The Future Of Oil

Extreme oil--from the deep Atlantic to the arctic, from fracking in the U.S. to sands in Canada--is replacing dwindling supplies. But it comes at a heavy economic and environmental cost

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If you want to find oil in the U.S., or a job, for that matter, head to North Dakota. The Peace Garden State is experiencing a remarkable oil boom in the midst of high gas prices, with production rising from 98,000 barrels a day in 2005 to more than 510,000 barrels by the end of last year--greater than the entire national output of OPEC member Ecuador. Thanks to shale oil in the Bakken formation, the petroleum workforce has risen from 5,000 in 2005 to more than 30,000 people. North Dakota's unemployment rate is the nation's lowest, 3.2%, and so many would-be roughnecks have flooded the state that workers are housed in temporary "man camps" like Wild West mining settlements. And North Dakota isn't the only state benefiting from the boom. Texas is pumping oil at rates that haven't been seen since the days of Dallas. "You can go straight to those fields and get a good-paying job," says Scott Tinker, the state geologist of Texas. "The demand is there."

So is the supply, thanks to innovations in hydraulic fracturing and horizontal drilling that have opened up reserves of oil previously considered unobtainable. Using a process similar to one employed in shale-gas exploration, which has flooded the U.S. with cheap natural gas, rigs drill down first and then horizontally into shale layers before fracturing the rock to release the tightly bound oil. "The same massive investment we saw with shale gas is now happening with tight oil," says Seth Kleinman, an analyst with Citigroup who recently wrote a research note on the potential of tight oil. "And it's going to play out in the same massive way."

Tight oil has helped revitalize the American drilling industry--there are now more rigs operating in the U.S. than in the rest of the world combined--and it could contribute significantly to global supplies, with the International Energy Agency (IEA) projecting that U.S. tight-oil production could reach 2.4 million barrels a day by 2020.

Thanks as well to greater efficiency, last year the U.S. imported just 45% of the liquid fuels it used, down from a peak of 60% in 2005, and just 1.8 million barrels a day came from the Persian Gulf. If domestic oil production continues to rise, the U.S. could actually approach a goal that has long seemed a political fantasy: energy independence.

But just how much more the U.S. will be able to produce is up for debate. While tight-oil reserves are plentiful, wells tend to dry up quickly, which means a lot of drilling is needed to keep the oil flowing. Even if the U.S. can't achieve energy independence, the oil-sand resources of Canada, already America's biggest oil supplier, could further reduce imports from the Middle East. High oil prices have boosted investment in the oil sands, and the Energy Information Administration (EIA), the analytical arm of the U.S. Energy Department, projects that oil-sand production will rise from 1.7 million barrels a day in 2009 to 4.8 million barrels in 2035--more than Iran's current output.

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