Shale oil and conventional oil: what is the difference?

The price of shale oil and conventional oil: an overview

Hydraulic fracturing, also known as hydraulic fracturing, is an important technological advancement in the oil and gas industry. In addition to opening up a staggering amount of natural gas for production, hydraulic fracturing technology also allows mining companies to recover so-called tight oil from deposits that could not be exploited decades ago.

However, new technologies have also brought new costs to the oil extraction process. In this article, we will discuss the cost of extracting conventional crude oil and using fracturing technology to extract oil.

Key points

  • Hydraulic fracturing or fracturing opens up more natural gas for production, but this technology increases the cost of the oil extraction process.
  • The extraction cost of shale oil is higher than that of traditional oil, but by 2020, the production cost per barrel can be as low as US$35 per barrel.
  • The cost of traditional oil varies so much that Saudi Arabia’s output is less than $10 per barrel.

Shale oil

Conventional production determines the basic cost of drilling. You need the drill rig, drill pipe, casing, crew, and all other parts that go into the vertical well. The difference from shale oil is that the well does not drill through the target deposit, but rotates 90 degrees in the deposit and runs horizontally next to it.

These wells extend down thousands of feet to reach the deposit, but they also extend horizontally for thousands of feet. This type of well requires more time to drill, which means higher labor costs and more basic inputs, such as drill pipes.

Once the well is drilled and perforated, millions of gallons of water, proppant (materials such as sand, used to keep cracks open) and chemicals are pumped into the holes to fracture the formation and allow the oil to flow back into the pipeline to be pumped out. Millions of gallons means a lot of transportation, either increasing the capital and labor costs of the truck, or more likely to be a fluid transportation contract with an oil service company. All of this adds to the cost of the oil well.

Despite the higher drilling and fracturing costs, the break-even point of some new shale oil wells in the United States may be less than US$30 per barrel. However, the average break-even point of a new well ranges from US$46 to US$58, depending on the location, with a higher cost oil well at a price of US$90 per barrel.

Since these costs are paid in advance due to the relatively short production life of traditional oil wells, it makes sense for the shale oil industry to suspend new oil wells when world oil prices fall and increase when prices are strong. This means that when crude oil prices are hovering around US$50 per barrel, many shale oil deposits are left unused.

The drilling and extraction of shale oil requires more labor than traditional oil extraction, so the process is bound to be more expensive.

Conventional oil

Conventional oil production usually refers to the production of pipelines and pumps in vertical wells. This means that a hole is drilled directly in the deposit and a pump jack is placed on it to help pull the deposit to the surface, where it can be sent for further refinement.

The cost per barrel of conventional mineral deposits varies, and Saudi Arabia can produce oil at the cheapest price, sometimes less than US$10 per barrel.In the Middle East, the price of oil per barrel in non-production onshore oil fields is less than US$20, with an average of US$31.

Of course, tradition may be a misleading term, because if oil production methods have been used for a long time, they are often referred to as tradition. For example, offshore drilling can be seen as the production of pipelines and pumps, but there is a small problem with the ocean between the drilling rig and the first layer of rock. There are many other processes, including perforation, which are now part of every well.

Perforation is the use of explosives to punch holes on the side of the pipe to allow hydrocarbons to flow in. Because this will cause the debris to move and slow down the flow rate, then use acid or fracturing (if legal) to open the sediment around the perforated part of the pipe. Therefore, even conventional wells can use technologies developed for unconventional deposits to increase production. But generally speaking, traditional deposits produce oil by pumping many vertical wells from different points of the deposit. The problem is that, at least in North America, there are not many undeveloped conventional deposits.


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