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Frackers look to R&D to escape the misery

With no end to the global oil glut and the consequent price slump, US fracking companies are turning to research and development to provide a way out (at least one that doesn’t include mass bankruptcies) according to Reuters.

When oil prices rose above $100 a barrel following the 2008 crash, R&D was focused on getting oil out of the ground in large quantities as fast as possible – a focus that has led directly to the current fall in prices.  Now companies and US universities are focusing their efforts on the more elusive target of dramatically lowering the cost of getting oil out of the ground.

In this, however, the fracking industry faces a war on two fronts.  First, the geology and physics are against them – the whole point about shale oil is that it is entirely different to a large reservoir of light sweet crude or even a sandstone formation with oil seeping out of every rock.  Like it or not, the fracking industry will always need to put more energy and resources into recovering oil than their conventional oil-producing competitors.

Second, the current economics may scupper the industry before any new R&D can be implemented.  As the Reuters article notes, one large company – ConocoPhillips – has cut R&D spending, and “Others could follow suit as cheap crude keeps exerting pressure on budgets.”

As more companies are forced to bring in what are euphemistically referred to as “restructuring consultants”, it will become increasingly difficult to justify long-term investment in R&D while companies struggle to service their creditors’ debt.

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