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The spread between West Texas Intermediate (WTI) and Brent continues to narrow.
Thanks to additional new U.S. pipeline capacity and the growing volume of oil product exports from American refineries, the glut of excess storage at Cushing, Okla., is shrinking.
This ongoing glut has been the single biggest reason why WTI trades at a discount to Brent. As I write this, WTI is approaching $104 a barrel and Brent $111.
With crude oil prices continuing to rise, you would think that would be good news for both onshore and offshore drilling ventures.
But it's just not so, at least in the short term.
The distribution between onshore and offshore projects has changed in favor of land-based drilling, driven largely by unconventional oil.
This is merely the latest sign that, in oil at least, a rising tide does not equally raise all boats.
Here's what this new development means for offshore investors…
The Unstoppable Rise of "Tight Oil"
Of course, the big difference in North America today is the substantial volume of unconventional oil reserves now available to be extracted.
This is usually referred to as shale oil (to parallel the rapid rise in shale gas). But actually, shale oil is only one type, and it is the broader category of "tight oil" that is spiking the volume.
This does not mean, of course, that conventional drilling has ceased. Far from it. But traditional vertical drilling into a standard oil reservoir is no longer the only game in town.
The combination of fracking (moving a large volume of water down-hole under high pressure) and horizontal drilling is driving the continent's new unconventional oil supply.
And it's not just a North American story either. Elsewhere, the rise of this new oil largess captured in shale or sandstone, in lateral plays or stacked lenses (the most common sandstone tight formations), is accelerating.
Some areas, such as the Silurian "hot" shale of North Africa, the Vaca Muerta ("Dead Cow") basin of Argentina – also a huge source of shale gas, and the Bazhenov of Western Siberia in Russia, have been targets for some time now.
But the latest reserve figures are increasing the recoverable volume of these resources far more quickly than anticipated.
For instance, of the 148 areas worldwide, only 23 have the sufficient initial geology so far. Even then, those nearly two dozen plays contain more than twice the estimated North American recoverable reserves in unconventional oil (in excess of 300 billion barrels).
These figures do not include a number of other sites considered heavy with tight oil, in particular the Arckaringa basin in South Australia, which could hold some 233 billion barrels alone.
Of course, one of the major considerations in extracting unconventional oil elsewhere is the cost of the wells. According to an IHS report last September, the average tight oil well outside the United States would cost about $8 million, or 43% higher than what it would cost in North America.
However, when it comes to offshore wells, these costs can easily be much higher.
About the Author
Dr. Kent Moors is an internationally recognized expert in oil and natural gas policy, risk assessment, and emerging market economic development. He serves as an advisor to many U.S. governors and foreign governments. Kent details his latest global travels in his free Oil & Energy Investor e-letter. He makes specific investment recommendations in his newsletter, the Energy Advantage. For more active investors, he issues shorter-term trades in his Energy Inner Circle.