will slow to reach some 6.5 million b/d. But someforecasters have predicted US tight oil output soaring to almost 10 millionb/d by 2030, according to BP.

"We are at the bottom of the range [of tight oil production forecasts],"Ruhl said. "A lot of that is irrational exuberance or hype, these are thesame consultants that three years ago were running around saying that we arerunning out of oil. Now they are saying that we are drowning in it becausethey have something to sell," he said.

Even the US, where tight oil will help the country become almostself-sufficient in oil before 2030, some tight oil plays are untouched as yetdue to environmental concerns, Ruhl said.

ENVIRONMENTAL ISSUES

Environment concerns, which have been heard more frequently doggingshale projects in Europe, are expected to result in new US legislation onfracking, gas flaring, and ground water in the near future, according toDavid Fyfe, the head of market research at Gunvor.

The limitations of a local skilled work force and supply chainconstraints could also slow the expansion of light, tight oil in the US, hesaid.

"I think light, tight oil is a massive resource, but let's not getcarried away by about the growth potential," he said.

According to the Energy Information Administration, US net imports ofliquid fuels could end by 2035 and the country could become a net exporter by2040.

But the sudden turnaround of US oil fortunes comes despite assumptionsthat onshore tight oil plays would see a fall in production growth startingin 2020 with other, mostly offshore, resources playing a more important role.

Globally, tight oil developments are also likely to be constrained bythe absence of geological data on tight plays, a contributing factor to theUS tight boom over the last decade, according to Amita Sen, the chief oilanalyst at Energy Aspects.

While source rock data from the US' Backen and Permian basin has beenacquired over hundreds of years, similar detailed understanding of sourcerocks is simply "not available in any other part of the world," Sen said.

"There isn't that much new due to technology to shale...it's more likebrute force. But even the geologists cannot predict how tight reservoirs willperform and deplete over the production life of tight plays," she said.

Another factor that US refiners are also having to come to terms withdue to fast growing volumes of tight oil is the "phenomenal" variability ofthe oil quality from the developments, she said.

Some refiners in Texas and Louisiana are complaining that batches oftight oil from Eagle Ford shale can differ so much in quality that they"don't know the end products they are going to get" from processing the oil."That's raising a few questions about 'Is this necessarily a sustainablesource of production growth?'" she said.

"It is a good thing to be happening to the world, but let's not getcarried away with reports such as of the US becoming the next Middle East,"Sen said.

The EIA said in December that total US oil production, including tightoil, would grow to 7.5 million b/d or 7.6 million b/d by around 2019.

--Robert Perkins, robert.perkins@platts.com
--Edited by Jonathan Fox, jonathan.fox@platts.com