Unconventional gas presents the world with an opportunity and a challenge. Conventional sources of gas supply are declining while demand is taking off, driven by burgeoning emerging markets and the recognition that gas is a low-cost, low-carbon energy source. Collectively, these dynamics act to increase import dependency and limit supply security for certain regions.

Unconventional gas, which has helped the US overcome a similar challenge, is an abundant resource with tremendous international potential. Companies have embarked on a global land grab for prospective exploration acreage – from Argentina to Poland to China – in an attempt to replicate North America’s success.

Exporting a business model

Unique challenges exist outside of North America. Higher competition from alternative gas sources puts pressure on unconventional gas project economics. Regions such as Europe and Asia have more options, such as piped gas or LNG from multiple supply points. Also, economics are challenging due to structural cost differences, lack of scale, and a limited learning curve.

Improved drilling efficiency has significantly reduced the drilling days of two early unconventional gas wells in Europe. Each of these wells has seen a significant improvement of 30-40% in actual time versus planned time. (Image courtesy of Schlumberger)

Spatial constraints make land access a major obstacle. This is linked to population density. In promising regions such as Europe (116 people/ sq km) and China (140 people/ sq km), population density is a lot higher than in the US (31 people/sq km). Higher population densities also limit water resources, which are critical for hydraulic fracturing.

The E&P model adopted in North America will not always be practical overseas. Operators need a different modus operandi that includes optimizing drilling and completions, ensuring environmental sustainability, and adopting an integrated, flexible, and inclusive business model.

Optimized drilling and completions

A key determinant of success will be how operators reduce their footprint by drilling only the highest quality wells. Optimal well placement can be achieved through better reservoir characterization that incorporates both reservoir and completion quality models. A reservoir quality model relies on petrophysical, petrological, geophysical, and geochemical data. Completion quality relies on mechanical rock property, horizontal stress, and natural fracture data. A combination of these models across the field ensures identification of optimal well locations and trajectories, which ultimately reduces the number of wells drilled and completed, alleviating land access constraints, and improving economics while retaining production targets.

Another way to overcome challenging economics is to increase drilling efficiency by using technologies that reduce drilling time and increase reservoir contact by lengthening the wellbore, by applying logging technologies that ensure optimal placement in the target zone, and by using drill bits optimized for shale reservoirs.

Environmental sustainability

Optimal water sourcing and produced water management will become a strategic imperative for developing unconventional gas abroad. This requires innovative techniques that reduce sourcing needs or allow for alternative sourcing options to ensure security of supply by avoiding competition with municipalities. In addition, produced water must be managed appropriately through technologies that minimize produced water at the surface, allow for greater reuse, and provide for appropriate disposal.

The potential for aquifers to be contaminated by leaked natural gas or by stimulation chemicals is probably the biggest fear on the minds of local communities and regulators. Well design must guarantee that no natural gas leak occurs and that aquifers will not be contaminated. Well integrity can be achieved by selecting cementing solutions that constitute a lasting barrier between the annulus and the formation, and by evaluating the integrity of this barrier long after the well is drilled and stimulated.

Lastly, operators need to employ fracturing fluids that are fully disclosed, fully formulated, and fully functional to meet the technical reservoir ranges for effective fracturing while complying with regulations. Operators also will need to employ eco-friendly chemical formulations that assure regulators of the environmental robustness of operations. Best-in-class operators will find the right balance between economics and sustainability.

Several challenges exist that will create hurdles for operators trying to develop unconventional gas abroad. A new approach is needed that balances technology, environment, and economics. (Image courtesy of Schlumberger Business Consulting)

Integrated business model

Success in the next phase of global unconventional gas development also will hinge on the operators’ ability to manage a business model that engages several stakeholders and balances technology, environment, and economics.

Operators must employ an inclusive approach that fosters relationships with stakeholders. Collaboration with other operators and service companies will become increasingly important as activity shifts to more prospective, higher-risk plays. Collaboration allows operators flexibility to respond better to uncertainties, to quickly move up the learning curve, to realize economies of scale, and to configure the right technology and capabilities. Managing relationships with regulators and local communities will be critical as well. It will pay to engage regulators to assure them that operations are environmentally robust. Operators also will have to address local community concerns by engaging them early in the process and outlining the extent of operations. Gaining regulatory and local buy-in will pave the way for long-term unhindered resource development.

In addition, operators will have to maintain operational flexibility by establishing internal and external triggers that allow them to detect economic variations of their plays. Variations can be driven by factors such as geological characteristics, market evolution, and supply chain constraints. The management system has to evolve to ensure flexibility and transparency across functions, enabling collaborative planning and execution.

New mindset

Unconventional gas has been the biggest breakthrough in the oil and gas industry over the past decade. The world has found an abundant resource that can offer competitive economics, supply security, and a practical opportunity to materially reduce global carbon emissions. The model needed for succeeding on a global level will require operators to rise to the challenge and adopt a new mindset that balances technology, environment, and economics.