INSIGHT: More shale gas and oil but extraction challenges, EIA

11 June 2013 16:57  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS)--There is likely to be much more technically recoverable shale gas globally than first thought the Energy Information Administration (EIA) suggested on Monday. And based on US updates a great deal more shale oil too.

Estimated volumes of technically recoverable shale gas have been revised upwards by 10%, the EIA said on Monday. That may not seem a lot but the addition of these sometimes wet gas resources, largely unrecognised until only a few years ago, lifts the global gas reserves total by 47%, or 7,299 trillion cubic feet (tcf). An energy bonus writ large.

The agency has also revised upwards its US shale oil and tight oil reserves estimates, taking the international total to 345bn barrels.

“Globally 32% of the total estimated natural gas resources are in shale formations, while 10% of estimated oil resources are in shale or tight formations,” the EIA says.

The agency’s data show how tight oil and shale gas have revolutionised the US energy picture accounting for 29% of total national crude oil production and 40% of US natural gas production in 2012.

The big question over time will be how other nations, principally those with the largest deposits, but also some relatively smaller players, will facilitate cost and environmentally effective shale gas and oil development.

The chemical industry could be a significant beneficiary of increased wet gas production as increased supplies of natural gas liquids (NGLs) from shale in the US have shown. The gases associated with shale oil production have also given US chemical producers a lift.

Of course, on any scale there are big differences between what is technically recoverable and what volumes of gas and oil might be produced economically from shale and the EIA admits that the picture is not yet clear.

“A potential shale well that costs twice as much and produces half the output of a typical US well would be unlikely to back out current supply sources of oil or natural gas,” it says. “In many cases, even significantly smaller differences in costs, well productivity, or both can make the difference between a resource that is a market game changer and one that is economically irrelevant at current market prices," it adds.

It is those costs coupled with the cost of distribution into existing oil and gas logistics networks that will make or break shale development.

But as the shale gas and oil opportunity becomes clearer, exploration and production companies and often at times national governments will be pushing for increased drilling activity. Successful exploitation is likely to take effort from both sides.

The UK has proved to be a case in point. A moratorium on drilling because of fears of the consequences of minor earthquakes associated with fracking has been lifted. Incentives are being put in place to encourage more investment in shale gas and oil exploitation.

Yet whether a meaningful level of fracking activity can be obtained let alone sustained in the UK is far from certain given the difficulties of drilling in a densely populated environment. The UK has, however, an already well-developed onshore oil industry and one of the largest onshore production wells in Europe.

Recent studies have focused on the potential of shale gas and of shale oil. The UK’s Department of Energy and Climate Change (DECC) is expected to release a report on 18 July on the extent of the country’s shale gas resources, principally in the north of the country.

The EIA has raised its estimates of the UK’s shale gas potential by 10% from its earlier report but notes that Britain’s geology, like that in much of Europe, is likely to make fracking difficult. It also notes that hydraulic fracturing in the UK “got off to an abysmal start”.

The agency’s assessment for shale gas and oil in China is said to represent a major upgrade on the 2011 study. “Shale gas leasing and exploration drilling already are underway in China, focused in the Sichuan Basin and Yangtze Platform areas and led by PetroChina, Sinopec, and Shell and the government has set an ambitious but probably unachievable target for shale gas production of 5.8 to 9.7 Bcfd (billion cubic feet a day) by 2020,” it says.

"Initial drilling confirms China’s shale gas and oil resource potential, but rapid commercialisation may be challenging due to the typically complex geologic structure (faulting, high tectonic stress), restricted access to geologic data, and the high cost and rudimentary state of in-country horizontal drilling and fracturing services,” it adds.

The EIA data show that China has the greatest shale gas potential followed by Argentina, Algeria and the US. Its latest study has spread the net wider and encompassed more countries and more shale formations but it has also demonstrated that as geological information increases so the estimates of shale gas and oil potentials change.

The estimates for some of the well known fields in countries like Mexico, Poland, China and Norway have been revised downwards, for instance. But the global resource potential is still increased.

“Although the shale resource estimates presented in this report will likely change over time as additional information becomes available, it is evident that shale resources that were until recently not included in technically recoverable resources constitute a substantial share of overall global technically recoverable oil and natural gas resources,” it says.

Global shale resources, EIA

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By: Nigel Davis
+44 20 8652 3214



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