Shale gas - a brief history of prospecting in the world and Poland
Development of unconventional hydrocarbon resources is sometimes called the main energy revolution of the 21st century. This may truly sound like an exaggeration, but not entirely. When that fascinating process began still remains a question but it is generally assumed that the impetus here was the economic success in 1998 of the first modern shale gas well drilled in the Barnett shale of the Fort Worth basin, North Texas. Successful development of the Barnett play is now regarded as a turning point spurring entrepreneurs to start prospecting in other areas in the United States with-bearing shale series previously considered unsuitable for gas extraction.
In my opinion the whole history began much earlier. It is necessary to go back to 1973, the time of a successive Arab-Israeli conflict known as the Yom Kippur War. During that conflict the Arab-dominated Organization of the Petroleum Exporting Countries (OPEC) proclaimed an oil embargo. The- decision to cut oil exports to countries that provided military aid to Israel prompted a serious energy crisis in the United States, Western European, Japan and other nations dependent on foreign oil. As a result, between October 1973 and January 1974 world oil price went up quadrupled.
The effects of the embargo were immediate, causing an economic crisis over the winter of 1973–74. The United States experienced an additional problem resulting from a drop in domestic production of natural gas, which until that time was sufficient to cover domestic demand. The crisis demonstrated the scale of dependence of industrialized countries on insecure sources of supply of raw materials, thus making it necessary to introduce deep changes in the global economy.
The reaction was swift and wide-ranging. Countries affected by this crisis took several steps to eliminate the risk of a repetition of the situation from the early 1970s. These steps included increased production from known hydrocarbon resources as well as a search for new classic and unconventional ones. Intense research and development soon began to bring results. Special attention should be paid to results in the United States, the leader in drilling mining technologies since the oil boom of the 19th century. In 1976 the Gas Research Institute, supported by subsidies of the federal government, began research on extraction of natural gas from clay shale rich in organic matter. The shale was widely known to yield natural gas, but the rather few wells drilled thus far not numerous, failed to provide output with any economic importance. The first known commercial shale gas well was dug by William Hart, a skilled tinsmith and gunsmith, in the village of Fredonia, NY, in 1821. Hart dug out a well 8 meters deep at the shore of Erie Lake to reach a layer of fractured shale from which natural gas began to escape slowly. This made it possible for Hart to pipe the gas through wooden pipes to Fredonia where it was used to light several houses, two shops and a mill over a long period of time.
From the start of the 20th century, several dozen wells produced gas from shale rock of the Appalachian and Illinois basins. The soft point of these undertakings were production volumes, which were highly variable but usually low. They were actually so low that investors were on the brink of bankruptcy most of the time. Compact shale rock is characterized by very low permeability and therefore it is quite difficult to free gas locked up in such rock to escape and flow upwards into exploitation wells.
First hydraulic fracturing
Researchers from the Gas Research Institute decided to combine several well-known technologies to achieve higher productivity of shale gas wells. One of these methods was hydraulic fracturing used to enhance oil recovery since 1947. In 1977, the U.S. Department of Energy (DOE) began to demonstrate massive hydraulic fracturing in shale to promote a new approach. These demonstrations did not convince major players as the promoted technical solutions still required some improvements to be feasible at on an industrial scale. However, the idea was pursued by more ambitious entrepreneurs and small businesses looking for a niche market.
Among them was George P. Mitchell, Chairman of Mitchell Energy & Development Corp., a petroleum engineering graduate of Texas A&M University. He was not a novice in this business, as he led a Fortune 500 company listed on the New York Stock Exchange and participated in over 10,000 drilling operations. In 1981 he acquired licenses to drill for and produce oil and gas in the Fort Worth area in Texas where dark Lower Carboniferous shale known as the Barnett Shale is found at depths of about 2,300 m. Numerous signs of gas presence noted when drilling showed potential, but all attempts at economic production failed. At first Mitchell used the method proposed by the Gas Research Institute (GRI) – powerful injections of water with sand to vertical wells. However, effects proved unsatisfactory and costs enormous. This strong-willed entrepreneur did not give up, however, and for 18 years continually improve technology. These efforts received financial support from the DOE and the IRS qualified his corporation for a federal non-conventional fuel tax credit under the Internal Revenue Code (IRC). These efforts also gained support of the Jackson School of Geosciences and the University of Texas at Austin as well as of approximately a dozen of other research centers.
Studies on the effects of hydrofracking were conducted with the use of supermodern microseismic methods. Shale series most susceptible to fracturing were also identified by 3D seismic tomography. Hydrofracking of horizontal wells in shale gas formations turned out to be the key to success. It is very costly but allows drainage of larger volumes of rock than in classic vertical wells. The long-awaited success came in 1998 when Mitchell's corporation applied an innovative technique of hydrofracking to achieve commercial shale gas extraction. This is widely considered a milestone that pushed shale gas into full commercial competitiveness. In 2002 Mitchell's corporation (with knowledge and know-how as main assets) was bought by Devon Energy for $3.5 billion. It was one of the largest takeovers in history of that market until 2009 when ExxonMobil bought XTO Energy, a similar pioneer firm, for $40.0 billion.
It is worth noting the scale of these financial operations. It clearly shows how large capital is involved in the gas shale business. Much money must be spent on R&D as well as to drill a 3 km vertical well with a horizontal section 1 km long. The drilling and full hydrofracking process mean expenditures in the range of $10 million in the United States and even twice as much in Europe. Moreover, several dozen to several hundred wells have to be drilled to drain an entire shale gas play. This may be the reason why it took some time for the shale gas revolution to spread. Eight years had to pass before Mitchell's idea began to be clearly visible in graphs showing shale gas production increases in the U.S. Graphs show an increase of that production from 10 billion m3 in 1998 to over 150 billion m3 in 2011.
Methods employed at the Fort Worth play gradually began to be implemented in the Fayetteville, Haynesville, Antrim, Marcellus and other shale gas basins in the United States. At present they are used in twenty basins. Two of these basins, Marcellus and Haynesville, have shale gas resources exceeding 7 billion m3, which makes them the richest gas deposits in the world.
Some modifications in technology appeared necessary. Although all American shale formations are genetically close, it soon appeared that there is no single key to their resources. Even small differences in geology or mineralogy may require additional costly R&D activities and experiments.
Thanks to exploitation of the country's shale gas reserves the Unites States regained its position in 2009 as the world's largest natural gas producer and LNG import terminals lost importance.
Costs of the Shale Gas Rush
Besides prestige, this success has definite economic value. A steadily growing supply of natural gas has resulted in a five-fold decrease in the price of that commodity. According to the World Economic Forum, oil and gas companies created 37,000 direct jobs thanks to developments in exploitation of unconventional plays and contributed to the creation of an additional 111,000 indirect jobs in 2011.
The pioneer stage in development of these new types of plays has also led to some negative social costs. Intense activities conducted not always in accordance with the law and drilling principles have raised the concerns of those living in a hitherto quiet countryside. Rural tranquility has become disturbed by heavy truck traffic to gas drilling sites. Moreover, in some places hydraulic fracturing waste fluids were illegally discharged into streams, ponds and surrounding woods. Voices of discontent were soon raised by environmental organizations as well as large corporations affected by the shale gas boom and disturbed foundations of business through a drastic decrease in the cost of gas. This has led to anti-fracking hysteria, the effects of which the new oil and gas industry may have to deal with even for decades. ”Gasland,” a documentary by Josh Fox, a New York avant-garde theater talent, was a forerunner of that hysteria. This documentary, first screened at the Sundance Film Festival in 2010, still remains the source of knowledge for environmental and political activists throughout the world, even though science has failed to provide reasonable evidence to support its message.
Meanwhile in the rest of the world…
This new technology was soon noted by other countries. Canada was the first country to develop a shale gas industry. The task appeared to be fairly easy as some formations already exploited with the use of most modern technology in the U.S. (Antrim Shale and Utica Shale) crossed over into Canadian provinces. Similarly as in the United States, several years had to pass before production reached levels clearly traceable in graphs showing shale gas production increases in that country in 2011. At present the United States and Canada still remain the only countries that have achieved commercial production of shale gas.
Soon, research extended to the entire world and often appeared limited to “undusting” of old maps and reports. Shale formations rich in organic matter have been well known to national geological surveys for several decades, but a practical demonstration of the possibilities of shale gas extraction was needed to alter their status to something more than an interesting trace in the Earth’s history. Global potential of shale rock was first noted by the U.S. Energy Information Administration (EIA) and other agencies specializing in the energy monitoring market. In the last ten years this led to publication of several reports providing initial and very general estimates of shale gas resources throughout the world. In addition to the United States and Canada, these estimates indicate a high potential for large-scale shale gas production in China, Argentina, Mexico, South Africa, Australia, Libya, Algeria, Brazil, and in Europe – in France, Poland, Ukraine and Germany.
The above estimates were not a surprise to Polish geologists. Occurrences of dark Lower Paleozoic shale in our country were very well known as these rocks crop out at the surface in the Holy Cross Mountains. One of first references to that formation can be found in an article by Jan Samsonowicz published in ”Sprawozdania Polskiego Instytutu Geologicznego” (Reports of the State Geological Institute) in 1920.
Along with developments in studies on the geological structure of the country, in particular, very extensive drilling programs carried out since the 1960s, geology and tectonics and lithology of these formations have become very well known. The obtained results made it possible to compile maps of extent and depth of occurrence of partly eroded belts of shale formations in individual basins. Special attention should be paid to numerous hydrocarbons observed while drilling through these formations: gas bubbles escaping from fresh core material, an oily smell of rocks of sandstone intercalations or increases in drilling mud pressure.
Already in 1964 Stanisław Depowski and Jadwiga Królicka published an article on hydrocarbon shows in the Polish Lowlands in the Geological Quarterly. However, in line with the state of art at this time, prospecting was mainly focused on classic hydrocarbon traps in which oil and gas migrating from parent shale formations could have accumulated. Shale formations were regarded as unproductive due to the prohibitive cost of extraction.
In turn, the wealth of fossil remains of marine animals and plants made this dark shale rock that was several hundred million years old very attractive to paleontologists. The most interesting fossils are those of extinct graptolites – small invertebrates resembling grass leaves with jagged edges or a spiral coil. They were so abundant in certain time intervals in the history of the Paleozoic ocean that seafloor sediment was full of their remains. Therefore, rocks formed from these sediments were called graptolite shale.
In the last decade, Polish shale began to draw much attention in connection with news from across the ocean. After half of a century, borehole core samples resting quietly in core repositories of the PGI-NRI Central Geological Archive were dusted off and studied again. Polish and foreign geologists re-analyzed total organic content, thermal maturity and mechanical properties of these rocks. Despite the passage of time, core samples appeared fully usable for studies. Analysis of the thermal history of these rocks showed that most went through a heating phase optimal for generation of gaseous hydrocarbons in the western part of the shale belt and for generation of liquid hydrocarbons in the eastern part of that belt.
At the same time the first companies holding licenses for prospecting and exploration of shale gas hired Polish geophysical firms to carry out seismic surveys, including very expensive 3D surveys. Obtained geophysical data made it possible to update geological maps to select the best locations of first exploration wells. Drilling rigs first appeared in Pomerania (northern Poland) and later in the Lublin and Podlasie regions (eastern Poland).
Initial hydrofracking in Poland was carried out in August 2011 by Lane Energy from the 3Legs Resources group at the Łebień LE 2H well in Pomerania. Results of flow tests did not appear promising as the recorded flow of 20,000 m3 per day corresponded to lower values obtained from American shale gas wells. Subsequent flow tests carried out by other operators also failed to give fully satisfactory results. This may be one of the reasons why some foreign companies withdrew from the Polish market. Their license blocks were taken over by other companies, including Polish firms.
Until 1 December 2014, the Polish Ministry of the Environment issued 54 licences for prospecting and exploration of unconventional hydrocarbon resources. They were awarded to 14 Polish and foreign capital groups. The largest number of these licenses (12) went to the Polish Oil & Gas Company. License holders are obligated to drill two and sometimes even three wells as well as pass documentation and geological samples collected during prospecting to the Ministry of the Environment within three years from the date of license issue. Holders are planning to drill 333 exploration wells (123 obligatory plus 210 as an option depending on results of prospecting works).
By 1 December 2014, 67 drillings were completed and four were in progress. However, full hydrofracking treatment in long horizontal well sections, most important for flow tests and confirmation of resources and their economic viability, was carried out at six wells only.
At present it is still impossible to state whether shale gas production will revolutionise the Polish economy to such a degree as in the United States. This will greatly depend on the commercial recoverability of shale gas resources. First estimates of foreign rating agencies looked quite promising. According to estimates published in 2009-2010, Polish recoverable shale gas resources may range from 1 to 3 billion m3. An estimate made by the U.S. Energy Information Agency (EIA) created a true sensation as it raised resources up to 5.3 billion m3. The first report based on scientific premises was presented afterwards by the Polish Geological Institute – NRI in March 2012. The PGI-NRI team estimated recoverable shale gas resources in Poland at 0.35 to 0.77 billion m3, which was a large retreat.
However, it should be stressed that the method used by Polish geologists in their cooperation with the U.S Geological Survey was based on statistical analogies with American basins with known productivity. Therefore, results obtained with the use of that method can be characterised by a wide margin of error. A more accurate estimate of resources will be possible when most planned exploration wells are completed and, more importantly, appropriate long-term flow tests are made. It is not excluded that some change in technology will be also necessary as Polish gas-bearing shale may markedly differ from its American counterpart.
author: Mirosław Rutkowski