Shale gas production – update on selected countries
Shale formations occur in many countries around the world and reserve estimates are up according to recent reports. The estimates vary depending on the methodology applied and the number of considered formations and countries. According to International Energy Agency, global technically recoverable resources are in the order of 212 Bcm and represent one-fourth of the total global natural gas resources (International Energy Agency IEA, World Energy Outlook 2013, OECD/IEA, Paris. Throughout this document, data on resources of individual countries refer to IEA-published technically recoverable resources as of end 2012).
Following the so-called silent shale revolution in the USA over the past decade, a number of countries have expressed interest in shale gas extraction. Its contribution to the enhancement of the US economic competitiveness and growing energy independence can hardly be overestimated. Today, shale gas is commercially produced solely in North America where the United States account for 96% and Canada for 4% of the global production. Nonetheless, more and more countries embark on shale gas exploration with a hope to follow in US footsteps. Global prospects and the rate of shale gas production will be contingent on several factors that are specific to each potential shale gas producer country and depend, among others, on differences in geology, environmental, social and market factors that have an effect on the volume, cost and profitability of production. How the situation looks like out of North America?
Selected countries that plan to start shale gas production or in which shale gas extraction prospects are being debated.
Algeria
Algeria holds the world's third largest shale gas resources that are estimated at 20 Bcm. In 2013, Algeria made changes in its regulatory regime introducing, among other things, tax incentives for capital investments in shale gas development, but retaining dominant position of Sonatrach, a state-owned energy company, that controls research studies and transmission pipelines on an exclusive basis and holds a majority stake in refinery industry. However, security concerns are a serious impediment to production development (especially following a terrorist attack on Amenas facilities in January 2013), as well as limited access to process water. The two issues are likely to increase the cost of shale gas projects.
Argentina
Argentina holds the world's second largest shale gas resources (in excess of 22 Bcm) located in four basins, of which the huge Vaca Muerta gas field in the Neuquen Basin at the Chilean border is particularly attractive considering the potential size of its resources, favourable geology and existing infrastructure facilities (gas pipelines and roads). Operations are in progress and as early as 2012 the number of wells was in excess of 80. Due to the size of shale gas resources, investors' focus is on Argentina, as evidenced by a shale gas production joint venture agreement between US Chevron Company and YPF, a state-owned oil and gas company. Moreover, YPF plans to invest USD 6.5 billion in production development by 2017. However, a rapid growth of production is hampered in particular by a low price of gas, restricted access to capital and the risk of political interventions, especially following YPF nationalization in 2012. Negotiations that are underway between the two companies on a composition and compensation payment to Repsol may help to improve the investment climate.
China
Shale gas production in China is in initial phase with over 50 wells of which less than a half are productive. According to Chinese sources, 143 Mcm of gas were produced so far. Nonetheless, China has a huge potential for development with the world's largest shale gas resources estimated at over 31 Bcm or twice the size of the US resources. The most prospective regions are: the Sichuan Basin, Tarim and the North China Basin. Two tendering rounds have been held so far. Foreign companies are to be eligible for tendering, provided that they submit their tender as a minority partner of a Chinese company. The 12th Five Year Plan, as adopted in 2012, set an ambitious shale gas production targets of 6.5 Bcm by 2015 and from 60 to 100 Bcm by 2020. Despite the huge potential, a number of factors may delay achievement of these targets. They include: a much more complex and poorly investigated geology comparing to the US plays, difficult access to mountainous barren prospective regions, limited water resources, a lack of transmission infrastructure facilities and low gas prices that are still to be liberalized.
India
India's shale gas resources are estimated at 2.7 Bcm. Initial exploration operations are now being carried out by ONGC, a state-owned oil and gas company, under Indian government's shale gas production strategy which envisages shale gas exploration by two state-owned companies holding licenses awarded on a non-tender basis. However, privately-owned companies are to be permitted to tender for licenses in the future. The main concern of foreign investors is the fact that prospective shale gas accumulations occur in the areas of already awarded coalbed methane concessions. Other reasons behind potential production delays are: insufficiently investigated complex geology, land acquisition problems, necessity to build gas transmission facilities from scratch and management of limited water resources. The price of gas in India, too low to make commercial shale gas production viable, is an additional problem.
Mexico
Mexico has considerable shale gas resources estimated at 15 Bcm that occur along the Gulf of Mexico. Pemex, a state-owned oil and gas monopoly company, started exploration in 2010, but only a few wells have been drilled so far, all of them falling short of expectations. This is primarily due to high development costs and potential low return on investments in light of competition from more affordable gas imported from the United States. The planned constitutional reforms, expected to attract foreign investor, may help to improve that situation. Nonetheless, shale gas development plans face challenges, such as access to water for hydraulic fracturing purposes in water-deficient regions and underdeveloped gas infrastructure.
author: Bartosz Jurga
