All may not be rosy in the North American shale gale, but it’s hard to argue against the success on that continent. As Mark Mills, a senior fellow at the Manhattan Institute, said, “It’s an exciting time to be alive. The opportunities are outstanding.”

So much so, in fact, that the rest of the world is not only watching the success story unfold but is looking for shale opportunities closer to home. And they exist – China is estimated to have the world’s largest shale gas reserves, while Russia seems to have the world’s largest shale oil reserves, according to articles from Platt’s and the Wall Street Journal, respectively. But, as North American operators have stated over and over, knowing where the shales are is not the issue. Developing them is.

The North American shale revolution is the result a confluence of positive existing conditions. Privately owned mineral rights are one of the major factors. Landowners who lease their mineral rights to oil companies stand to profit nicely, giving them an incentive to put up with the noise and disruption. Also, the vast number of small independents in North America creates competition that’s not always possible in other countries.

“This has been a small business revolution,” Mills said. “This is not a ‘Big Oil’ revolution.”

Additionally, the infrastructure already existed in many of the shale plays, reducing time to market. And operators worked with service companies to perfect the technology needed to develop the plays.

Other areas of the world are lacking some if not all of these traits. In a report promoting its multiclient study titled “Going Global: Predicting the Next Tight Oil Revolution,” IHS notes, “Based on the North American experience, development of a large international play will require drilling and completing thousands of state-of-the-art horizontal wells with skilled crews, modern fit-for-purpose rigs, a robust 24/7 service industry, an efficient supply chain, and established upstream and downstream infrastructure. Moreover, these must operate in a politically stable environment with supportive government policies and regulations, positive public opinion, land access, adequate water supplies, efficient water and environmental practices, and positive business/commercial structures.”

The government support is hampering shale efforts in some countries. Russia and Argentina have recently overhauled some of their regulations to make their investment climate friendlier, and Lithuania is struggling to figure out its next move after Chevron walked out on its shale gas exploration tender. A statement from Chevron indicated its frustration.

“Significant changes to the fiscal, legislative, and regulatory climate have substantially impacted the operational and commercial basis of the investment decision since the company submitted its bid in January 2013,” the statement said.

Despite these concerns, countries are attempting to take the first baby steps in the monumental task of developing shale resources. Here is a snapshot of how some countries are attempting to overcome their obstacles.

Poland

Poland was one of the first countries to examine its shale resources. Early estimates indicated a whopping 5.3 Tcm (187 Tcf) of technically recoverable reserves. But several companies, including ExxonMobil, Marathon, and Talisman Energy, have ceased activities in Poland after disappointing results.

The US Energy Information Administration (EIA) dropped those estimates to 4.2 Tcm (148 Tcf), still a respectable number. And not all companies have given up. According to Reuters, Lane Energy Poland, a ConocoPhillips subsidiary, is now extracting 8 Mcm/d (283 Mcf/d) at its test well near Lebork. This marks the first positive results for shale gas in Europe, a continent desperate to reduce its dependence on Russian gas.

The EIA notes that Poland imports less natural gas than other European countries due to its vast coal resources but still relies on Russian imports for 90% of its oil and 80% of its natural gas.

Issues will continue to confront operators in the region. The reserves are at greater depths than most shale resources in North America, and the region of the shale reserves is densely populated. Pipeline access also is an obstacle since most of the pipelines are located well south of the shale areas. Also, due to the country’s dependence on coal, 50% of Polish households are not hooked up to distribution networks, according to Natural Gas Europe.

Argentina

According to the EIA, Argentina produces more natural gas than any other mainland South American country. But its output has been declining, and winter shortages have hamstrung industrial customers. That should make its 22 Tcm (774 Tcf) of technically recoverable shale gas appealing.

But price controls implemented during the economic crisis in 2001 and that are still in effect have hampered foreign investment, forcing the country to rely more heavily on imports. In response, Argentina has implemented a “Gas Plus” program, enabling companies to sell gas from new or unconventional fields at a higher price.

On top of that, the country’s reputation for hospitality to foreign investors is in some question after it took a 51% stake in YPF from Repsol in 2012. Chevron, meanwhile, is optimistic about its chances to move into Phase 2 of its work to develop shale oil and gas deposits in the Vaca Muerta formation. Earlier this year Repsol asked a World Bank panel to block the US $1.24 billion deal.

According to the Wall Street Journal, Chevron’s plan includes drilling an additional 1,500 wells; the first phase included the drilling of more than 100 wells by year-end 2014. Hopes are to raise production to 50 MMb/d of oil and 3 Mcm/d (106 Mcf/d) of natural gas.

The country has scheduled a lease sale in March 2014 to develop a 500-sq-km (193-sq-mile) area of the Vaca Muerta formation. Hopes are that the new price incentives will encourage companies to enter the country to increase the 6.5 MMcm/d (230 MMcf/d) of unconventional gas currently being produced.

Overall, Argentina appears to be well on its way to eventually unlocking its shale potential. While some foreign countries might be leery of investing there, early risk-takers might pave the way for more substantial investment. “If some companies have successful results, I think we will see other companies being attracted and investing themselves,” said Andrea Teasdale, senior analyst of oil and gas with Ernst & Young.

Russia

Russia also has introduced new regulations that will make it an attractive country to foreign investors. A recently imposed tax incentive will offer producers a reduction of between 20% and 100% in the mineral extraction rate for unconventional oil plays, depending on reservoir permeability and layer thickness, according to Platts Blog.

The Financial Times notes that these kinder tax laws are the result of concerns about the depletion of conventional oil reserves. Russia’s energy minister warned that output could drop to 7.7 MMb/d of oil in 2020, down from 10.1 MMb/d of oil in 2010. “Shale is increasingly viewed as Russia’s potential salvation – the means to preserve output and, by extension, the country’s position on the global stage,” the article states.

Russia certainly has the resources at its disposal. The EIA estimates that the Bazhenov shale play in Siberia holds 75 Bbbl of technically recoverable oil. The Financial Times notes that almost all of the Russian majors are exploring there, and Rosneft and ExxonMobil also have formed a joint venture to assess the region’s potential. American-based service companies are shipping supplies and drilling crews to their Russian subsidiaries.

But again there are issues. Teasdale said that the reserves are in a very remote location, and Platts Blog noted that the structure lacks the brittleness of a US oil play like the Bakken, making hydraulic fracturing less of an option. They’re also deeper, with narrow pay zones and low permeability.

And again there is the competitive environment aspect. Rather than a large number of smallish independents such as is typical of a North American shale play, there is a small number of majors. “We’re yet to see whether that model can work and whether big companies have an entrepreneurial spirit,” James Henderson, a senior research fellow at the Oxford Institute for Energy Studies, told Platts Blog.

Mexico

Sitting just south of South Texas does have its advantages. Oil and gas deposits don’t exactly respect international boundaries, and the prolific Eagle Ford shale, one of the most successful shale plays in the US, extends under the Rio Grande River into Mexico.

There’s just one small problem: Mexico’s current constitution forbids foreign investment in its mineral resources, and Pemex is unlikely to have the money or the technical expertise to develop the play alone.

Speaking at Hart Energy’s DUG Eagle Ford conference in September, Scott Sheffield, chairman and CEO of Pioneer Natural Resources, said that companies that work in the Eagle Ford in Texas would be well-positioned to work in Mexico. “I’m optimistic,” he said. “We’ve been watching Mexico for 10 years.”

What’s needed is a constitutional change, and Mexican President Enrique Pe?a Nieto has made a proposal to allow some direct foreign investment in Pemex projects. However, the country is deeply divided on this proposal – in September thousands of protestors in Mexico City turned out to show their opposition. Leaders of the protest termed the proposal “treason” and “a filthy, shameless robbery,” according to FuelFix. Currently Mexico is benefiting from cheap natural gas being imported from the US. But this doesn’t make the potential for shale less attractive. “In most countries a key policy driver tends to be security of supply,” Teasdale said. “Most countries like to know the resource potential.” The EIA estimates technically recoverable gas in Mexico to be 19.2 Tcm (681 Tcf).

Ukraine

Ukraine is another country that relies heavily on Russia for its gas imports. The EIA notes that the country produces 30% of its natural gas requirements and makes up the bulk from Russian and Turkmenistan imports. The administration states that its location makes it an important transit country for Russian gas supplies, and disputes have resulted in supply disruptions.

“The supply from Russia has faced yearly disruption, which is well known to anyone who has been in Ukraine in December when Russia turns off the gas,” Ryan W. Lijdsman, an international business consultant, said in an article about the country’s shale gas resources.

Shale gas discoveries are potentially changing the game. Shell has signed on to explore an area that government estimates indicate could have 113 Bcm (4 Tcf) in reserves.

Lijdsman wrote that the country’s gas reserves bear geologic similarities to its neighbor Poland, and the Lublin basin could be 10 to 15 times the size of the Barnett shale. It also suffers less from population and water issues that plague its neighbor to the northwest.

But it suffers from the same bureaucratic issues that affect many other countries with shale deposits. “Lousy domestic policy remains the single greatest impediment to gas investments in Ukraine,” Edward Chow, a senior fellow at the Center of Strategic and International Studies, told Lijdsman.

Despite these issues, Chevron is proceeding with its plans to explore for shale in the Olesska field in the west of the country, according to Reuters. A government draft for a $10 billion shale gas production-sharing agreement has been approved. The draft will be sent to the Cabinet of Ministers for a signature, the article states. Royal Dutch Shell received a shale agreement with the government earlier this year to explore in Yuzivska in the eastern part of the country. The two projects could result in 11 Bcm to 16 Bcm (388 Bcf to 563 Bcf) within five years, according to Reuters.

China

“If you’re looking globally, I think China looks the most promising,” Teasdale said of the international potential for a shale gale. “The government is very supportive. Through their awards and licenses, they’re trying to generate a higher activity rate. If companies don’t deliver on their commitments, then potentially they might have to relinquish their licenses, and other companies will be invited in.”

China does indeed seem to be well ahead of other countries in its attempts to exploit its shale resources. With a utility industry almost totally reliant on coal, the country suffers from vast pollution issues and is hoping to diversify its fuel mix. And with the government supporting large increases in natural gas production, the stage is set for the next act.

PacWest Consulting Partners notes that nearly 1 million hydraulic horsepower (hhp) of frac capacity has been added during 2013, and year-end numbers are expected to reach 2.4 million hhp. Over the course of the year the market has seen a 33% increase in the number of wells fraced and total frac services demand.

But the inhospitable nature of the region’s shale resources will prove to be a considerable obstacle. Water is a chief concern, as are rough terrain and deeply buried formations, according to the Wall Street Journal. And like other shale regions, the neighbors are starting to complain. The EIA notes that drillsites are being built within 110 m (360 ft) of homes in certain villages.

Shell is the main international company working in Chinese shales, and the Wall Street Journal notes that Shell revealed at an industry conference that between May 2010 and March 2013 the company lost 535 days of work due to “spontaneous village-based blockades” as well as government requests to halt operations. “Many of the villagers’ complaints stemmed from money disputes,” according to the company.

Other companies have been less inclined to join the party. Reuters notes that “an eclectic mix of new participants in the sector [are dragging] their heels on development, while China’s biggest energy companies prioritize spending on other oil and gas projects.” This heel-dragging could be partly due to the fact that China awarded bids to 16 companies, none of which had ever drilled a gas well.

“The sector liberalization looks unlikely to work in shale gas as its investment is too high and returns are too low,” Cheng Weidong, a senior industry analyst, told Reuters.

The UK

The UK is another country that would dearly like to exploit its own natural gas reserves. Fortunately, it has the reserves to exploit.

Earlier this year the British Geological Survey vastly upgraded its estimate on the gas in place in central Britain between Wrexham and Blackpool in the west and Nottingham and Scarborough in the east. The lower limit of the range is 23 Tcm (822 Tcf), and the upper limit is 65 Tcm (2,281 Tcf), with the central estimate being 38 Bcm (1,329 Tcf).

Teasdale said that the UK government is very supportive of shale oil and gas development and has established an office for unconventional gas to support its regulatory efforts. “But if you look at exploration today, we’ve only seen a couple of wells drilled,” she said. “We’ll need 10 to 20 times that to understand the potential.”

There also is considerable opposition. E&P reported in September that Cuadrilla Resources had received emails threatening mail bombs if it proceeded with its drilling plans near Balcombe in West Sussex. “The protestors have the stage,” Lord Borwick of Hawkshead said. “The demonstrations in Balcombe seem to have a lot to do with the Occupy movement and with the band of traveling protestors who will show up for a battle. Cuadrilla was looking for oil, not fracing shale, but it got attacked anyway.”

He added that the UK’s Climate Change Act was enacted to combat global warming, with the assumption that the only way to reduce COemissions was to keep the price of energy high. “Fracing, with lower energy prices, was seen as a driver for more global warming, morally dubious,” he said. “The price of gas in Europe is far higher than in the US, and the Eurocrats really believe that this is a good thing.”

Finally, he added, much of the UK is as densely populated as suburban New York, and some of the best prospective shale deposits are near London. “In the south near London are the sort of protestors who would demonstrate against the building of their own homes,” he said. “It will be complex to get the local permits for fracing in the South. It will happen, but it needs a serious amount of PR [public relations].

“We have no history of onshore oil and gas here; no ‘Beverly Hillbillies’ or anybody has made money from oil. The only thing we are getting is windmills all over the countryside. Perhaps the way to sell fracing in the UK is as an alternative to windmills.”

Early days

Overall, international players are not likely to replicate North America’s success any time soon. Teasdale expects a decade to pass before meaningful production from shales is part of the world fuel mix; veteran oilman T. Boone Pickens estimates more like 20 years.

“I think the US has a unique combination of factors that have enabled this development, and those factors aren’t really present in the same combination in any other country or region,” Teasdale said. “While people term the US as a shale revolution, elsewhere it’s going to be more of an evolutionary process.”

Top shale basins outside North America

  • Maracaibo La Luna shale, Venezuela
  • Middle Magdalena La Luna shale, Colombia
  • Catatumbo La Luna shale, Colombia/Venezuela
  • Neuquen Vaca Muerta shale, Argentina
  • Baltic Llandovery shale, Poland
  • Pennine and Scottish coal measures, Scotland
  • Ghadames Tannezuft shale, Algeria
  • Illizi Tannezuft shale, Algeria
  • Hamra Tannezuft shale, Libya
  • Murzuq Tannezuft shale, Libya
  • Karoo Ecca Group shales, South Africa
  • Dnieper-Donets Rudov shale, Ukraine
  • Western Siberian Bazhenov shale, Russia
  • Sichuan Longmaxi shale, China
  • Songliao Qingshankou shale, China
  • South Sumatra Muara Enim formation, Sumatra
  • Bowen Permian coal measures, Australia
  • Cooper Roseneath and Murteree shales, Australia
  • Surat Permian coal measures, Australia

Source: Rextag

Ruling will complicate hydraulic fracturing in Europe

By Rhonda Duey, Executive Editor

As if shale gas development in Europe wasn’t complicated enough already, the European Parliament recently passed a vote to require environmental impact assessments before fracing wells.

According to an article in the New York Times, the new rules were “narrowly approved” and will require another round of voting once the final language is agreed upon.

“The result is a setback for the shale gas industry in Europe, where it is far less developed than in the US and where many citizens are more concerned about the environmental impact of recovering the gas than about finding new sources of hydrocarbons as a way of combating stubbornly high energy prices,” the article states. “Industry groups immediately condemned the result as more red tape for European business at a time when the continent is seeking growth after five years of economic crises.”

Current legislation only requires assessments for wells that extract at least 500 Mcm/d (17.6 MMcf/d).

Roland Festor, the director of EU affairs for the International Association of Oil and Gas Producers, said in a statement that the new requirement for environmental impact assessments will prevent countries from developing their shale resources “without bringing additional environmental benefits.”