Replicating Unconventional Gas: Digging Into the Details
What can the global shale gas industry learn from US shale producers? In a session on reproduction the unconventional gas revolution at the World Gas Conference, Prof. Jason Bordoff from the Center on Global Energy Policy of Columbia University explained that there are numerous reasons why the shale revolution had occurred in the US, for example the small, entrepreneurial explorers, who had tried and failed over time. “They were very innovative, took a lot of risk and had the incentives to do so,” he explained, adding that the policies had also been in place to create incentives.
Of the private ownership of mineral rights in the US, he said: “That means if you have someone come on your land to do explorational drilling, you're going to benefit financially from that – that's a factor that doesn't exist in any other place in the world.”
A very robust pipeline and gas storage system in the US has also facilitated the revolution, making it possible to quickly bring a lot of gas into the power sector and displace coal, Prof. Bordoff explained.
“We also have a very liquid financial sector and capital markets,” he added, “so the shale revolution was financed with access to capital.
“So I think it's going to be more challenging to advance this, not only from the technological reasons – the nature of the geology, access to water – but you have to create the right incentives through above-ground policies, making sure that access to capital is there, that there's a lot of competition in the sector, continued reforms is important, and the right policies to attract foreign investment and the technology from US companies and others who have pioneered this and developed the technology and will continue to bring the costs down,” he said.
Building public trust, according to him, is also crucial.
He offered, “There are concerns – many of them legitimate, maybe not all of them. We see them in the US: moving oil by trains, seismic activity. There are real impacts on peoples' lives and we need to take those very seriously and demonstrate that this can be done responsibly and safely to build public support to get their social license to operate.”
Entrepreneurship is yet another element of the equation, according to the World Petroleum Council's President, Jozsef Toth, who cited it as available and an open opportunity for every country, in contrast to subsurface rights. Financing, he added, however, can also be a problem. “It's theoretically possible; practically, there aren't enough funds available in many other places where unconventional resources are available.”
“One thing that we've learned from the US producers of shale gas is that we have to do things differently,” explained Ernesto Lopez Anadon, President, Argentine Oil and Gas Institute, of Argentina's approach.
“Not all the wells drilled in the US were economic. If you see the total number of wells drilled, and plot them out, it shows what the typical economic well is. It shows that half of the wells in the US are below that curve,” he observed, adding that 40% of investments may not result in producing wells.
This, he opined, creates a mandate for locating a technical solution for how to hydraulically fracture wells.
Mr. Bertrand Garnier, Technical Director – Industrial Solutions, Suez Environnement, was asked if his organization might join with others in Europe for coming up with such solutions.
Mr. Garnier cited the UK, calling it a “very interesting case.” He explained: “The government is pro fracking, but nevertheless there is strong resistance from local communities, so they've created what they call a 'Task Force on Shale Gas', and we are sharing experiences and approaches for how to go about these issues.”
The burning issue, he added, is public acceptance.
Mr. conceded that the image of the petroleum industry is not good enough. “To change the public perception, a lot of effort has to be made, every day. It's an ongoing effort and if there's an accident in any part of the world these efforts begin again.”
It is a permanent, ongoing effort, he said.
Mr. Lopez Anadon reported that much work had been done on communications in Argentina, but the effort needs to be for both conventional and unconventional hydrocarbons. “The oil and gas all over the world should get together, as we did in Argentina, to start working on that image,” he opined. “People classify our industry as polluting and without any safety whatsoever. We who work in the industry know that we do things well, that we care for the environment and for the safety of people, but that's not the perception of the general public.”
Working on that image, he said, is necessary before working on unconventionals.
Origin Energy's Managing Director, Grant King, was asked how the current price environment is impacting unconventional gas and LNG developments in Australia.
He reported that of Australia's current seven LNG projects under construction, three of them are using unconventional gas as a resource. “Of those three, he said, they comprise six trains: one train is in production and the remaining five trains will come into production in the next 18 months.
Mr. King explained, “Clearly the price of oil, with which the gas price is linked, is falling in US dollars. For Australian companies, companies producing in Australia, most of their costs are in Australian dollars, and whilst the oil price has fallen from say US $100 to US$ 60, the Australian currency has also fallen in Australia, so the fall of price in Australia is more like $100 to $85 – 15%. I would not think at this stage it would make good projects bad projects. Clearly, revenues and returns will be less, but the exchange rate is substantially offsetting the US dollar in world prices.”
While he said he doesn't know how long oil prices will stay where they are, but once Australian projects come into production “good projects will remain good projects.”
Among environmental, technological or transmission aspects of shale gas in China, Mr. Liu Yuzhang, Vice President, Research Institute of Petroleum Exploration and Development, CNPC, offered his assessment of which is the greatest challenge for shale gas production in China.
First of all, he called the environmental issue is a very delicate area. “There are concerns about hydraulic fracturing – the fluid and the drilling, the oil-based drilling cuttings – those are under control.”
He estimated that shale gas production in China by the end of this year should reach or surpass 5 BCM, but the transmission system is not yet ready to deliver that.
-Drew Leifheit