Monday, December 16, 2019
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US domination of oil markets a pipe dream

There is no doubt that increased production of shale or tight oil in the US is impacting the fundamentals of the oil market and changing some of the trade patterns for crude oil and its products. Tight oil production has definitely reduced US oil imports among other things.

This trend is likely to continue for some years to come though those who are enthusiastic about it always tell us the brighter side of the story only. David Petraeus, former head of the CIA and chairman of the KKR Global Institute, whatever that is, recently spoke in Abu Dhabi about “The North American Decade”’ and said, “The US growth will be led by its energy revolution”. He added the US will be the world’s leading oil producer by 2020, an argumentative statement but let’s assume it is correct for now.

If all goes well, the US production from tight oil is likely to increase from about 2 million barrels a day (mbd) now to 4.5 mbd by about 2025 and decline gradually thereafter according to BP’s long-term projections. There are some who suggest that the increase could the same by 2020 and a sharper decline after that.

Therefore and at best, the US crude oil production in 2020 including tight oil and natural gas liquids could be 15 mbd according to BP and as low as 11 mbd according to others. In all cases, worldwide production of tight oil, oil sands and biofuels is estimated to contribute only 15 per cent of world oil demand in 2035.

Moreover, according to an article in the Hydrocarbon Processing magazine of July 2013, there are so many difficulties in handling tight oil in all stages of its production, transportation, storage and refining. The article is written by B. Wright and C. Sandu of Baker Hughes Company.

While tight oil is now available at lower cost, its refining is more difficult and requires innovative solutions. The quality of the produced tight oil varies even from the same field and usually contains more solids and waxy molecules. It is usually blended with conventional crude oil to be refined.

But because it is very light and waxy it tends to create the condition for asphaltene deposition, which fouls refining equipment of exchangers, desalters and furnaces. While the free sulphur in tight oil is very low, an advantage, dissolved hydrogen sulphide and mercaptans are present and usually enhance corrosion in the crude oil distillation units. These problems are not yet widely known or realised but their impact will increase as tight oil production increases further.

Refineries work best when their diets are stable and this is difficult now in the US because there are no dedicated systems for the transportation of tight oil and mostly transported now by barges, railcars and trucks, modes that do not guarantee the right volume in the right place at the right time.

Wax deposition on the walls of tanks of barges railcars and trucks requires frequent cleaning and additional operating costs. Even when pipeline transportation is available, wax deposition often calls for frequent pigging to clean the line and avoid losing capacity. Storage tanks suffer the same problems and may require heaters or frequent cleaning. Tight oil is said to aggravate sludge formation at the bottom as well.

The properties of tight oil cause problems in production due to wax deposition in the pores and the tubing, which requires “multi-component chemicals additives [to be] added to the stimulation fluids to control these problems”.

Even the refined products from tight oil may need special additives to correct some of the properties especially diesel cold flow properties and products lubricity as well.

The often cited environmental concerns surrounding tight oil production with respect to the huge water requirements and the fracking process are not going to go away though people’s opposition in the US may not be very vocal now. But as production increases things may change.

Ordinary pipelines in the US are facing great opposition and the same will eventually emerge for logistical systems of shale oil. Therefore all the projections that we have now may change in the future. In any case, conventional crude oil will stay prominent no matter.