domingo, 28 de abril de 2013

World outlook of shale gas: growing slowly but inevitably

Tomado de SFPPR, news and analysis

World outlook of shale gas: Slow but inevitable growth – Part IV, by Gustavo Coronel

The substantial shale gas deposits in Argentina, Mexico, the U.S. and Canada, together with more conventional oil and gas resources in Brazil, Venezuela, Canada, Mexico and the U.S., represent a major shift in the center of gravity of worldwide hydrocarbon resources, from the Middle East to the Western Hemisphere.

By Gustavo Coronel | April 27, 2013

The spectacular growth of shale gas in the U.S. has opened the path for similar developments in other countries. The speed at which these other countries can progress could be much higher since the technology perfected in the U.S. can now be applied elsewhere. In the U.S., commercial development required about 70 years, since the country started from scratch.
There are some essential requisites for a country to engage in large scale development of shale gas, as defined by the size of deposits, levels of demand, availability of infrastructure, environmental concerns, regulatory support and geopolitical considerations. The essential requisite is the size of the deposits, as they have to be sufficient to justify commercial development. Countries identified with the largest shale gas reserves are seven in number, so far, as indicated below.
Shale Gas Reserves, by country, trillion cubic feet
Source: EIA, April 2011
S. Africa485


China has larger reserves of shale gas than the U.S. and is equally avid of energy, if not more so. For the last ten years the Chinese have adopted a policy of going abroad to buy equity oil and gas, in an effort to obtain energy security. This has led them to engage in negotiations and acquisitions all over the world that carry large financial costs and geopolitical risk. Domestic shale gas resources will theoretically allow the country to gain energy security in a more cost effective manner and with easier access. Theoretically, because China has to overcome some significant obstacles to engage in large scale development of shale gas. The main one is the availability of water. It is estimated that China will require some 30 percent more water for this task than the total volumes being used today in industrial development.
Another obstacle relates to the depth of its shale gas plays, which average about 12,000 feet, twice as deep as the average U.S. deposits. This would require more expensive drilling and probably improved technology.
However, China seems determined to go ahead. This year, the government approved a partnership between the National Petroleum Corporation and Royal Dutch Shell to start test drilling in the province of Zhejiang. Recent reports, including one by the BBC called, China’s ambitious quest for shale gas, say that China will try to become a leading producer of shale gas within a decade. The main reason behind this urgent drive is to diminish the high levels of pollution now poisoning much of the country’s urban centers. Coal supplies about 70 percent of China’s energy requirements and its emissions have become a real problem for the population and a political hot potato. China will try to produce some 23 trillion cubic feet in year 2015. A survey of seven analysts made by Bloomberg is quite optimistic, predicting that production of shale gas could reach some 63 trillion cubic feet by 2020. However, uncertain water availability, depth of deposits and, especially, government regulated prices for gas will become severe limiting factors, since the companies risk losing money.


Argentina’s claim to shale gas global prominence is based on the large Vaca Muerta field, located in the province of Neuquen, north of Loma de la Lata, an important natural gas field that had produced for many years and is now in decline. Vaca Muerta was discovered by the Spanish-Argentine joint venture Repsol-YPF, in 2010. It covers some 30,000 square kilometers. A 2011 report by the U.S. Energy Information Administration (EIA), estimates its technically recoverable reserves of shale gas is 774 trillion cubic feet, the third largest in the world after China and the U.S. The development of these reserves would transform Argentina into a net energy exporter. However, the country faces problems, which are more political and financial than technical. According to YPF, the state-owned oil company, the amount of capital required to develop these deposits in an initial stage, 2013-2017, is on the order of $37 billion. An initial commitment of some $5 billion would have to come from private investors. The problem is the shares in YPF owned by the Spanish state company Repsol, were expropriated in April 2012 by the Argentinian government and, so far, no proper compensation has been paid. Although, there are several private companies operating in Argentina interested in developing the Vaca Muerta shale gas deposits, such a government action has been an inhibiting factor for potential associations with other private companies. In addition, a chronic threat of default has made Argentina a very risky county to invest large amounts of capital in projects requiring a long time to mature. One company, ChevronTexaco, has been talking to the Argentinian government but, at the same time, this company has been threatened with the freezing of their Argentinian assets by Ecuadorian groups suing the company in Ecuador. These threats have, apparently, been allowed to grow by the Argentinian government.
Negotiations with Dow Chemical
The most recent attempt at establishing a development project of shale gas in Argentina is being conducted by Dow Chemical. This U.S. company has signed a memorandum of understanding with YPF, the state-owned company of Argentina to develop portions of the Vaca Muerta field. Apparently, the memorandum provides for a 50-50 partnership between the two companies in the Neuquen province. As shale gas development advances, the two companies would also expand petrochemical facilities in the country. Dow is already active in the petrochemical sector of Argentina, having ethylene and polyethylene plants in Bahia Blanca, south of Buenos Aires and other joint ventures with the Argentinian and Brazilian state-owned oil companies in the same area. Dow seems eager to expand its petrochemical plants, but will need additional supplies of gas.
The nature of Dow’s interest, however, seems to be rather modest, acquiring sufficient natural gas for their petrochemical plants in the country. It does not seem to be an attempt at establishing significant shale gas production for export.
It is clear there are immense resources of shale gas in Argentina. However, due to political and financial complications, the time frame in which these resources will be developed is far from clear.


Mexico has the fourth largest reserves of shale gas in the world, some 681 trillion cubic feet. Most of these reserves are located in the Burgos basin, a geological continuation of the prolific Eagle Ford shale gas play in Texas. A 2012 report by EIA describes the main limiting factors for the development of Mexican shale gas, mainly legal and financial, as the government has restrictive regulations for private activity in this sector and is applying insufficient financial resources of their own to the development of these resources.

South Africa

Estimates for shale gas reserves in South Africa are on the order of 485 trillion cubic feet, in the region of the Karoo, a semi-desert area between Johannesburg and Cape Town. A study sponsored by Royal Dutch Shell suggests that even the recovery of a tenth of these estimated resources could solve South Africa’s energy problem and create thousands of new jobs. Many are not so optimistic due to the environmental threats this development would present, including the degradation of water resources. Even Shell’s general manager in the country, Jan Willem Eggink, warned, “the first commercial exploitation of shale gas in the Karoo was likely to take up to 10 years to come to fruition and only if exploration licenses were provided to the interested parties reasonably swiftly.” Environmental impact studies would require up to two years and commercial development would not start before ten years.


Australian shale gas reserves are estimated at some 396 trillion cubic feet. However, as opposed to Argentina and Mexico, these reserves are distributed in about half a dozen sedimentary basins, not concentrated in any one place. This will make commercial development a more costly task, due to the large distances to the consuming areas of the country or to export facilities. Recently, however, ChevronTexaco has signed a $350 million contract with Beach Energy Ltd. to develop shale gas deposits in the Cooper Basin of central Australia. At best this is a long term project, as exploration by the partners has not yet started. The main target seems to be the domestic market, given the decline in natural gas production in Australia.
A very recent report in the WSJ quotes Royal Dutch Shell executive Ann Pickard cautioning against expecting too much too soon from the budding Australian shale gas industry, warning that Australia does not have all the prerequisites in place to replicate the stunning growth seen in the U.S. This report adds: “Investor interest in Australia’s shale gas potential has grown in recent months, following a string of deals that have seen energy majors buy into early-stage shale exploration projects. International heavyweights including Chevron, Statoil, Total and Petro China, have all taken stakes in Australian shale assets.” Ms. Pickard, who heads Shell’s operations in Australia, told an Australia-Israel Chamber of Commerce lunch in Perth that while Australia had “the right rocks” to support a shale gas industry, a lack of pipeline infrastructure and suitable contracting expertise would slow the sector’s growth.


With reserves estimated at some 388 trillion cubic feet Canada expects to obtain by 2035 up to 24 percent of its total natural gas production from shale gas. The country possesses sufficient infrastructure and technology capabilities to accomplish this target and gives much attention to environmental concerns. Since much of the reserves are in British Columbia, great emphasis is being placed upon possible exports to the Asia Pacific Region, where natural gas prices can be five times higher than in North America. In 2011, the Canadian Energy Board granted export licenses to two large projects, Kitimat LNG and BC LNG Export Co Op LNG, for the export of some 560 billion cubic feet of gas per year.
Kitimat is a joint venture of ChevronTexaco and Apache Canada. BC LNG Export Co Op is a private cooperative of gas suppliers and buyers. Construction and operation will be in the hands of the Douglas Channel Energy Partnership. As promising as these projects sound, Apache spokesperson Paul Wyke recently stated, “There is still much work to be done… Infrastructure such as wells, facilities and construction of the Pacific Trail Pipeline will need to be developed.” These export projects will have to compete with similar projects being developed in the U.S. In many ways the U.S., a main client for Canadian energy might also become its main competitor, due to the shale gas boom.

Outlook for shale gas in Europe

When talking about the shale gas prospects of Europe, Walter van de Vijver, the chief executive of the exploration and production arm of Reliance Industries of India said, “So far, to be frank, you can’t really get too excited yet about Europe.” Factors such as the wrong type of rocks, environmental concerns, lack of clear regulations, poor infrastructure and density of population could delay development of this resource for a long time. In particular, density of population will generate much opposition to large drilling activity in or near urban areas.
Although data are still somewhat fuzzy, the largest shale gas resources of Europe seem to be located in Poland. Reserves estimates range from some 52 trillion cubic feet (Polish Geological Institute) to 185 trillion cubic feet (IEA), but no production has been established so far. There are more than 100 exploration licenses given to international companies but little actual activity has been done due to political and regulatory hurdles. The Polish Geological Institute does not forecast any production of shale gas in Poland before 2014 and, even then, this will be in very small volumes, since not enough drilling would exist by that time. A major problem facing shale gas development in Poland will be economic. A 2000 meter deep well that would cost some $3 million in the U.S. will cost as much as $11 million in Poland. Another problem will be water availability, combined with the density of population, a limiting factor which applies to all of Europe. Additionally, a KPMG report states that Poland does not possess sufficient transmission and storage infrastructure to allow for a major development of the resource.


The survey of the current state of shale gas development in the countries having the most substantial reserves leaves little doubt that China and Canada might be the countries where a significant shale gas development will take place sooner, besides the one already taking place in the U.S. In other countries, the logistics, financial and environmental obstacles to overcome are very strong and will probably delay development for a decade or more. What seems to be true is that shale gas will eventually become a integral component in the energy equation of all the countries mentioned in this article. The substantial shale gas deposits in Argentina, Mexico, the U.S. and Canada, together with more conventional oil and gas resources in Brazil, Venezuela, Canada, Mexico and the U.S., represent a major shift in the center of gravity of worldwide hydrocarbon resources, from the Middle East to the Western Hemisphere.
Part IV completes a series on shale gas examining the state of U.S. and worldwide shale gas production.

Gustavo Coronel, who served on the board of directors of Petróleos de Venezuela (PdVSA), has had a long and distinguished career in the international petroleum industry, including in the USA, Europe, Venezuela and Indonesia. He is an author, public policy expert and contributor to SFPPR News & Analysis.

1 comentario:

sathyam shonkho dijo...

Rock Solid is located in the same geographic location as Prodigy Oil and Gas. The company focuses on operating onshore, domestic drilling in Texas and Louisiana. In doing so, they focus on projects which have a higher tendency to yield reserves based on geological and reservoir engineering analysis in areas where production was or is prevalent.