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Geology's There, but Overseas Shale Gas Still Nowhere

There appears to be no scarcity of global shale gas opportunities, but it may be two years -- or longer -- before drilling progresses to commercial success, according to Raymond James & Associates Inc.

Analysts two years ago reviewed global shale prospects and said then that if companies were able to take the lessons learned in U.S. fields, they might be able to extract value from a plethora of prospects (see Shale Daily, April 20, 2011). However, since 2011 there's been little to no progress, and no assurance that anything will be happening in the near-term, said analysts Pavel Molchanov, Bertrand Hodee and Alex Morris.

The 2011 review of global prospects was prompted by the U.S. Energy Information Administration's (EIA) comprehensive resource assessment of 48 shale gas basins in 32 countries (see Shale Daily, April 7, 2011). The survey found that in the countries studied, which at the time did not include Russia or most of the Middle East, an estimated 6,622 Tcf of recoverable shale gas was available, with 862 Tcf in the United States. China held the top spot with 1,275 Tcf, while Europe, with an estimated 639 Tcf, became "the epicenter of investor attention outside of North America, along with a few countries in the Southern Hemisphere."

China, the only country identified with more shale gas resources than the United States, "offers virtually limitless running room for future development," said analysts. "The good news is that the government strongly supports boosting domestic gas supply: not just because coal-related pollution is causing a health/environmental crisis, but also due to old-fashioned energy nationalism.

"The bad news is that the state-controlled oil and gas companies -- mainly CNOOC, PetroChina and Sinopec -- don't yet have sufficient know-how, and tend to be bureaucratic, slow-moving organizations with minimal risk-taking appetite."

At the end of 2012, close to 80 shale gas exploration and appraisal wells had been drilled in China, mostly in the Sichuan Basin, "albeit with an immaterial amount of production. Sichuan is considered to hold the greatest resource potential, along with the Tarim Basin..." Chinese producers now are partnering up in the unconventional plays, which may yield some progress within the next few years.

Argentina's liquids-rich Vaca Muerta resource play "could also hold enough gas to push the country's total shale gas resource to 774 Tcf, the world's third-largest," Raymond James noted. The Neuquen Basin, where the Vaca Muerta and Los Molles shale gas source rocks are located, "is alone estimated to hold 407 Tcf, roughly equal to every other South American country combined."

Some "serious questions" concern the political risks of foreign investments in Argentina," but "the government has actively courted foreign partners" and although there are hurdles, "shale development appears to be progressing as quickly as anywhere outside North America."

Explorers also are pursuing shale gas prospects in several "high profile" European shales, notably the Silurian (Poland), Posidonia (German/Netherlands) and Alum (Denmark/Sweden), said analysts. However, "hurdles have impeded commercial development, resulting in disappointingly slow progress over the past two years."

The main obstacle, said Molchanov and his colleagues, is not a ban on shale gas drilling or hydraulic fracturing (fracking), even though news of that sort has gotten a "disproportionate share of attention." Only France and four smaller countries have a ban in place, while 18 countries have granted permits.

Permitting, though, "is not everything...Europe's onshore rig count of 70 pales in comparison to 1,700 in the U.S. Trained crews and infrastructure are hard to come by or nonexistent, and the location of shale acreage near population centers presents additional challenges North American operators rarely face."

Poland's Silurian Shale "emerged as the epicenter of European shale activity several years ago, and insofar as U.S. energy investors track overseas shales, this is probably the one that has received the most attention." More than 100 exploration concessions have been granted to about 30 companies, with Chevron Corp., ConocoPhillips and Marathon Oil Corp. each staking out "million-plus net acre positions."

Halliburton completed the first shale gas fracking operation in August 2011, but since then the news has been sparse and not particularly encouraging. Last year the Polish Geological Institute working with the U.S. Geological Survey decreased the originally estimated 187 Tcf of recoverable shale gas resources by a factor of 10. ExxonMobil Corp. has since exited all of its Polish shale acreage, estimated at more than 3 million net ares.

France "stands out as the country with potentially the largest shale gas resource in Europe"; the EIA estimate is 180 Tcf. However, a strict drilling ban enacted in July 2011 remains in place and "shales are out of the question."

Ukraine, with an estimated 42 Tcf of reserves, is anxious to get its gas development in motion because it relies on Russia's OAO Gazprom for supplies. Royal Dutch Shell plc "is the first mover here, having inked in January a shale gas exploration deal for the Yuzivska field that may ultimately lead to a $10 billion project." Shell plans an initial 15-well program in a joint venture with state-controlled Nadra Yuzivska, but it's "unclear when drilling will commence" by Shell or any of the other operators.

In the UK, about 10 projects are in development to drill for shale gas, but only Cuadrilla Resources, chaired by former BP plc chief Lord John Browne, is engaged in drilling, noted analysts. Cuadrilla has drilled six wells to date in the Bowland Basin, and its "next step may be to bring in a partner to accelerate drilling...However, by the company's own admission, commercialization is not realistic until the end of 2015 at the earliest."

There also are prospects in Spain, with an estimated 72 Tcf of shale gas commercially accessible. Most of the attention has been on the Basque-Cantabria Basin, where more than 200 exploration wells have been drilled and "roughly 100 fracking permits have been requested over the past five years."

Romania had a brief drilling ban in place until January. Now Chevron is targeting the Barlad block in the Dobroudja region near Bulgaria's border, "what we estimate is approximately 2.3 million acres in aggregate. Current plans call for the first exploration well (on the Barlad acreage) to be drilled in the second half of 2013."

Also of note is South Africa, which whose shale gas resources are ranked No. 5 globally by EIA. South Africa's 485 Tcf represents 56% of the U.S. figure and is 8% more than Canada's, according to EIA. However, "commercialization is not realistic until around 2020, making this an intriguing but extremely distant opportunity."

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