In this article, we explained unconventional oil, the types, drivers behind the rise of unconventional oil, impact on global Oil markets, and environmental and social considerations.
Definition
Unconventional oil is crude oil surrounded in physical formations with low permeability, requiring specialized extraction methods like fracking or horizontal drilling. The most common types are tight oil, oil sands (bitumen), and oil shale, each with unique extraction needs and trade-offs. For those who want to extract oil with high technological needs, tight oil is the best option. Oil sands are best for those who want to mine or use steam-assisted methods. Oil shale is best for those who want to access oil ancestors like kerogen.
The Types of Unconventional Oil:
Heavy oil and oil sands
Description: Very heavy crude oil or bitumen found mixed with sand, water, and clay. Heavy oil is more viscous and harder to extract than conventional oil.
Extraction: Requires specialized techniques like in-situ steam-assisted extraction or mining.
Bitumen from Canadian oil sands and heavy oil from Venezuelan deposits.
Oil shale
Description: Rock that contains kerogen, a precursor to oil that is not mature enough to have formed oil naturally.
Extraction: Requires surface or underground mining to extract the oil shale, which is then heated to produce oil.
Pros: Can be burned directly as a solid, although it is sooty and has high volatile matter content.
Cons: Extraction is energy-intensive, and it can be challenging to refine.
Tight oil
Description: Oil trapped in low-permeability sandstone or carbonate rock formations.
Extraction: Typically requires horizontal drilling and hydraulic fracturing (“fracking”) to release the oil.
Pros: Can be a significant source of crude oil.
Cons: Environmental concerns related to the use of hydraulic fracturing.
Coalbed Methane
Description: Natural gas that is adsorbed onto the surface of coal seams.
Extraction: Primarily involves pumping out water to reduce pressure and allow the gas to flow.
Pros: A source of natural gas that can be extracted using existing technologies.
Cons: Water management is a significant challenge.
Gas hydrates
Description: Crystalline structures composed of methane and water that exist under high pressure and low temperatures, found in the ocean floor and in permafrost.
Extraction: Extraction technologies are still in the research and development phase.
Pros: Potentially enormous reserves of natural gas.
Cons: Current extraction methods are complex and not yet commercially viable.
The Rise of Unconventional Oil:
Technological innovation
Hydraulic fracturing and horizontal drilling: These techniques allow companies to access resources in shale and other tight formations. By drilling horizontally into the rock and using high-pressure injections of water, sand, and chemicals, they can create fractures to free the trapped hydrocarbons.
Advanced recovery methods: Innovations like Steam Assisted Gravity Drainage (SAGD) and Cyclic Steam Stimulation (CSS) are used to extract resources like oil sands by heating the deposit to lower the viscosity of the bitumen, allowing it to be pumped to the surface.
Improved reservoir understanding: New correlations and models help engineers estimate the potential yield (EUR) of unconventional wells based on reservoir and completion parameters, which aids in optimizing development and economics.
Economic and market factors
High oil prices: The strong rise in crude oil prices in the early 2000s made the higher costs associated with unconventional production methods economically feasible.
Increasing demand: Growing global demand for liquid fuels created a market incentive to explore and develop alternative oil sources as conventional production faced limitations.
Energy security: The development of unconventional resources like shale oil in the United States has helped to increase domestic production, reduce the need for imports, and improve national energy security.
Geopolitical and supply chain impacts
Shift in global production: The rapid growth in unconventional oil production has significantly changed the global energy supply landscape, with countries like the United States becoming major players.
Increased competition: The rise of new, large-scale suppliers of unconventional oil has reshaped international trade routes and created a more dynamic, competitive market.
Water management challenges: Unconventional production requires large volumes of water, and the industry faces challenges in efficiently managing this resource, particularly in water-scarce regions. This has driven a need for better water treatment and recycling technologies.
Impact on Global Oil Markets:
Supply:
Sanctions: New sanctions on Russia and Iran are impacting their exports, though the effect on supply has been limited so far. An upcoming EU ban on refined products derived from Russian crude could disrupt trade patterns and curb output in 2026.
OPEC+: OPEC+ has maintained supply cuts, but there are concerns about an oversupplied market, particularly with the prospect of more crude oil moving from floating storage to onshore hubs.
Other factors: Geopolitical events and severe weather can disrupt supply and create volatility.
Economic concerns: Tensions between the US and China are increasing concerns about global economic growth and, consequently, oil demand.
Refining: While global crude runs have been high, refinery closures could tighten product markets, even with a potential surplus in crude supply.
Stockpiling: China’s continued stockpiling of crude has helped to support prices.
Short-term fluctuations: The market is subject to significant short-term price swings due to the competing forces of supply, demand, and geopolitical events.
Brent crude: Recent price drops have seen Brent crude fall below \$62 a barrel in October, a significant drop from earlier in the year.
Impact on oil-producing nations: For oil-dependent economies, such as Nigeria, this volatility can have a severe impact on fiscal projections and revenue, notes Daily Trust.
Environmental and Social Considerations:
Environmental considerations
Pollution and waste: Preventing air, water, and land pollution and managing waste reduction.
Biodiversity: Protecting ecosystems, biodiversity, and natural habitats from damage.
Natural resources: Promoting efficient use of resources like water and energy.
Climate change: Minimizing contributions to climate change and preparing for its effects.
Land use: Managing the impacts of land acquisition, contamination, and flooding.
Social considerations
Labor and working conditions: Ensuring fair wages, workplace safety, and prohibiting child labor.
Community health and safety: Protecting the health and well-being of communities affected by a project.
Involuntary resettlement: Addressing land acquisition and ensuring fair treatment for those who must be relocated.
Indigenous peoples and local communities: Protecting the rights and interests of vulnerable communities and ensuring their free, prior, and informed consent is obtained.
Cultural heritage: Protecting sites and practices of cultural importance.
Stakeholder engagement: Ensuring transparency and involving affected communities and stakeholders in the project’s planning and execution.
Risk management: To avoid legal fees, reputational damage, and financial risks for both the project and its financial backers.
Sustainability: To ensure development options are environmentally and socially sound in the long term.
Compliance: Many organizations, like the World Bank and the Green Climate Fund, have mandatory guidelines and frameworks for environmental and social considerations that projects must meet.
Improved outcomes: To proactively identify and mitigate risks, leading to more responsible and successful projects.
Conclusion
The rise of unconventional oil marks a major 21st-century shift in global energy, driven by advanced technologies and economic factors. It has significantly increased oil supply and reshaped market dynamics. However, its future hinges on balancing energy needs with environmental and social responsibility, as it continues to play a key role in the transition to a more sustainable energy system.