By John Kemp
LONDON Nov 15 How quickly the shale revolution spreads from North America to the rest of the world is the single most important factor affecting the outlook for oil and gas markets over the next two decades.
For pessimists, the conditions that made the shale revolution possible in the United States will be difficult to replicate, slowing the spread of shale oil and gas production.
In its 2013 World Energy Outlook, the International Energy Agency projects shale oil production will reach almost 6 million barrels per day (bpd) by 2030, about 6 percent of global supplies.
But three quarters of the total (4.3 million bpd) will still come from the United States. Despite large resources identified elsewhere, the agency projects there will be only minor production from shale in Russia (450,000 bpd), Argentina (220,000 bpd) and China (210,000 bpd), and little elsewhere.
The agency's caution is echoed by the highly respected oil and gas team at Bernstein Research, who warn that differences above ground and below ground will slow the spread of shale gas production in the rest of the world.
According to Bernstein, no other country has the same favourable alignment of mineral rights with landownership; a vibrant exploration and production industry matched with deep financial markets; and extensive network of gathering and transmission pipelines.
Below ground, Bernstein points to sharp differences in the quality of shale resources. Every formation, or play, is different. The countries with a large volume of shale gas and oil resources are not necessarily those with high-quality shales that can be developed easily.
Geological conditions in some of the biggest formations in China, Australia, Russia and Poland are less favourable than in North America's Bakken and Eagle Ford ("The Great Divergence: North America, Europe, China and the Making of the Modern Gas World," Bernstein Research, Nov. 15).
As a result, Bernstein takes a conservative view about how quickly the shale revolution will spread around the world.
CHANGING THE GAME
For optimists, above-ground and below-ground differences present a challenge, but are not insurmountable.
Among the biggest optimists is oilfield services company Schlumberger. But even Schlumberger thinks a new model will be needed to develop new shale plays in North America and around the rest of the world: Shale 2.0.
If the first revolution, Shale 1.0, focused on greater operational efficiency in drilling and pressure pumping to bring costs down, Shale 2.0 will have to focus on better understanding of the geology to identify the best-producing parts of the play and tailor the approach to different underground conditions.
"Simply exporting the Shale 1.0 model will not be effective," Jeff Meisenhelder, Schlumberger's vice president for unconventional resources, wrote in an editorial for the July edition of the Journal of Petroleum Technology.
"Every shale is fundamentally different," Meisenhelder explained. "From a technical perspective, what works in one place may not work elsewhere, even in the same play, much less around the globe."
"For unconventional resource development to advance worldwide ... we must shift from an obsession with well-centric efficiency to a concentration on reservoir-centric effectiveness."
"To unlock shale plays worldwide, we need to change the game itself," he concluded.
GEOLOGY NOT STATISTICS
Schlumberger notes that the first phase of the shale revolution took almost 20 years to reach maturity. Shale pioneer George Mitchell started experimenting in the Barnett shale, Texas, as long ago as 1986. But hundreds of wells had to be drilled before the technique was perfected.
Even now, up to 30 percent of all the fracking stages in a Barnett well contribute nothing to production, so the technique can still be made far more efficient.
"Development strategies pioneered here in North America, often at great cost, may not translate well overseas," Schlumberger acknowledges. Other countries may not have the political support, drilling resources and capital to drill hundreds of wells before they hit on the right formula for local conditions.
"Few national or international operators are willing to drill hundreds of expensive experiments before they finally reach economic production," Meisenhelder admitted.
Unsurprisingly for a company with a large reservoir-characterisation division, Schlumberger advocates a more scientific and less statistical approach to developing new shale plays.
Instead of drilling lots of holes and relying on trial and error to find out what works, Schlumberger argues a more geologically driven approach will enable operators to find the right formula faster.
"The ultimate objective of Shale 2.0 is to unlock the rock as quickly as possible, and then not forget all that we have learned about operational efficiency to drive down costs and accelerate production," Meisenhelder argued.
UNDERSTANDING THE ROCK
Better and faster integration of all survey and drilling data obtained from a reservoir should enable sweet spots to be identified more quickly, and cut the number of unproductive fracking stages.
Schlumberger cites best practice from Eagle Ford. Originally, fracking stages were spaced out evenly along the length of the horizontal section of the well, something the industry calls geometric spacing. By doing the same number of fracks, but spacing them based on geology rather than evenly, the same number of stages yields 50 percent more output.
The big midcontinent shales in the United States are under relatively little stress, in stark contrast to many shale basins in China.
North America's shales were deposited at the bottom of ancient seas and are very brittle, making them ideal for fracking. Some of China's were laid down at the base of ancient rivers and lakes, and are much more clayey, which makes them less easy to fracture.
"Every shale play, indeed every reservoir, is structurally, compositionally and geomechanically unique," Meisenhelder wrote. "From a reservoir-centric perspective, each shale requires its own development strategy."
According to Schlumberger, "Understanding the rock is the first and most critical key to effective shale development worldwide."
Of course, there is an element of self-interest in this. But Schlumberger is right: rather than seeing the diverse nature of shales as a problem, exploration and production companies and host countries should view it as a challenge.
It will take time and a lot of money. Bernstein is right to stress that progress may be slower than the most enthusiastic shale boosters claim. But the incentives are enormous.
With oil prices outside North America trading persistently above $100 per barrel, and gas prices in many countries far higher than in the United States, operators and service companies have every reason to focus on finding engineering solutions.