Sharing the Challenge of Reservoir Evaluation

Kicking off a pre-conference day at Shale Gas Eastern Europe 2011 in Warsaw, Poland, Ramin Lakani, Operations Manager at Baker RDS (the subsurface and wells consultancy division of Baker Hughes) gave a presentation entitled A Step-by-Step Technical Guide to Evaluating Shale Gas Reservoirs.

“It’s not so much step by step, but to share the challenges. Shale gas is not a reservoir, so we need to kind of shift the paradigm,” he explained, offering that environmental concerns had become increasingly important, especially water management.

“It’s difficult to cover all of that in one morning, but we’ll try to hit as many of those points as possible,” he said, showing a very detailed agenda.

Mr. Lakani outlined his objectives, which included sharing the latest shale gas technologies, highlighting the shale gas successes and challenges, and learning about the challenges faced by explorers in shale gas projects, “To hear about the challenges you’re facing.”

“Ultimately, we want to develop a forum where we can share and progress shale gas knowledge as it’s in its infancy. In Europe it needs to be modified to fit the environmental requirements,” he said.

He said he and Baker Hughes colleague Adrian Topham did tailor made workshops for specific projects, but the case in point required a different approach because they did not know the participants. “We know what they require, but in this environment, I don’t know you.”

Participants exchanged names, their businesses and what their key objectives were.

Lakani said that players in the Middle East who were exporting LNG wanted to know, for example, what was happening in Europe.

“What is the prize and what are the uncertainties? What is meant by shale gas? So where are the shales?”

He promised to speak about they key locations locally. “How do we exploit them? How can technology help you do that going forward?”

He described BH’s Reservoir Development services, a consultancy group, which he said had around 300 plus dedicated consultants. “The idea for us it to provide impartial advice,” he said.

Lakani pledged to speak about “The prize.”

“That’s why are we here today,” he explained, “The US success story.

His graph showed the drop off in conventional gas development in about 1970. “Then CBM and shale gas picked up. The tight gas development was the engine for unconventional gas; unconventionals now makes up 50% of US production. A combination of the technologies allowed for the unlocking of value – hydraulic fracking and horizontal drilling.”

Lakani mentioned “gas on gas” competition and how there was a lot of pressure on LNG as it had been replaced by unconventional sources. “We’d like to see a similar thing happening in Europe as well.”

According to EIA estimates, he said, in 2005 it was predicted shale gas production would be 1.5, maybe 2 TCF per year.

“In the US it’s probably three times that prediction,” he commented, noting the uncertainty.

“Three or four years ago no one expected this huge rise. My clients had huge investments in LNG. So this uncertainty creates opportunities as well as challenges. My Middle East clients want to know if there will be a similar shape in Europe.”

Then came discussion of the prize in Poland.

“If I look at BCFs per day - this line – it shows demand rising, while indigenous production stays the same,” Lakani illustrated. “This gap is likely to increase. Of course you could import more. But what if Poland could bridge that gap, jobs revenue and the government could tax that production.”

He proposed that a tight reservoir was a good place to start for understanding unconventionals. “A lot of people want to jump to shale gas - please don’t! In Romania, North Africa and Algeria – these are the lower hanging fruits.”

“Tight reservoirs do not flow at economic rates unless they are hydraulically fractured – it must be done to get economic rates.”

“Conventional gas has higher porosity and sufficient permeability for gas to flow to the well bore,” continued Lakani. “With tight gas it’s located in conventional pore spaces in poor quality sandstones, siltstones and tight carbonates; it has low vertical permeability because of interlaminated shales; and there’s no significant gas flow without fractures (natural or induced).”

He said that from a practical point of view, conventional gas gave a lot of reward.

“You drill some wells and ‘bang.’ As soon as you start getting into tight gas, it’s a lot of effort with very little reward – we’re higher up the tree.”

The reason that prospectors we’re looking at unconventionals, he said, was because of the huge resource base.

“These are large volumes that are difficult to develop,” he explained. “The size of the resource is mind boggling. More technology is required and costs increase, but this does not necessarily mean decreasing value. How do you apply technology but still maintain value?”

Mr. Lakani said that tight gas was like a conventional reservoir in that one still needed to look for a trap. “Shale gas does not require a trapping mechanism; it’s self sourcing and self sealing.”

Tight gas and shale gas were developed in similar ways, he said, and used similar technologies.

He gave a global overview of unconventional gas: 3,840 TCF in North America; China and India had 3,530 TCF which he said was not yet economically viable.

“In Europe there is an estimated 550 TCF, and it could be more – the important thing here is you have a captive audience,” Lakani said of Europe. “Prices are higher because of the demand and shortage of supply, so it could become commercially viable faster than in other places.”

“Poland is the pace setter,” he said, “but there’s also Romania, Ukraine, in the Paris Basin there’s shale oil and shale gas. We also have a client looking at potential in Spain.”

To illustrate the great potential volumes in Poland, he placed a map of Texas over Poland, showing it was only slightly larger.

He explained a big difference, however, compared to Europe: “In North America, you’ve got wide open spaces. You can drive for miles and miles. There’s also a tolerance for the mining industries. As soon as they started going into the East Coast, that’s a very European attitude. The oil industry in Pennsylvania disappeared 100 years ago. So you’re experiencing similar public opposition issues there.”

The incentive to develop an unconventional play as a landowner, he explained, was also completely different on the different continents. “If you’re getting $100,000 for your 20 acres of land, there’s a real incentive for you to give right of way and put up with the ‘noise and mess,’ if you will.”

Europe, he said, had a higher population density, and environmentally was more sensitive, and the surface owner was not the resource owner.

“It’s early days, the distribution system is not in place,” Lakani explained. “There’s a need to prove the concept. It’s also facing competition from other energies like nuclear, LNG and imported gas.”