Oil barrel. Barrel of shale oil. Warehousing of barrels. 3d rendering
The cost of solar and wind energy production has dropped significantly. Around the world, interest in developing a mature, worldwide sustainable energy industry is only growing. This is partially due to environmental concerns, but also because of the growth potential of the industry.
And yet, despite a sharp rise in investments in sustainable energy production, oil is still a good investment.
The United States is now the leading producer of petroleum products in the world. The US produces more oil than both Saudi Arabia and Russia. The state of Texas alone will produce more oil than the entire country of Iraq in 2019.
Demand for crude oil continues to rise, and oil will be an important part of the world’s energy mix in the near future.
The key drivers of the US’s oil production are new technologies. More specifically, new methods of shale oil production have resulted in an energy boom. Read more to find out why United States shale oil is such a great investment.
What is Shale Oil?
First, the basics.
Technically, shale oil is considered an unconventional oil extraction process. Extracting liquid crude oil from the ground is quite simple by comparison. Oil shale must be mined, then treated at processing facilities to become usable fuel.
Typically, oil shale is mined using above or below-ground methods.
The treatment process converts kerogen, a type of solid organic matter in sedentary rocks, into shale oil. This is done through one of three processes:
- Pyrolysis: Thermal decomposition of materials in elevated temperatures.
- Hydrogenation: Treatment with hydrogen to cause a chemical reaction.
- Thermal Dissolution: A hydrogen-donor solvent refining process.
Once the kerogen is treated, it will liquify and separate from the rock itself. It can then be refined even further to become crude oil. Once this is complete, it’s ready for the market.
Despite the difficulty of this process, shale oil production has been a boon for energy investors. When companies gained access to this type of oil extraction, it opened an entirely new mode of production.
US Shale Oil Production Has Reached Maturity
After declining levels of production between 1985 and 2003, US oil production by year has only continued to climb. According to the US Energy Information Administration, the US produced 9.35 million barrels of crude oil a day in 2017. That’s up from 5 million a day in 2003.
The production boom has been fueled by new production and extraction technologies. But shale oil is a key driver of the upswing. The International Energy Agency predicts that tight (shale) oil production in the US will increase by 1.3 million barrels a day for 2018.
There was a brief downturn in the oil industry in 2016. But prices recovered, and most analysts recognized it was the result of a short-term oversupply.
In the US, energy companies were aware of a vast wealth of oil and gas resources right below their feet. However, there was no way to access them. These resources had low permeability compared to conventional oil reservoirs.
However, advances in horizontal drilling technology, as well as the introduction of hydraulic fracturing (“fracking”) enables more companies to tap into these resources. In addition, technology has advanced to help companies decide where to drill next or how to get more oil out of the ground increasing production. For example, Renegade Wireline services can be used to gather information such as the pressure and temperature underground.
Starting with a slow climb in the 1990s and early 2000s, United States shale oil production has become a mature market.
The boom will taper off eventually. But for now, shale oil production is only expected to increase. More companies are making plays on shale formations in the states, opening multiple avenues of production. This will sustain the industry for many years.
Of course, energy needs are bound to change. But that won’t diminish the importance of shale oil. It’s now an important export for the U.S. and a key factor in the country’s energy independence.
Investing in Shale Oil Production
US shale is expected to account for 94% of total liquid petroleum growth in 2018, compared with 90% in 2017. That’s compared to dropping production rates by OPEC. Uncertainty in the Middle East also contributes to US shale oil’s appeal.
According to Barron’s, the best shale oil investments are a handful of companies that operate in the US, including:
- Occidental Petroleum (OXY)
- EOG Resources (EOG)
- Pioneer Natural Resources (PXD)
- Chevron (CVX)
- ConocoPhillips (COP)
- Suncor Energy (SU)
- Andeabor (ANDV)
- PCD Energy (PCDE)
Naturally, not every investor likes stock picking as a strategy. Therefore, it may be a better choice to keep your portfolio diversified.
You can also consider investing in ETFs (exchange-traded funds). Many of the companies involved in the shale oil boom are wrapped up in these funds:
The SPDR S&P Oil and Gas Equipment & Services ETF (XES)
Launched in 2006, this is a passively managed exchange-traded fund. It is designed to provide investors with broad exposure not just to the energy segment of the US equity market, but also the equipment and services segment.
The VanEck Vectors Unconventional Oil & Gas ETF (FRAK)
This ETF gives investors exposure to a host of companies engaged in many methods of energy production. These include coal seam gas production, tight oil sands production, and others, in addition to shale oil.
The PowerShares S&P SmallCap Energy ETF
This ETF is based on the S&P SmallCap 600® Capped Energy Index. The fund invests about 90% of its total assets in US energy companies. These companies are producers and distributors or energy product or service-oriented companies in the energy industry.
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Shale oil production is set to be a growing industry. With advanced production and extraction technology, many of the barriers that set this industry back are now gone. You can be sure that shale oil will be an important part of the world’s energy mix and a key driver of the US economy.
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