The potential of global shale gas resources is likely to drive upstream investments
27 April 2011, Oil, Gas
Global recoverable gas reserves, which are currently estimated by the US Energy Information Administration (EIA) at 16,000 trillion cubic feet (tcf) as of 2010, have the potential to grow by nearly 40% to reach approximately 23,500tcf if the global shale gas potential is realized. The initial assessment by the EIA suggests that there are 48 shale gas basins in 32 countries containing 70 shale gas formations, with total shale gas reserves of approximately 7,300tcf.
The declining production of conventional resources and their increasing price due to global energy demand is likely to further drive the need to tap global unconventional resources, particularly shale gas, which has emerged as a cost-effective source of energy in recent years. Energy companies around the world are thus making significant efforts to develop shale gas resources to counterbalance their depleting conventional reserves.
According to Datamonitor's recently published report, "Oil and Gas Trends to Watch in 2011" (February 2011, EN00030-001), North America is likely to remain the hub for the unconventional oil and gas industry's development, due to continued government support and the country's favorable regulatory landscape. US shale gas production increased from 0.39tcf to 4.87tcf over 2000-10, at a compound annual growth rate (CAGR) of about 29%. Currently, shale gas accounts for around one quarter of total US natural gas production.
During 2010, the US market also witnessed increased interest in its shale gas plays from Chinese and Indian energy players, including Sinopec, China National Offshore Oil Corporation (CNOOC), and Reliance. Gaining exposure to the unconventional oil and gas industry in order to develop their domestic shale gas resources is one of the main reasons that Asian energy companies are making significant investments in US shale gas plays.
Taking cues from the US's success in shale gas, countries such as China, Argentina, Brazil, Canada, and Libya, which are believed to hold shale gas resources of more than 200tcf each, are making efforts to implement regulatory frameworks for the exploration and production of shale gas, and may look to increase their co-operation with the US in areas such as shale gas technology and infrastructure development. Import-dependent countries such as France, Poland, Turkey, Morocco, and Chile are also looking to harness their domestic shale gas resources.
Companies such as Shell and Alta Resources have invested huge amounts in the Chinese and US shale industries. If implemented globally, the investment-friendly policies prevalent in these countries will drive shale gas activity elsewhere in the world. In addition to attracting foreign direct investment, energy firms should also actively seek to acquire technical skills through overseas acquisitions and joint ventures with smaller firms.
Another significant factor that has led to increased interest in the shale gas industry is the technological advancements made in this domain. Advances made in horizontal drilling and hydraulic fracturing (fracking) technology have allowed exploration and production companies to recover gas that in the past was expensive to access. The new technologies have also helped to lower the costs of production, thus bringing down the threshold price at which gas production becomes economically viable.
However, environmental concerns, especially related to ground water contamination, remain a major impediment for the growth of shale gas globally. Advanced technologies that address the concerns of governments and the public will be a key factor that will shape the future of shale gas exploration. The shale gas industry will need to prove that the high-pressure water jets and chemical processes used for fracking are safe, non-toxic, and do not contaminate ground water.
Shale gas exploration has now started to pick up pace outside of North America, and many regions in Europe, Asia, and Latin America are believed to hold large formations. The shale gas development activities in these regions are likely to contribute significantly to global upstream spending. Asian national oil companies looking to develop their considerable unconventional oil and gas resources will provide an opportunity for international oil companies, which are currently the leaders in shale gas, to offer technological assistance. In many shale-rich countries, the regulatory environment is likely to improve, which should provide investment opportunities and promote the shale gas industry.
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