A decade ago natural gas from shale was just becoming significant but hardly anyone fathomed its tremendous potential or its parabolic growth. Today natural gas from shale is an essential and rapidly growing part of the E&P portfolios of independents and majors alike in the US, Canada and Australia. The number of productive basins is proliferating. Both interest and exploratory investments in natural gas from shale are spreading worldwide. There is growing recognition that natural gas shale basins are widely dispersed globally and several of these basins may well rival or exceed the most famous shale play in the world: the Barnett in Texas.
The author has in previous articles discussed shale gas, deep gas, and ultra deep water gas (and noted the almost unimaginably vast energy content of methane hydrates in US waters) in the US and commented on the tremendous geo-strategic consequences of huge US natural gas resources and the rapidly growing US proven and probable reserve base. This brief essay is a synopsis of emerging shale plays in the US, Canada, Eastern Europe, and Asia. These plays reinforce the notion that the natural gas resource base, worldwide, is magnitudes greater than the received wisdom estimated just a few years ago and Big Gas has the potential to not just rival Big Oil as a global industry but surpass it well before the middle of this century.
In the US, the Eagle Ford shale has become the latest area of excitement and attention. As usual with shale, it was pioneered by a small independent (in October 2008) . Larger independents rapidly followed. The location, prolific well productivity and cost structure have also attracted the investment attention of at least one Major. At present, less than a dozen companies are significant producers but their ranks will expand significantly in the next 12 months. The flat ranch land, friendly and knowledgeable landowners, a business environment conducive to energy risk capital and easy access to field services and take away infrastructure add to the attraction. There is concomitant entry by natural gas transportation and NGL processing companies. The Eagle Ford gas is unusually rich in NGL, which enhances its value.
The Eagle Ford is located in the South Texas counties of McMullen, LaSalle, Maverick and Dimmit. It is a formation directly underneath the well known Austin Chalk shale and is the source of the Austin Chalk gas. The shale is up to 250 feet thick and production is from various depths between 4,000 and 12,000 feet. Resource delineation is in the very early stages but the reserve base is already estimated to be well over 10 trillion cubic feet (Tcf).
The breakeven price, according to producers active in the basin, is $3.88 per million Btu compared with $3.74 for the Marcellus (which is why drilling activity and new entry there increases apace), $4.49 for the Haynesville and $5.18 for the renowned Barnett.
The Horn River Basin in Northeastern British Columbia is the site of the most remarkable natural gas field (or rather set of related shale fields known as the Horn River Formation) discovered in Canada. It may well be one of the most immense natural gas resources in the world. While much more exploratory work remains to be done, the resource base is already estimated at 500 Tcf ( double the estimate from two years ago), with recovery rates ranging from 15 to 25% with current best technology and expectations that, with the next generation of technologies, recovery could exceed 40%. Horn River has the potential to be one of the world’s most important natural gas producing areas for the next 30 to 50 years.
The major drilling is between the Kotcho and Maxhamish lakes. Again, pioneering work was done by a small Canadian independent but already many of the significant operators in the Barnett have established a presence in the Horn River Basin. The play is so vast that virtually every company with experience in shale gas production or a desire to gain exposure and experience is likely to invest in the opportunity.
Wells are expensive and the cost structure substantially higher than in the Barnett. A typical recent experience is $10million to drill and complete a horizontal well including hydraulic fracture with initial production of 8 million cubic feet per day, stabilizing at around 5 million cubic feet per day. Operators believe that the stable level can be maintained for long time turning each well into a multi-decade annuity. The Horn River Pipeline, which already has initial firm capacity commitments of over 375 million cubic feet per day, is expected to be operational by mid 2011, providing market access for the gas.
Outside North America, Eastern Europe is emerging as an area of rapidly increasing interest and mounting investments in exploring for shale gas. The economic and strategic consequences of finding and developing large amounts of gas within the ambit of the EU are obvious and important. Shale research and exploration in Europe is about 20 years behind the US. Natural gas shales exist in several European sedimentary basins. The two major topics of research are: compiling a black shale database for Europe with the Barnett as the reference and conducting basin and reservoir specific studies.
Industry participation is growing fast as are expenditures. Many of the largest European E&P companies including those that are gaining experience in the US are involved together with several US independents, mini-majors and majors who anticipate translating their North American shale experience and competence into commercial success in Europe. E&P companies have selected about a dozen basins in Europe for initial exploration.
They include the Cambrian Alum in Southern Sweden, the Vienna Basin in Austria, multiple locations in Poland(especially the promising Gdansk Basin), the Weald Basin in England, the East Paris Basin in France(as well as two other locations in France), the Lower Saxony Basin in Germany and the very large Mako Trough in Hungary. Multiple shale basins in Europe though much smaller in size than in the US are far thicker in potential pay zones, which means that if commercial discoveries are made they could be in the scores of Tcf of producible gas in each basin.
Poland and Hungary are attracting the most activity and companies, including US majors, mini majors and highly specialized independents are accumulating substantial prospecting acreage in Poland (the Baltic Basin in the north) and Hungary. The most scrutinized activity is the Foldeak-1 Well in the Szolnok Formation in the Mako Trough. The well( the first such in Hungary) is being drilled by a joint venture amongst a small US independent, a medium sized Hungarian oil and gas company and one of the largest and most technologically sophisticated energy companies in the world. The work budget is $50 million. Two fracture simulation tests have been completed. The results are mixed. Gas flowed in encouraging amounts but the well also hit a natural fresh water reservoir. Initially the partners decided to terminate well operations but after further study have concluded that a third fracture is warranted.
China is another very important frontier area for shale natural gas. Exploration for shale gas in China is a generation behind the US but the Chinese have ambitious plans. Western, especially experienced American, E&P companies are welcome and are responding with enthusiasm. The Chinese are using the Barnett as their research and commercial development model. US Majors are actively investigating opportunities and a joint venture between a European mini-major and one of the largest and most experienced US independents has been formed to build a position in Chinese shale. This venture builds on a very positive and large relationship between the two energy companies in the Marcellus Basin. Both Chinese and American geologists working for E&P companies believe that China’s shale gas potential is massive and that basins which not only rival but greatly exceed the resource and reserve base of the Barnett will be found in China.
China is modeling its nationwide shale research project on basins that have geologic characteristics similar to US hydrocarbon provinces. The Chinese have selected four large provinces for study and development. The South China basin with a maturity similar to the Appalachian ; the Zhungaer and Tuha basins similar to the Rocky Mountains, and the Qadam and East China basins similar to the Michigan basin.
India, too, is becoming a frontier area for shale gas exploration but the effort lags China in both money and ambition. However, industry companies are beginning to commit money and talent, although in modest amounts. The Barnett, again, is the reference basin for Indian efforts. Field experiments have been conducted in the Gondwana and Gambay Basin. Initial results are promising and reported to be comparable to producing US shale basins.
Geostrategic forces, national ambitions, risk capital and US industry technological advances and E&P management process are turning the quest for shale natural gas into a global opportunity. If the North American success with shale gas is even partly replicated in Europe, China and later maybe even in India, world energy physical and financial markets will be transformed in remarkable and positive ways. It all began because a few small American E&P independents had the creativity, imagination and will to do what government experts thought was ridiculous and what Big Oil executives thought was an impossibly romantic but implausible treasure hunt.
Disclosure: The author has investments in E&P companies active in shale basins.