Feb 13

Shale gas could be paving the way for an oil-less society

By Trevor J. Murphy shale gas No Comments »

A recent article for PriceOfOil.org suggests current developments in both the oil and natural gas sectors could be heralding the “final chapters of the oil age.”

On the heels of a world economic crisis, the shift from oil to other energy sources is proving to be an entrenched reality across the globe.

Coupled with announcements by oil giants such as BP and industry analysts such as the International Energy Agency that the global demand for oil is on the verge of peaking, other energy resources – like shale gas – are taking over.

A major reason people are abandoning oil is its price. The Organization of the Petroleum Exporting Countries (OPEC) has warned that the slow pace of global economic recovery in 2010 would lead to a subdued improvement in oil demand this year.

Though the global economy suffered over the last year, oil prices remained stagnant while people were forced to cut costs wherever possible, in some cases causing them to look elsewhere for energy sources.
The allure of “cleaner” gas is also drawing people to gasses like shale because it does not emit as much pollutants into the air when consumed nor does it use as much energy, water and resources to extract.

The shift is causing major problems for the oil industry.

This week French oil giant Total said more closures to refineries around the world due to “fuel product overcapacity,” and last month Russian gas mogul Gazprom announced plans to re-evaluate a large Arctic gas extraction project because of the boom in shale gas (read Russian Gas Giant Feeling The Effects of Shale Gas).

SOURCES:
PriceOfOil.org: “Is an oil-less recovery on its way?”
PriceOfOil.org: “Peak Demand Will Happen Before Peak Supply”
Reuters: “An oil-less recovery dims the future for oil”

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Feb 09

Unconventional gas gaining momentum worldwide

By Trevor J. Murphy shale gas in Europe No Comments »

Developments in the US and Australian unconventional gas sectors have grabbed the headline in recent years, but new regions are about to step into the limelight

Unconventional gas has driven some of the biggest energy news stories in North America and Australia in recent years as production ramps up and companies look to build positions in this long-term growth play. There remain many growth opportunities in these regions and, despite the slowdown driven by the market turmoil over the past 18 months, unconventional gas remains an attractive long-term investment. Meanwhile, outside North America and Australia, momentum is also building and these new regions could create the headlines of the future.

The dramatic rise in shale-gas production in the US, following tight-gas and coal-bed methane (CBM) production growth, has demonstrated the scale of the effect unconventional gas can have on even the very largest gas market. Unconventional gas production in the US Lower 48 has risen from 33% of the total output in 2000 to 59% today, and this is expected to rise to 73% in 2020. North America now has the potential to be essentially self-sufficient in gas over the next decade or more, which not only has significant implications for the US’ LNG-import requirements, but will also have a knock-on affect on other gas markets.

The effect of unconventional gas on the market in eastern Australian has been just as dramatic and Queensland’s prolific coal seams have proved a reliable source of gas even at prices below $3/’000 cubic feet. As a result, long-held plans for pipeline imports from Papua New Guinea have been cancelled and projects to export large volumes of CBM as LNG are moving forward – 10 or more LNG trains are under consideration.

The promise of large resource volumes and long-term growth is an attractive mix. Companies with no, or limited, previous exposure to unconventional gas, such as BG, Petronas and StatoilHydro, have built substantial positions in a relatively short period of time. Additionally, others such as Shell, ConocoPhillips and BP have added to their positions over the last 18 months.

For companies looking to gain a position, the upheaval in financial markets is providing an opportunity, as the independents that have been the engine of unconventional-gas growth seek partners to help fund their plans. As a result, new partnerships are emerging such as StatoilHydro with Chesapeake and Eni with QuickSilver in the US, and Shell with Arrow in Australia.

There remains much to do in North America and eastern Australia, but attention has also turned to the next areas for potential unconventional gas production. Positive long-term gas-market conditions are driving interest, most notably in Europe, India, China and southeast Asia. Companies from the very largest down to new start-ups are hunting for the next Barnett Shale, Pinedale Anticline or San Juan basin. Areas with good potential for tight gas, shale gas and CBM have been identified across these regions, but many questions still remain including:

• Where are the sub-surface conditions right for commercial production?
• How do you gain access to the land, both in terms of licensing and then physical access?
• Can you access suitable low-cost equipment and resources to run an efficient, long-term drilling campaign over a wide area?
• Are the fiscal terms sufficiently attractive to support commercial development?
• Are there pipelines to deliver the gas to market, and can they be accessed?
• What effect will environmental and regulatory restrictions have? and
• Will the gas price sustain development?
Many of these questions are applicable to conventional gas production, but they become even more important for unconventional gas developments where, for example:
• More drill sites are required;
• Continuous drilling is needed to offset well decline rates;
• Land may be held by incumbent companies, or split between many land owners;
• No suitable supply chain may exist;
• Higher costs mean economics are marginal; or
• The additional environmental challenges, such as water management and surface footprint, can be challenging.

Despite the challenges, unconventional gas production will take off in new areas – the preliminary economics look attractive for many of these emerging plays, with rates of return above 10%. However, there remains much uncertainty as little or no pilot testing has been carried out on them and more work is required by operators to test their viability.

Many of the above ground issues are only just being encountered in these new areas, but in some regions they are already stalling developments. In India, for example, initial progress with licensing was rapid, with three CBM licensing rounds having been completed and a fourth on the way. But progress has been slowed by local demands and gaining access to land. By contrast, initial progress in China was very slow as companies entered protracted negotiations with China United Coalbed Methane, although momentum is now building and the government remains extremely supportive through both targeted regulation and fiscal terms.

In Europe, licences are being acquired across the continent and pilot testing is starting to progress. Issues with accessing land are yet to have a large effect as operations are at a small scale. But if developments progress, this will be a significant challenge because of the strong environmental lobby; an innate conservatism of local communities towards new developments; and diverse land ownership. The limited supply chain in Europe is also being tested even at this early stage and new equipment and expertise will need to develop.

While these issues vary on a play-by-play basis, understanding the above ground risks becomes essential for assessing the real opportunity that unconventional gas presents. As a result, companies need a solid understanding of these risks if they are to successfully drive growth.

As a result of the many uncertainties, it is too early to forecast exactly when unconventional gas will take off in these new areas. But unconventional gas is unlikely to have a substantial effect on regional energy markets outside North America and eastern Australia for more than five years. From the middle of the next decade, however, production in China could begin to make an important impact, particularly if strong government support remains in-place.

In Europe, India and southeast Asia, unconventional gas is unlikely to have a significant effect on regional energy markets for the next decade, but local supplies could ramp up over this period. Beyond this, volumes could increase and play an important role in the supply mix. And other areas should not be overlooked: possible plays are being examined, and in some cases progressed, in Latin America, southern and northern Africa, and the Middle East, for example.

In these new areas, important milestones will signal progress. Initially, these include: successful pilot projects with repeatable flow rates; the announcement of the first commercial projects, however small; continued licensing; and a flow of new pilot projects. After the initial phase, companies will need to demonstrate that they can scale-up developments in a play and this means overcoming land access, supply chain and environmental issues on a much larger scale. For this to occur, continued government support will be essential and positive market fundamentals must remain in place.

If these milestones are met across Asia and Europe, then it could be these regions generating the unconventional-gas headlines of the future.

By Rhodri Thomas for Petroleum Economist

SOURCE:
Petroleum Economist: “Unconventional gas gaining momentum worldwide”

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Feb 05

“Shale gas could alter European market dynamics, as demand rebounds” – Petroleum Economist

By Trevor J. Murphy shale gas in Europe No Comments »

E.On expects gas-demand growth in Europe this year, but shale-gas development could fundamentally alter the continent’s market, leaving Gazprom out in the cold

Unconventional gas is shaking up the energy world. That much is true at the corporate level, at least. ExxonMobil’s December take-over of XTO, a big shale-gas player, was the most obvious sign of that. Other independent producers will probably also be gobbled up soon.

But at what point will the world’s conventional gas producers, such as Russia’s Gazprom, begin to worry that their business models are under threat? The shale-gas optimists, such as BP boss Tony Hayward, talk of a “revolution” under way in the energy sector because of the new unconventional resources that are now considered exploitable (including coal-bed methane, which is already causing excitement in Australia, and so-called tight gas).

But there are sceptics. If it ever began developing its own potentially huge unconventional resource, Russia would remain the world’s leading gas producer. Yet Gazprom is cautious. Alexander Medvedev, the head of the company’s export division, told Petroleum Economist in October that many “myths” surrounded shale gas. It would remain expensive to develop, he said, because of the number of wells needed to produce the gas. Stop drilling, he added, and a field’s productivity drops almost instantly.

But as one executive from a shale-gas operator recently told Petroleum Economist, “Gazprom would say that, wouldn’t it?” After all, should the nascent shale-gas drilling in Europe prove half as fruitful as it has in North America, the energy-security anxieties among the continent’s consuming nations will quickly dissipate.

It was only a few years ago that US natural gas production was considered to have peaked and its reserves were thought to be in decline. Developers planned dozens of liquefied natural gas (LNG) receiving terminals to meet the forecast import requirement. The handful that came on line are now scarcely needed – and stand as testaments to the power of technology (in this case the advent of horizontal drilling and hydraulic fracturing) to change markets and the inability of the corporate world to predict “black swan” events.

Gazprom’s export-oriented strategy has relied on its partners in Europe making a cold calculation about their need to co-operate – or risk antagonising the supplier of their most important fuel. It works, so long as Europeans continue to perceive that Russia will remain their dominant supplier of natural gas. Even Gazprom’s difficulties in financing expensive upstream developments support this: give us long-term contracts, the company can argue, because they are vital to future supplies.

For the time being, there is little evidence to question this model, notwithstanding a drop in EU demand last year, because although unconventional gas has changed the dynamics of the North American energy market, drillers in Europe have yet to unearth the same riches in the continent. The earliest results of exploration in countries such as Poland and Austria, where the resource could be large, are only likely later this year.

So the continent’s importers can’t yet start looking beyond the existing paradigm, even if analysts are predicting a global gas glut. Furthermore, the dip in European natural gas demand brought by the recession could be ending. A spokesman for Germany’s E.On says the company does not foresee the “substantial pressure” on supply markets persisting.

“At present the European gas industry is undoubtedly in an oversupply situation,” he said. “This constellation is likely to shape markets for some time to come. However, we do not assume that this high liquidity will last permanently.” Indeed, E.On says improved prospects for economic growth in Europe and Germany mean gas consumption could grow this year. “It seems we have come out of the trough and it will probably not take too long until the present low level of demand is completely overcome.”

In theory, that would put Gazprom and other suppliers back in the driving seat. It would also re-establish the logic for Europe’s drive to build new infrastructure to meet its rising demand. This week, the US special envoy for Eurasian energy, Richard Morningstar, reiterated his government’s support for the Nabucco pipeline, while also pointedly mentioning that “questions have been raised” about Russia’s two rival proposals, South Stream and Nord Stream. Yet Europe needs more gas import infrastructure, he said, to guarantee its security of supply.

Yet all of this sounds dangerously similar to the debate in the US a few years ago about how to ensure more liquidity and greater gas supplies to its market. Yet that was all before the shale “revolution”.

Will things change in Europe? Greg Pytel, an analyst from the Sobieski Institute, a Polish think tank, and the UK’s Royal Institute of International Affairs, predicts that shale-gas development in Europe could render Nord Stream a white elephant. South Stream, he says, “has no prospects”, while Nabucco would make sense “in the other direction” as a “reversible pipeline balancing European gas distribution”.

“A lot of supply from Russia will be replaced by local shale gas production driven by multinationals,” claims Pytel. In the longer term, output from Gazprom projects such as the Shtokman gasfield in the Barents Sea could be destined for the Chinese market, not the European one.

All of this is speculative, because no one has cracked shale gas in Europe yet. But also speculative were the independent firms in the US that blasted open the market with their hydraulic fracturing. Unconventional gas is now drawing the majors to the European upstream. As the battleground for the gas wars of recent years, Europe offers a great prize for shale-gas developers. And if demand in the continent is recovering, as E.On predicts, there are sound financial reasons for the developers to exploit the shale, too.

from Petroleum Econonomist – February 4, 2010

SOURCE:
Petroleum Economist: “Shale gas could alter European market dynamics, as demand rebounds”

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Jan 04

European Energy Giant Total Acquires Shale Gas Interests

By ckeddy natural gas, natural gas in Europe, natural gas in the USA No Comments »

Total SA, Europe’s third-largest oil producer, agreed with Chesapeake Energy Corp. to acquire 25 percent of its upstream Barnett Shale assets.Total will pay $800 million in cash and up to another $1.45 billion by funding 60 percent of Chesapeake’s share of drilling and other costs in a joint venture. The companies said they also intend to acquire additional acreage in the Barnett Shale under the deal, which is still subject to regulatory approval and expected to close by the end of January.

The Total/Chesapeake joint venture is the second major deal in as many months. In December, Exxon Mobil Corp. said it would acquire Fort Worth’s XTO Energy, also a big player in the Barnett Shale, in a deal valued at $41 billion.

Unconventional gas in the U.S. “has been the biggest, most unexpected surprise in the U.S. and global energy,” Exane BNP Paribas analyst Irene Himona wrote in a recent note. Unconventional gas, including so-called tight gas, shale gas, and coalbed methane accounts for around 40% of U.S. gas output, she noted.

Total-Chesapeake deal is another sign of growing interest by the world’s largest oil companies in natural gas as oil resources become more difficult to find. European Giants BP (BP.L) and Statoil (STL.OL) have also entered into deal Chesapeake in the past 18 months. Western companies are also looking closer to home for investments, as barriers to investment in resource-rich countries such as Russia, Saudi Arabia limit their options.

Other Sources: RIGZONE

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