Shale gas is poised to become international phenomenon

As the rapid development of tight gas, shale gas, and coalbed methane (CBM) continues to transform the North American energy landscape, unconventional natural gas resources, particularly shale gas, are being targeted in Europe, Latin America, and the Asia-Pacific region to augment declining production and provide new hydrocarbon supplies throughout the world.

On its way to becoming a global phenomenon, shale gas, the prospective resources of which are conservatively estimated by Hart Energy Research at approximately 20 Tcf worldwide, already is in play in many corners of the globe, but the exploitation and development of these resources is largely in an embryonic stage and not without continued obstacles in reaching the widespread commercial success seen in both the US and Canada.

In fact, no commercial shale gas is produced outside of North America, but interest is gaining ground in many basins – some largely untapped – while international operators are eying new prospects in Africa, Asia, Australia, Europe, and South America.

International and national oil companies and independents are eying shale gas basins across the globe. (Map and data proved by Rextag/Hart Energy Research)

Tremendous upside

While economics have yet to be proven for shale gas on a global scale, ballooning estimates of shale gas resources have helped increase total US natural gas reserves nearly 50% in the last 10 years, with shale gas expected to comprise 47% of US natural gas production in 2035, according to the US Energy Information Administration (EIA). In the EIA's "International Energy Outlook 2011" (IEO2011) reference case, US unconventional natural gas production is expected to swell from 10.9 Tcf in 2008 to 19.8 Tcf by 2035,. Unconventional natural gas resources also will be critical in securing future domestic gas sup- plies in both Canada and China, particularly as the latter country evolves industrially. The world's largest energy consumer, China, is predicted to have 72% of total domestic production contingent on these resources by 2035, according to the IEO2011 reference case.

A separate report commissioned by the EIA from Advanced Resources International Inc. and published in April 2011 found that the international shale gas resource base holds tremendous potential, with an initial estimate of technically recoverable shale gas resources in 32 countries totaling 5,760 Tcf.

Coupled with the US estimate of 862 Tcf of technically recoverable shale gas resources, the 5,760 Tcf figure rises to a total shale resource base estimate of 6,622 Tcf, according to the report. In January 2010 Advanced Resources estimated proved natural gas reserves to be around 6,609 Tcf, and world technically recoverable gas resources (excluding shale gas) were projected to be approximately 16,000 Tcf. Combining the identified shale gas resources with other gas resources worldwide, the EIA report pegged total world technically recoverable gas resources at 22,600 Tcf.

But regulatory hurdles like South Africa's six-month extension on its moratorium for issuing gas exploration licenses in the shale gas-prospective Karoo region, restricted accessibility, infrastructure and services constraints, and nascent technical capabilities and efficiencies all could play a part in tempering the near-term development of international shales.

Europe could be a main contender

North America is seen the world over as the leader in unconventional resources development due to prolific shale plays contributing to burgeoning oil and gas production. But Europe also holds enormous unconventional commercial gas potential, the volumes of which could stabilize domestic supplies and curb conventional production declines over the long run.

Estimated at 6,115 Tcf of unconventional gas in place (including both shale gas and CBM) in a March 2011 study by IHS CERA, the region's unconventional gas resources could ultimately rival that of North America. And because of Europe's proximity to energy-hungry regions like Asia, substantial production of unconventional gas could have a major impact on international markets. Significant regulatory challenges lie ahead for the region as a whole, however, and rapid development of these resources is uncertain at this time. Specifically, the study's researchers cite concerns over length of tenure, permitting regimes and norms, and water management as near-term impediments to wide-scale shale gas exploitation.

Nevertheless, Europe's unconventional gas is likely to make significant contributions to the world's energy supply in the next 10 to 15 years, with production levels ranging from a minimum of 60 Bcm (or less than half of current North American shale gas production) to 200 Bcm through 2025, according to IHS CERA.

Poland appears to be taking the lead in unconventional E&P and is likely to make the most significant contribution to future unconventional production in Europe, Ben Hollins, head of gas research for Wood Mackenzie UK, said in a March presentation at Gastech 2011 in Amsterdam. "With estimates of between 10 Bcm and 30 Bcm per annum of unconventional gas production by 2030, Poland could have enough gas to meet its own domestic requirements and perhaps also be in a position to export," he said. As with China, a major challenge will be accessing the pipeline infrastructure needed for bringing that gas to market, Hollins said.

Environmental and safety concerns related to hydraulic fracturing, meanwhile, have contaminated regulatory sentiments in France, halting exploration altogether. In July 2011, French lawmakers in the Senate voted 176:151 to outlaw hydraulic fracturing and revoke all permits from companies that planned to use fracing in their oil and gas operations. The move has been seen as unfavorable to regional energy security by companies seeking to harness cleaner fossil fuel resources.

Asian energy giants

When considering the Asia-Pacific region, China, alongside India and Australia, will likely follow the US' example of changing LNG supplies by exploiting unconventional reserves, a summit paper from the 2011 Pacific Energy Summit, held in Jakarta, Indonesia, in February 2011 states.

China has enormous untapped shale gas potential. Already a significant coalseam gas producer, the emerging powerhouse is seeking to tap shale gas as a primary source of new energy supplies while rampant economic development is expected to continue accelerating in the next few decades and as it attempts to wean itself off of coal.

In March the Ministry of Land and Resources appraised China's indigenous potentially recoverable shale gas reserves at an impressive 25.1 Tcm. And underscoring an ambitious goal to develop this tremendous shale gas resource base, the National Energy Administration said the government is targeting a production rate of 229.4 Bcf/year by year-end 2015, according to the official Xinhua news agency. Rice University's Baker Institute in Houston also estimates China's shale gas production could be as high as 1.2 Bcf/d by 2020 and 2.6 Bcf/d by 2030, while CBM production is projected to reach 1.8 Bcf/d by 2020 and 4.5 Bcf/d by 2030.

The country's pipeline infrastructure could prove to be a significant bottleneck in the face of fluctuating demand, however, in addition to its water scarcity and a lack of technical expertise in exploiting shale gas. Thus, increased R&D initiatives, government investment, and international partnerships will be key to unlocking the country's true shale gas potential decades out. India, fast becoming an industrialized, energy-dependent market, also has joined the international shale fracas, albeit in the early stages of the game. The country has begun appraising its shale gas resources and anticipates having exploration rules in place by 2013, Prime Minister Manmohan Singh was quoted as saying in March. India's Oil Secretary also has confirmed the country's plans to auction off prospective blocks in 2013.

India's state-run Oil & Natural Gas Corp. (ONGC) is credited with discovering the country's first significant shale gas find in January 2011 in the Burdwan district of West Bengal. The 12,000-sq-km (4,633-sq-mile) shale gas reserve is estimated by ONGC to contain between 600 Tcf and 2,000 Tcf of total reserves, according to an announcement in the Hindustan Times.

Taking its cue from Indian conglomerate Reliance Ltd.'s joint ventures in the US shale plays, ONGC recently signed a memorandum of understanding with ConocoPhillips to explore and develop global shale resources, including those in India and North America. According to the company, the pact heralds an exciting new chapter in its continuing saga of hydrocarbon exploration in India and abroad, with the goal of achieving energy security for sustaining India's booming economy.

South America's shale riches

In South America, the focus has turned to Argentina and the abundant shale gas and shale oil potential that exists in the emerging Vaca Muerta shale play. The country reportedly boasts more than 774 Tcf of combined shale resources, or the world's third-largest of such reserves, according to the EIA. But nearer term, future unconventional resources development could be stymied by current stringent government regulations within the country, a March 2012 report by GlobalData suggests.

According to the report, the Argentine government has set regulations on international currencies and upper price limits on exports that could prove to have a significant impact on the country's long-term goal of becoming a major unconventional resources development hub.

Specifically, in October 2011 Argentina decided to prohibit companies from converting export earnings into international currencies. Because remitting profits from Argentina in local currency would be problematic, this would leave earnings to remain invested, and thus not freely convertible, for longer periods of time, thereby affect investor interests and disrupt market growth, the report's researchers said. Additionally, in December 2012 the government set an upper price limit of US $42/bbl for both domestic oil exports and oil sales, which has been seen as having a negative impact on companies that export oil from Argentina, according to the report.

Despite these hindrances, operators are targeting the massive oily shale potential of the Vaca Muerta shale.

Ready, set, go?

Although the extent of unconventional natural gas resources has not been assessed fully, the US government maintains that shale gas resources will continue to build at a steady – and substantial – rate not only in the US and Canada but also increasingly in emerging powerhouses like China and India. Time will tell if national governments will begin to grow more tolerant toward hydraulic fracturing and when global operators begin to gain the technical know-how and advanced drilling technology to ramp up shale exploration and development operations.

What is known is that basins across the globe are rife with unconventional resources opportunities and clean-energy potential for future generations.