Academic journal article Case Western Reserve Law Review

Frackonomics: Some Economics of Hydraulic Fracturing

Academic journal article Case Western Reserve Law Review

Frackonomics: Some Economics of Hydraulic Fracturing

Article excerpt

CONTENTS  INTRODUCTION I.  HYDRAULIC FRACTURING     A. Microfracture-onomics     B. Macrofrackonomics        1. Reserves        2. Production        3. Prices        4. Drilling      C. Costs II.  REGULATORY AND ENVIRONMENTAL CONSIDERATIONS      A. Regulation      B. Environmental Costs      C. Pavillion, Wyoming CONCLUSION 

INTRODUCTION

The United States has experienced an oil and gas renaissance thanks to technological innovations that have propelled unconventional resources to the forefront of energy policy discussions. Hydraulic fracturing is part of the suite of technologies that have transformed the energy industry and outlook over the past fifteen years. Commonly called "fracking," (1) the process has been a lightning rod for public and environmental concerns about the expansion of oil and gas development. This Article introduces the economic factors behind hydraulic fracturing. These effects cut across three different scales. First is the minute scale at which microfractures in unconventional reservoirs allow large productivity increases in well investments. The second is an aggregate scale where the market supply of hydrocarbons has changed due to application of the new technology, with implications for global environmental issues. The third and final scale is a human scale, as tradeoffs between additional wells and environmental impacts are considered.

Oil and natural gas are formed in geologic time as organic matter is transformed by heat and pressure. Geologic strata where these transformations take place are referred to as "source rocks." Over time, oil and gas may migrate out of the source rock and into other formations where they are trapped. Those formations are conventional reservoirs. Many times oil and gas are found together, although deposits of only oil or gas occur as well. Exploratory efforts have discovered new conventional reservoirs over time, but production depletes the known reserves. In the course of seeking productive conventional reservoirs, many source rock formations have been located. These rock formations include shales, relatively impermeable sandstones, and coal beds. Depletion, higher prices, and technological advances in exploration and production have made the unconventional resources in source rocks more attractive. Hydraulic fracturing is an essential element of the suite of technological advances that has incorporated unconventional resources into U.S. energy supply. (2)

Hydraulic fracturing has been hailed as a new technology, but the process used today is a distillation of advances made over several decades. Complementary technologies have contributed to the reserve additions and market effects often attributed solely to fracking. Hydraulic fracturing has been used for almost seventy years, (3) though considerable research effort into the mechanics of fractures and the technicalities of how to improve production from fractured reservoirs has been made in the intervening years. The recent propagation of fracking is widely traced to 1998, when a long period of technical experimentation came to fruition in the Barnett Shale in Texas. (4) Similar experimentation has occurred in other areas and formations as well. (5)

But fracking is only part of the innovation. Unconventional resources are unlocked by a combination of technologies. The gains from directional drilling and advanced seismography add to the gains from stimulating reservoirs by fracturing. (6) Fracking is often mischaracterized as a drilling technology. In fact, the process does not begin until after the wellbore is drilled. But many wells would not be drilled at all if they could not be fractured--the productivity of a well depends on all of the technical attributes. Although the combination of horizontal drilling and fracking has been especially valuable in shale reservoirs, the two need not be used together. Fracture stimulation is used in reservoirs with vertical wells, such as the Jonah gas field in Wyoming, and horizontal wellbores are used without fracturing, such as for SAG-D recovery of oil sands in Alberta. …

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