HIGH COUNTRY NEWS 11-10-14 Will Falling Oil Prices Kill Shale?

Nov 10, 2014

Will falling oil prices kill the shale revolution?

The current drilling boom is more sensitive to price fluctuations than its predecessors.

About 20 miles from the iconic Pueblo Bonito in Chaco Culture National Historical Park, and just a couple away from the elephantine hills that artist Georgia O’Keeffe dubbed “The Black Place,” two rows of tanks and an assortment of pipes interrupt the high desert. They’re painted forest green, perhaps to blend in, though almost everything here is the color of ash or burnished clay.

This is Chaco 2408 32P #114H, one of dozens of oil wells drilled in the last few years in northern New Mexico’s Gallup Sandstone, one of the nation’s newest “tight oil” plays. Chaco #114H and thousands like it in North Dakota, northern Colorado and Texas exist because of high oil prices, driven by demand from China and the developing world. But now, thanks in part to slower growth in China and the flood of U.S. oil, crude prices are falling. Though the resulting drop in gasoline prices benefits most sectors of the economy (average gas prices in New Mexico dropped below $3 this fall), it may dampen or even crush the shale oil revolution.

Chaco #114H can help explain why. The San Juan Basin, home to some 40,000 oil and natural gas wells, was already one of the most prolific natural gas fields in the nation when, in the early 2000s, high prices made it economically feasible to combine horizontal drilling and hydraulic fracturing to drill in tight shale formations. The drilling frenzy that followed glutted the domestic market with gas, causing prices to crash. Rigs abandoned San Juan County for fields also rich with profitable oil. San Juan County’s economy faltered; tax revenues from oil and gas are today just one-third of what they were in 2009, when prices were high.

But there remained hope — oil, that is — in the Gallup Sandstone. Spurred by high oil prices, energy companies recently resurrected this old play, sparking a still small but growing boom.

RECENT POSTS


ARCHIVE