The long and winding road to a global shale boom
We’ve read plenty about how shale oil and gas is now transforming the U.S. energy scene — and the American economy itself. Yes, but the impact on the rest of the world has been negligible so far. From London, Capital Economics energy analyst Tom Pugh has found that other countries are finding it difficult to replicate the technology and incentives offered in the U.S. This, he concludes, may mean that we will have to wait until about 2020 to see significant unconventional oil and gas production outside America.
Pugh’s report comes against a background of intense global interest — and controversy — in the production of oil and gas from shale formations. You only have to mention fracking to get the environmentalists hopping mad. But it’s important that these issues be raised because, apart from the technology challenges, fracking is becoming one of the liveliest environmental issues around.
Just this week Geoff Hiscock, a author and journalist specialising in Asian energy issues, writes that India’s chronic water shortages are likely to delay if not derail the country’s hopes for its own shale gas bonanza. India is depleting its groundwater faster than the natural replenishment rate. As a consequence, the New Delhi-based Energy and Resources Institute is arguing the country would be better off buying more gas from suppliers in Australia, the Middle East and the U.S. rather than exploiting its own resources,.
Several large companies are backing the Frack Off movement in Britain although the government seems to be keen to develop shale gas resources. The Polish government, also in favour of developing its shale deposits.
There are also the geopolitical implications. There are signs that OPEC has been concerned the development of shale oil supplies could further weaken its own position.
Is the shale revolution here to stay, asks Pugh. While the effects of the shale revolution on American production and prices are undeniable, he says it is debateable whether the revolution will prove to be a lasting change or just a temporary boom. Critics argue that production from shale wells declines much more rapidly than that from traditional wells. “This implies that, in order to keep production increasing, hundreds if not thousands of new wells will have to be dug every year,” the report continues.
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On the other hand, technology is going ahead in leaps and bounds. As Pugh notes, drill crews can now sink up to a dozen wells from a single place which has lowered the frequency with which they have to move locations, significantly cutting down on costs.
How much is out there? The U.S. Energy Information Administration estimates that shale oil accounts for about 10% of global recoverable oil reserves — and almost a third of recoverable gas, which is an extraordinary figure.
Capital Economics lists the top 5 resource holders. For shale oil, it’s Russia (75 billion barrels), the U.S. (58 billion), China (32 billion), Argentina (27 billion) and Libya (26 billion). As far as gas is concerned, China leads with 1,115 trillion cubic feet, followed by Argentina (802 trillion), Algeria (707 trillion), the U.S. (665 trillion) and Canada (573 trillion).
China has been the most active gas hunter outside North America. The country has set a 2015 deadline by which there will be a detailed survey of all shale deposits completed, Beijing being anxious to less dependence on imported LNG. But, as Pugh notes, there is a distinct lack of fracking experience in China which may hamper development. As for Argentina, Chevron is expanding its shale oil efforts there. Even Japan is keen: last month the Japan Petroleum Exploration Co. (Japex) said it was looking to commercialise shale oil production in Akita Prefecture. Test work has already extracted oil from the Ayukawa oil and gas field.
But Pugh then analyses the problems that face shale hopes outside the U.S.
One, the geology of most shale sites is not as good as American shales, making extraction more expensive. Two, the previously mentioned environmental concerns (France has banned fracking). Three, many shale deposits are located under densely populated areas rather than in North Dakota. That’s why he expects no great boom before 2020 outside North America.
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