On the shale trail – emerging shale development markets

The unprecedented growth of shale oil and shale gas development in the US over the past decade has meant that the country has emerged as an established market for shale developments.

In light of the success of shale development in this market, similar attempts are being made in other parts of the world, where substantial shale resources are available. China, Poland, Australia and Argentina possess substantial shale oil and gas resources, and are currently at the forefront of the development of shale resources outside of North America. China possesses the highest technically recoverable shale resources in the world after Russia and the US.

Although China is currently the leader among the four countries covered here in terms of technically recoverable shale oil and gas resources, the country still represents a number of challenges for shale investors, such as a policy environment that is still evolving, a lack of pipeline access, issues regarding water availability, the complexity of shale geology and a controlled gas-pricing environment.

Similar challenges are faced by investors in Poland and Argentina, as the policy environment for shale development is still evolving, while the Gas Plus programme in Argentina has been unable to encourage investment from foreign firms outside of the Neuquén basin. Access to established pipelines is also an issue in Poland and Argentina. Australia, on the other hand, is expected to be a favourable destination for shale investors, as the shale areas in the country are not densely populated, and gas pipelines and processing infrastructure are already in place. Service providers for fracking and well drilling are also already present.

The commercial production of shale gas has already started in China. Argentina has suitable shale geology for the extraction of oil and gas, especially in the Neuquén basin, and is currently witnessing significant drilling activities. Australia is also witnessing considerable shale development, primarily by small independent companies. Despite the exit of major exploration and production companies in Poland, significant exploratory activities are also ongoing.

Poland

Poland is a key market for shale development in Europe, due to its extensive shale oil and gas resources. There are four prospective basins in the country - Baltic, Podlasie, Lublin and Fore-Sudetic Monocline. The total amount of risked, technically recoverable shale resources within these four basins amounts to an estimated 1.8 billion barrels of shale oil and 146 trillion cubic feet (tcf) of shale gas as of 2013. These resource estimates have been reduced by approximately 20% from the earlier estimates made in 2011, as drilling activities have provided better information regarding key parameters such as porosity, organic content and faulting.

Argentina

Argentina's prospective shale oil and gas resources are among the most substantial in the world outside of North America. The country possesses an estimated 27 billion barrels of technically recoverable shale oil resources, including a total 480 billion barrels of risked, in-place shale oil resources. It also possesses 802tcf of risked, technically recoverable shale gas resources, out of 3,24tcf of risked, in-place shale gas.

The majority of Argentina's high-potential shale resources are located in four main sedimentary basins - Neuquén, Golfo San Jorge, Austral and Paraná. Of the four basins, Neuquén is currently the most prominent for shale exploration in the country. Since 2010, the basin has witnessed the drilling of around 50 wells. Most of these wells are vertical and have shown good potential for production.

China

China is one of the most important emerging markets for shale development in the world. The majority of the country's shale oil resources are located in the Junggar, Tarim and Songliao basins.

Of these, the Junggar and Tarim basins are located in north-west China, and the Songliao basin is located in north China. These basins contain a combined total of around 643.0 billion barrels of risked, prospective shale oil, of which around 32.2 billion barrels is risked and technically recoverable. The country's shale oil resources are primarily located in lacustrine-deposited (lake-related) shales, and could be waxy. Lacustrine-deposited shales tend to be rich in clay and are considered less suitable for hydraulic stimulation.

China also possesses 4,746tcf of risked shale gas in place. Most of this gas is located in the Sichuan, Tarim, Junggar and Songliao basins, which contain 626, 216, 36 and 16tcf of risked, technically recoverable resources respectively. The gas primarily exists in lacustrine and marine-deposited source rocks in these basins. An additional 222tcf of gas is located in Jianghan and Subei, and Yangtze platform basins. However, these are structurally complex and small in size when compared with the Sichuan, Tarim, Junggar and Songliao basins.

In addition to the basins listed above, other shale basins in the country include Ordos, Qaidam and Turpan.

Australia

Outside North America, Australia is perceived as being a country where the development of shale oil and gas resources is most viable, due to a number of factors such as the low population density in the areas where shale resources are located, the availability of shale development-related infrastructure and technical expertise, and government stability.

Australia's shale resources are primarily located in six major assessed areas - Cooper Basin, Maryborough Basin, Perth Basin, Canning Basin, Beetaloo Basin and Georgina Basin. These six basins contain 403 billion barrels of risked shale oil in place, of which risked, technically recoverable oil accounts for an estimated 17.5 billion barrels. The six basins also contain 2,046tcf of risked shale gas in place, of which risked, technically recoverable gas accounts for 437tcf.

In addition to the six assessed oil and gas basins, other shale basins in Australia include Surat, Bowen and Officer.

Coal bed methane

Coal bed methane (CBM) or coal seam gas (CSG) is natural gas derived from coal seams. Some of the countries with significant CBM resources and production are the US, Russia, Australia and Canada. Australia and China are among the most prominent emerging markets in terms of CBM development. Australia is using its CBM resources for domestic consumption (primarily for power generation) and plans to feed excess production into gas liquefaction plants in order to emerge as one of the leading exporters of LNG in the world. On the other hand, China is prioritising the production of CBM over other unconventional gas resources in the country in order to diversify its energy sources and partially meet its ever increasing natural gas demand.

CBM in China

CBM development is one of China's strategic priorities in terms of diversifying its energy sources, increasing its usage of cleaner energy sources and encouraging safety in coal mining. The country's CBM resources amount to an estimated 1,300tcf; marginally higher than its 1,260tcf of shale resources and much higher than its 110tcf of conventional natural gas resources. The majority of China's CBM resources are located in the north, north-east, north-west, and south. The north and north-east regions account for the bulk of the country's CBM resources. The Chinese Government plans to develop its CBM resources in the Ordos and Qinshui Basins in central China, due to the commercial potential of these basins.

The development of the CBM industry in China can be divided into three stages. In the first phase, prior to the late 1980s, CBM gas was produced through degassing activities in coal mines for safety purposes. In the second phase, between the late '80s and 2006, the CBM industry was gradually developed through the evaluation of resources, exploration and the testing of wells. During this phase, in order to support the development of the industry, the government created a state-owned company, China United Coalbed Methane (CUCM), in 1996. The company was mandated to develop the CBM industry in China through foreign collaboration. In the third phase, since 2006, CBM development has been pushed in coal mining areas for safety, and coal mining companies are encouraged to collaborate directly with foreign CBM companies. The first pipeline dedicated for the transportation of commercial
CBM production in China started operations in 2009.

CBM in Australia

CBM is popularly referred to as CSG in Australia, which is one of the most prominent countries in the world in terms of CSG reserves, development and production. The economic demonstrated resources (EDR) of CSG in the country amount to an estimated 33tcf. Of the total EDR, 92% is located in the Queensland state. Most of the remaining reserves are located in New South Wales.

CSG reserves in Queensland are located in the Surat and Bowen basins. The Surat basin contains an estimated 69% of the country's total EDR of CSG, while the Bowen basin contains an estimated 23%. In New South Wales, CSG is located in the Gunnedah, Gloucester and Sydney basins. Another basin, the Clarence-Moreton Basin, contains around 1% of total EDR and extends into Queensland and New South Wales.

CSG has been produced from the Bowen and Surat basins since the mid-90s. A major driver for the increase in CSG production was the decision made by the Queensland Government in 2000 to increase the share of gas-fired electricity in total electricity generation to 13% by 2005, 15% by 2010 and 18% by 2020. CSG production in Australia currently constitutes around 10% of the country's total natural gas production.

In 2012, CSG production in Australia amounted to around 206bcf. Of this, Queensland accounted for around 200bcf (or 97% of the country's total CSG production), while New South Wales accounted for the remaining 3%. In Queensland, the Bowen basin accounted for around 50% of the country's total CSG production in 2012 with 100bcf, while the Surat basin accounted for the remaining 100bcf of production. In New South Wales, the Sydney Basin accounted for the entire CSG production in 2012 with 6bcf.

Development of oil sands

Extra-heavy oil deposits in Venezuela and oil sands in Canada currently represent the two largest known accumulations of unconventional oil deposits in the world, representing 220.0 billion barrels and 167.8 billion barrels of proven (1P) reserves respectively in 2012, equivalent to 13.2% and 10.1% of total global 1P oil reserves.

The Canadian oil sands deposits are primarily located in the province of Alberta and the development of these deposits is being carried out primarily in the Athabasca area.

Commercial production from oil sands started in 1968 and reached around 655.9 million barrels of oil for 2012. Key factors driving oil sands output in Canada have been the favourable business and political climate in the country, the growth of global oil demand and technological advancements. However, the industry is also facing a number of challenges, such as relentless opposition from environmental groups, high water use and a shortage of skilled workers.

Venezuela's extra-heavy oil deposits are located in the Orinoco oil belt (OOB) area, which is divided into four blocks - Boyaca, Junin, Ayacucho and Carabobo. These blocks are further divided into 27 smaller blocks.

Exploration and development activities in the OOB started in 1920 and continue today, although the pace of development activities in the area has been relatively slow due to issues such as a lack of technology and capital, and the relatively unattractive fiscal regime and business environment in the country. The development of these heavy-oil deposits is a technological and capital-intensive process when compared with the process of developing conventional oil deposits.

The renationalisation of the Venezuelan oil industry in 2007 led to the exit of some leading oil and gas companies from the OOB projects, such as ExxonMobil, which has considerably affected development in the region.