By John Kemp
LONDON, Nov 15 (Reuters) - How quickly the shale revolutionspreads from North America to the rest of the world is thesingle most important factor affecting the outlook for oil andgas markets over the next two decades.
For pessimists, the conditions that made the shalerevolution possible in the United States will be difficult toreplicate, slowing the spread of shale oil and gas production.
In its 2013 World Energy Outlook, the International EnergyAgency projects shale oil production will reach almost 6 millionbarrels per day (bpd) by 2030, about 6 percent of globalsupplies.
But three quarters of the total (4.3 million bpd) will stillcome from the United States. Despite large resources identifiedelsewhere, the agency projects there will be only minorproduction 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 oiland gas team at Bernstein Research, who warn that differencesabove ground and below ground will slow the spread of shale gasproduction in the rest of the world.
According to Bernstein, no other country has the samefavourable alignment of mineral rights with landownership; avibrant exploration and production industry matched with deepfinancial markets; and extensive network of gathering andtransmission pipelines.
Below ground, Bernstein points to sharp differences in thequality of shale resources. Every formation, or play, isdifferent. The countries with a large volume of shale gas andoil resources are not necessarily those with high-quality shalesthat can be developed easily.
Geological conditions in some of the biggest formations inChina, Australia, Russia and Poland are less favourable than inNorth America's Bakken and Eagle Ford ("The Great Divergence:North America, Europe, China and the Making of the Modern GasWorld," Bernstein Research, Nov. 15).
As a result, Bernstein takes a conservative view about howquickly the shale revolution will spread around the world.
CHANGING THE GAME
For optimists, above-ground and below-ground differencespresent a challenge, but are not insurmountable.
Among the biggest optimists is oilfield services companySchlumberger. But even Schlumberger thinks a new modelwill be needed to develop new shale plays in North America andaround the rest of the world: Shale 2.0.
If the first revolution, Shale 1.0, focused on greateroperational efficiency in drilling and pressure pumping to bringcosts down, Shale 2.0 will have to focus on better understandingof the geology to identify the best-producing parts of the playand tailor the approach to different underground conditions.
"Simply exporting the Shale 1.0 model will not beeffective," Jeff Meisenhelder, Schlumberger's vice president forunconventional resources, wrote in an editorial for the Julyedition of the Journal of Petroleum Technology.
"Every shale is fundamentally different," Meisenhelderexplained. "From a technical perspective, what works in oneplace may not work elsewhere, even in the same play, much lessaround the globe."
"For unconventional resource development to advanceworldwide ... we must shift from an obsession with well-centricefficiency to a concentration on reservoir-centriceffectiveness."
"To unlock shale plays worldwide, we need to change the gameitself," he concluded.
GEOLOGY NOT STATISTICS
Schlumberger notes that the first phase of the shalerevolution took almost 20 years to reach maturity. Shale pioneerGeorge Mitchell started experimenting in the Barnett shale,Texas, as long ago as 1986. But hundreds of wells had to bedrilled before the technique was perfected.
Even now, up to 30 percent of all the fracking stages in aBarnett well contribute nothing to production, so the techniquecan 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 thepolitical support, drilling resources and capital to drillhundreds of wells before they hit on the right formula for localconditions.
"Few national or international operators are willing todrill hundreds of expensive experiments before they finallyreach economic production," Meisenhelder admitted.
Unsurprisingly for a company with a largereservoir-characterisation division, Schlumberger advocates amore scientific and less statistical approach to developing newshale plays.
Instead of drilling lots of holes and relying on trial anderror to find out what works, Schlumberger argues a moregeologically driven approach will enable operators to find theright formula faster.
"The ultimate objective of Shale 2.0 is to unlock the rockas quickly as possible, and then not forget all that we havelearned about operational efficiency to drive down costs andaccelerate production," Meisenhelder argued.
UNDERSTANDING THE ROCK
Better and faster integration of all survey and drillingdata obtained from a reservoir should enable sweet spots to beidentified more quickly, and cut the number of unproductivefracking stages.
Schlumberger cites best practice from Eagle Ford.Originally, fracking stages were spaced out evenly along thelength of the horizontal section of the well, something theindustry calls geometric spacing. By doing the same number offracks, 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 underrelatively little stress, in stark contrast to many shale basinsin China.
North America's shales were deposited at the bottom ofancient seas and are very brittle, making them ideal forfracking. Some of China's were laid down at the base of ancientrivers and lakes, and are much more clayey, which makes themless 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 itsown development strategy."
According to Schlumberger, "Understanding the rock is thefirst and most critical key to effective shale developmentworldwide."
Of course, there is an element of self-interest in this. ButSchlumberger is right: rather than seeing the diverse nature ofshales as a problem, exploration and production companies andhost countries should view it as a challenge.
It will take time and a lot of money. Bernstein is right tostress that progress may be slower than the most enthusiasticshale boosters claim. But the incentives are enormous.
With oil prices outside North America trading persistentlyabove $100 per barrel, and gas prices in many countries farhigher than in the United States, operators and servicecompanies have every reason to focus on finding engineeringsolutions.
- North America