What is Unconventional Oil?

1130 reads · Last updated: December 5, 2024

Unconventional oil refers to petroleum resources that cannot be easily extracted using traditional drilling and pumping techniques. These resources typically include oil sands, shale oil, heavy oil, and ultra-heavy oil. The extraction and production of unconventional oil require specialized technologies and methods, such as hydraulic fracturing (fracking), horizontal drilling, and thermal recovery techniques. Due to the complexity and difficulty of extraction, the production costs of unconventional oil are generally higher than those of conventional oil. However, with advancements in technology and fluctuations in oil prices, unconventional oil has become increasingly significant in the global energy supply. The development of unconventional oil also poses environmental challenges, including water usage, geological disturbances, and carbon emissions.

Definition

Unconventional oil refers to oil resources that cannot be easily extracted using traditional drilling and pumping methods. These resources typically include oil sands, shale oil, heavy oil, and extra-heavy oil. The extraction and production of unconventional oil require special technologies and methods, such as hydraulic fracturing, horizontal drilling, and thermal recovery techniques.

Origin

The concept of unconventional oil developed as traditional oil resources became increasingly depleted and technology advanced. In the late 20th century, with rising oil prices and technological advancements, particularly in hydraulic fracturing and horizontal drilling, the development of unconventional oil became feasible.

Categories and Features

Unconventional oil is mainly categorized into oil sands, shale oil, heavy oil, and extra-heavy oil. Oil sands are primarily found in Canada and Venezuela, requiring thermal recovery techniques for extraction. Shale oil is extracted using hydraulic fracturing and horizontal drilling, mainly in the United States. Heavy and extra-heavy oils, due to their high viscosity, require thermal or chemical methods for extraction. The extraction cost of unconventional oil is higher, but its economic viability is improving with technological advancements.

Case Studies

Alberta, Canada, is one of the largest oil sands reserves globally. Using Steam Assisted Gravity Drainage (SAGD) technology, significant progress has been made in oil sands extraction in Alberta. The Bakken Shale in the United States is a successful case of shale oil extraction, where hydraulic fracturing has significantly increased oil production in a short period.

Common Issues

Investors often worry about the high production costs and environmental impacts of unconventional oil. While technological advancements can reduce costs, environmental issues such as water consumption and carbon emissions remain concerns. Additionally, oil price fluctuations can affect the economic feasibility of unconventional oil.

Suggested for You

Acceleration Clause

An acceleration clause is a contract provision that allows a lender to require a borrower to repay all of an outstanding loan if certain requirements are not met. An acceleration clause outlines the reasons that the lender can demand loan repayment and the repayment required.It is also known as an "acceleration covenant."

Weighted Average

A weighted average is a calculation that takes into account the varying degrees of importance of the numbers in a data set. In calculating a weighted average, each number in the data set is multiplied by a predetermined weight before the final calculation is made. A weighted average can be more accurate than a simple average in which all numbers in a data set are assigned an identical weight.

Day-Count Convention

The Day-Count Convention is a standardized method used in financial markets to calculate interest. It defines how days should be counted when computing interest, with different conventions applicable to various financial instruments and markets. Common day-count conventions include Actual/Actual, Actual/360, Actual/365, 30/360, and 30/365, among others. For instance, the Actual/Actual convention calculates interest based on the actual number of days and the actual number of days in the year, while the 30/360 convention assumes each month has 30 days and each year has 360 days. The choice of day-count convention affects the interest calculation for bonds, loans, and other financial instruments, making it crucial to specify the convention in financial contracts.

Crowding Out Effect

The Crowding Out Effect refers to an economic phenomenon where increased government spending or borrowing leads to a reduction in private sector investment. When the government raises funds by issuing bonds or increasing taxes, it often results in higher market interest rates, thereby increasing the cost of borrowing for businesses and individuals. In such a scenario, private companies may reduce their investments because borrowing becomes more expensive. Additionally, substantial government spending can absorb available resources and funds in the market, leaving fewer resources and funds for the private sector, further inhibiting its investment activities. The crowding out effect is commonly observed during periods of expansionary fiscal policy, especially when the economy is near or at full employment. Understanding the crowding out effect helps policymakers balance government spending and economic growth.

Pooled Funds

Pooled funds are funds in a portfolio from many individual investors that are aggregated for the purposes of investment. Mutual funds, hedge funds, exchange traded funds, pension funds, and unit investment trusts are all examples of professionally managed pooled funds. Investors in pooled funds benefit from economies of scale, which allow for lower trading costs per dollar of investment, and diversification.

Giffen Good

A Giffen good is a low income, non-luxury product that defies standard economic and consumer demand theory. Demand for Giffen goods rises when the price rises and falls when the price falls. In econometrics, this results in an upward-sloping demand curve, contrary to the fundamental laws of demand which create a downward sloping demand curve. The term "Giffen goods" was coined in the late 1800s, named after noted Scottish economist, statistician, and journalist Sir Robert Giffen. The concept of Giffen goods focuses on a low income, non-luxury products that have very few close substitutes. Giffen goods can be compared to Veblen goods which similarly defy standard economic and consumer demand theory but focus on luxury goods.Examples of Giffen goods can include bread, rice, and wheat. These goods are commonly essentials with few near-dimensional substitutes at the same price levels.