Untapped unconventional gas plays still exist in pockets across North America, but domestic producers are branching out to test prospects in Europe, the Asian Pacific area, Africa and elsewhere to stake their claims in the next big shale plays.
"As to what's going on outside of North America, I could update it every week," said Robert Clarke, who manages Wood Mackenzie's unconventional gas service unit. "What was a North American story five years ago has rapidly exploded" overseas.
U.S. shale activity has become more sophisticated and moved toward more liquids-heavy shales, while the rest of the world is still formulating plans for test wells. Interest is high, but development may be slower since most countries do not have the extensive natural gas production and delivery infrastructure of the U.S., or the government rules in place to facilitate development.
The "real hotbed of activity" today is in Europe. But Europe is far from alone. Clarke, speaking at a recent conference and with NGI, quickly ticked off a few of the countries with promising shale, tight gas and coalbed methane (CBM) deposits: China, Algeria, Argentina, South Africa, Indonesia, India and Australia.
"India has lots of CBM and liquefied natural gas potential," he said;. "China has shale and tight gas." In eastern Australia "significant CBM potential" exists, complementing huge offshore gas resources.
However, relatively quick turnaround in North American producers' shale expertise came in a period of higher gas prices, Clarke noted.
"Fundamentally what drove gas development was a higher gas price." Outside of North America, structurally there is a higher gas price, in areas that are long demand and short indigenous supply. "It's no surprise to see growth in overseas development. It's particularly strong in Africa, the Asia Pacific and Europe."
Today many U.S. players are "looking to build their exposure and replicate successes," and that long list includes EOG Resources Inc., Nexen Inc., Anadarko Petroleum Corp., Chesapeake Energy Corp., Talisman Energy Corp. and several U.S.-based oil majors that include ExxonMobil Corp., ConocoPhillips and Marathon Oil Co. In addition, he said, European utilities, including Centrica, want to jump into the shale game.
Outside of North America most of the big discoveries have yet to be found. "Huge shale gas deposits are yet to be recovered in several areas of the world, including parts of Europe, India, China and South Africa," Clarke said. For many European countries, which rely on gas imports, shale gas prospects are particularly tantalizing.
"European unconventional gas certainly offers an alternative to piped supply for some countries," said Clarke. "If growth from unconventionals is aggressive, it may blunt the future pricing power of key exporters like Russia."
U.S. officials have extended a hand by sharing domestic know-how through cooperation agreements with other countries. Reliance Industries Ltd., India's largest producer, already is getting some shale know-how through its joint ventures in the Marcellus and Eagle Ford shales. President Obama, who will be traveling in the region following the mid-term elections in November, also is expected to sign a cooperation agreement about shale gas technology.
The India-U.S. agreement would be to exchange data and identify shale gas basins, according to Oil Minister Murli Deora. India also is readying an auction for investors to bid on 34 exploration blocks in the country.
"India is showing a keen interest in understanding the potential of its shale gas resources," noted Clarke. "It is very early days though, and many unknowns exist around reservoir quality and how easily exploration and development programs could be implemented."
China, which signed a cooperation agreement with the United States last November, just days ago said it would offer six shale gas blocks in an auction scheduled within the next month. The auction will be limited to the country's biggest energy producers; outsiders need not apply.
Knowledge is power, and when it comes to unconventional gas, North America is at the head of the class. Translating technical knowledge overseas, however, is more difficult than it may seem. Less-advanced technology, a relatively small number of skilled energy services firms and a less-developed infrastructure of pipelines and gas processing plants, as well as higher development costs, have stymied overseas start-ups.
"Some emerging plays overseas could have reasonable economics," said Clarke. "However, executing ongoing development programs will be challenging." The "obstacles mount internationally, from surface impairments and regulatory hurdles to fundamental differences in petroleum systems...Some have limited processing infrastructure...and supply chain weakness...There are big, big challenges."
According to the Wood Mackenzie analyst, a "positive outlook" exists for the gas market in Europe, which is helping to drive interest in unconventionals. "However, regional volatility is potentially large, the geology is more complex and appraisal is at a very early stage." To date Poland has attracted the most interest, where there's a "real land rush, and leasing is aggressive."
To get unconventional gas and oil plays under way, "the transfer of technology and the development of a supply chain will be essential," he said. Producers also have found that there are no government incentives overseas to drill, and well costs can be much higher than in North America.
"We are seeing a number of innovative practices emerge," said the analyst. "Collaboration is huge in North America and we're beginning to see that in Europe, between exploration and production companies and host governments."
For instance, Quantum Partners, run by billionaire George Soros, recently announced that it would invest $65.3 million in Canada's BNK Petroleum to fund the producer's shale gas concessions in Germany and Poland. PetroChina signed an agreement with Royal Dutch Shell plc in 2009 to explore for shale gas in the southwestern province of Sichuan. Shell may invest $1 billion a year in China in the next five to seven years if two test wells show promise, CFO Simon Henry said in September.
"Key signposts will dictate the impact of unconventional gas abroad," said Clarke, who spoke last month at PennWell's Unconventional Gas International Conference and Exhibition. . If producers report "poor pilot well performance and low stimulated flow rates," or if a "major company exits a country," then the unconventional growth will be slower. Likewise, if wells in Poland "come in at 4 MMcf/d, then that will be massive."
In Wood Mackenzie's view, "international growth will be gradual and occur at markedly different rates," said Clarke. There's still plenty of unconventional gas that's yet to be tapped in Canada, and it likely would be followed by China. Europe's prospects are expected to follow.