Evolution Rather than Revolution
OMV’s vision for shale development in Austria
“After looking into our shale potential for more than two years we are convinced that we have a substantial play that can be developed,” said Anton Baumgartner of Austria’s OMV. “The next step is to move forward with a pilot project.”
Baumgartner, speaking to delegates at the recent ShaleTech conference in Vienna, said that OMV was grateful to shale explorationists in the US who had shared their knowledge allowing European drillers to leapfrog over some of the technological challenges in Europe.
“We really have to deal with the revolution in the US which is now the largest gas producer worldwide since 2009, the production of 594 billion cubic meters put it ahead of Russia. Now unconventional gas production contributes over 50% to current US production.”
This revolution has had a tremendous impact on the global gas business, according to him.
“We know that liquefied natural gas shipments have turned around to other markets, to Asia. Some LNG projects are being now discouraged. We ask ourselves: what does this mean for development in Europe and elsewhere?”
Baumgartner noted that many licenses had been aborted and many are being applied for. He said “We now see many wells being drilled in Germany, Sweden, UK and Poland.”
“Here at the conference we have seen that there is substantial potential in certain areas and there are some major potentials being pointed out, and we have seen some emphasis on certain areas,” said OMV’s Baumgartner. “Some will be coming up and some will disappear. There are difficulties for example in the Hungarian trough.”
He mentioned that more than 55% of the currently estimated gas in place could be gathered in given high potential shale deposits according to a study by IHS Cera.
“These shale plays have thickness, the maturity seems to be okay and the kerogen quality seems to be above the circuit; there are some concerns with brittleness.”
“European gas demand is about 550 trillion cubic meters and we’re not sure how it will develop,” explained Baumgartner. “If it grows in demand at 10-15% (or maybe only 3-5%), there is room for imports and a gap might even develop if there is further demand.”
He continued, “It takes time for unconventional production to make a significant contribution. I think we have to deal with a time frame of 7-10 years to bring the European shale business up to speed. We think it will be an evolution rather than a revolution.”
The challenge, Baumgartner contended, was in long-term price development.
“We see this drop due to the recession. Long-term contracts have given in somewhat, it’s more a volume flexibility than a price flexibility. It is assumed that this level will climb back up again. It’s been influenced by spot prices and has dropped but now due to a tightening it is supposed to pick back up rather slowly and continue on a slow inclination.”
Baumgartner said he believed in a differing pace of development for shale gas in Europe, because of the variety of factors affecting the continent’s natural gas market.
“If we watch the US gas market, Europe is supplied from various sources: Norway, North Africa and recent efforts to look into the gas supplies in the Caspian. The US was dependent on gas imports. We also have contracts with Russia many of which have been extended to 2025-30. On the other hand Europe has been looking into expanding infrastructure to expand the gas market.”
In terms of shale gas, he said it looked like Europe had smaller plays which were deeper but thicker, translating into some uncertainty over the size of the resource.
Baumgartner also raised the questions of how fast E&P services could be developed in Europe and how quickly European institutions could be brought up to speed and made familiar with the risks and benefits of shale gas.
“How can we solve our environmental issues?” he asked. “In America they can dispose of their water, but this is certainly a no go in Europe.”
OMV’s history of drilling operations and its position in Europe make it well positioned to address that and similar issues, according to Baumgartner.
He continued, “OMV is the traditional license holder, the people working here with us are familiar with gas exploration and drilling and we don’t see a concern dealing with new developments, but stakeholder development will be an important aspect.”
“To summarize,” Baumgartner concluded, “yes, we can benefit from the North American experience and it will allow us to go faster in the development of the Austrian shales. Developing European unconventionals means we need to advance technology even more and make drilling economic.”
He added, “In Europe we didn’t have a problem with numerous license holders and I think this is one of the reasons for the gas bubble development; I think if we develop in a timely manner – in an evolutionary.
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