While shale unproved technically recoverable resources have been identified around the world, development has been limited to North America. At the SPE Hydraulic Fracturing Technology Conference in The Woodlands, Texas, in early February, service company executives offered reasons why international development could be years off.
Even in countries where there is an urgent need for more oil and gas, such as India and China, there are obstacles to development ranging from electrical code incompatibility issues to the lack of equipment needed for factorylike development to questions about rock properties and mineral rights. A sample of the barriers to development in Australia, China, Saudi Arabia, and India shows why it takes time to develop a country’s shale gas or oil potential.
Australia
The country has an established oil and gas industry, but the cost of drilling horizontal wells is two or three times higher than in North America because of a lack of infrastructure and the supplies needed to drill and complete horizontal wells.
Even in Australia’s Cooper basin, long the heart of the country’s onshore upstream activity, the average cost of shale wells is running between USD 10 million and USD 15 million—a figure that needs to be closer to USD 8 million to turn a profit. “There are other examples there of wells costing over USD 20 million and some as high as USD 30 million. So clearly, we are not efficient yet,” Karl Blanchard, vice president of unconventional resources at Halliburton, said during a conference panel session.
The cost of development is also a barrier. The operator who drilled the first shale well in Australia first had to build a 50-mile (80-km) road just to access the drillsite, said Jeff Miesenhelder, vice president of unconventional resources at Schlumberger. Regulatory issues, such as nuances in the country’s electrical code that can lead to delays of imports of equipment from North America into Australia for up to a year, are also an issue. “If you want to bring a frac unit or a drilling rig into Australia, you basically have to rewire it, because the code is completely different. It requires wires to be a certain color,” he said.
China
The largest obstacle to significant shale production in China is the country’s lack of reliable geologic data, Blanchard said. Before more investment makes its way into China, Blanchard said better information is needed about the layers of rock because the success of horizontal drilling and fracturing depends heavily on it. “The industry has concerns about whether the rock is really there, or what size the reserves really are,” he said.
Unconventional exploration in China is centered in two major areas: the Sichuan and Tarim basins. Both areas have an existing oil and gas infrastructure that can be used; however, they illustrate the extreme ends of the spectrum in regards to population density, which complicates logistics. “The unconventional oil and gas there is either out in the middle of nowhere, or it is right in the middle of everyone,” Blanchard said.
In addition to questions about the geology and supply chain issues, another issue in China involves the structure of production sharing agreements. Chinese law does not grant international companies ownership of any of the mineral rights, thereby preventing companies from booking reserves and consequently, this holds back investment. Blanchard expressed optimism that the problem is being worked on and it “will ease and improve” over time.
Saudi Arabia
Saudi Aramco has launched an “accelerated transformation program” to jump start the country’s exploration of shale gas resources, in addition to tight sandstone and carbonate formations. The main driver is the country’s rising demand for natural gas, which is expected to double by 2035. The undersupplied domestic market has led to a greater volume of liquid fuels being burned at Saudi Arabia’s power plants, products the country would prefer to export. “For Saudi Aramco, the future value of these liquids—the opportunity to displace them with lower-priced gas—is driving our commitment to unconventional gas,” said Brian Gratto, manager of unconventional resource exploration and development at Saudi Aramco.
Gratto said the biggest challenge facing unconventional development in Saudi Arabia, and the Middle East in general, is resistance to change. Regulations and concessions in the region are built upon several decades of conventional programs that force companies to decide on a development plan after drilling just a few wells. In contrast, to prove the economics of an unconventional play, operators must drill dozens of wells before knowing if there is a chance of success. To compete in the unconventional market, Grotto said both national oil companies and international oil companies must modify their standards and practices. “This is not easy,” he said. “But we realize that you can’t use a conventional model for unconventionals, because the resource is not the same.”
Saudi Arabia shares the most common issue facing countries thinking about shale gas or oil exploitation—the lack of an extensive support infrastructure. The producing areas of the country are sparsely populated with few roads, making it hard to deliver the large convoys of trucks and machinery used in unconventional exploration. Pipelines are clustered around conventional fields and have little spare capacity. And only the largest cities in Saudi Arabia are connected by rail, leaving the majority of the country bypassed. “And it tends that the areas that would be useful for exploitation are the areas where there are not any roads or rail,” Gratto said.
India
The priority in India should be to improve the process of land acquisition, Blanchard said. The lack of clarity on land rights represents a large risk for international operators looking to begin an expensive exploration program. In India, surface rights are held separately from the subsurface rights. “Operators today have a difficult time when acquiring surface rights and understanding whether or not they have dealt with the right organization,” he said. “Operators will deal with the land owners, they will get the access, purchase the land, develop their operations on it, and then they find themselves in a quagmire with others who are claiming rights to ownership of that land.”
India’s infrastructure is a challenge, too. The country’s congested transportation network, combined with a large and dense population, creates barriers to building an efficient supply chain that is needed to reduce exploration and production costs. Blanchard said the issue of water scarcity will ultimately be the biggest limiting factor to success in India. “In the areas where a large potential exists, it is going to be difficult to find enough water, particularly around hydraulic fracturing, to develop the resources,” he said.
