Global Shale Gas Potential – Europe and China

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After looking at Mexico and Argentina in the first post of this series, let’s look across to Europe.

Poland and France: Give Gas a Chance

Two countries have significant reserves: Poland, at an EIA-estimated 187 trillion cubic feet; and France, at 180 trillion cubic feet; both have enough to make them gas independent for decades, if not longer. But as environmental concerns have halted development of French fields, the fear is Poland could go the same way. That would be a shame from an environmental as much as an economic point of view.

Much of Poland’s power is generated from home-mined coal; a switch to gas, even shale gas with its associated methane leakage, would be a cleaner option. In addition, Poland is reliant on Russia for two-thirds of its natural gas, a relationship Poland is desperate to reduce. Major Western oil companies have bid for and secured some 90 leases this year, so the true extent (and commitment of the authorities) will become clear within the next year or two.

All Shale China

Lastly, China. The EIU tells us China may eventually produce more shale gas than any other country. By some estimates it has the world’s biggest reserves: EIA reckons there are 1,275 trillion cubic feet of shale gas in China, nearly 50 percent more than the second-ranked US. If this is correct, China’s shale gas reserves are a dozen times greater than its conventional gas resources and a potentially huge boon to a country heavily reliant on GHG-polluting coal for power generation.

Bringing in foreign technology and know-how will be critical. The new Five-Year Plan gives high priority to developing shale gas, and the major state energy companies Sinopec, PetroChina and China National Offshore Oil Corporation will be tasked with meeting those targets. In 2009, China and the US signed an agreement designed to help China measure its shale gas reserves, encourage “technical co-operation, and promote Sino-US investment in shale gas in China. State-of-the-art drilling technology allows US companies to complete shale gas wells in a matter of weeks, whereas CNPC took 11 months to complete China’s first well.

The fear, rightly, among Western firms is the lack of intellectual property rights. Whatever assurances are given, it’s almost guaranteed that Western firms’ techniques will be rapidly copied elsewhere and the West’s involvement in domestic Chinese shale gas development will be relatively short-lived. Even though the EIA’s estimates have not been backed up with extensive surveys on the ground, the probability is China’s shale gas will be vigorously developed in the first half of this decade as the country seeks to reduce its dependency on imported energy sources. The extent of reserves and impact on the Chinese energy scene are, however, as yet uncertain.

When you look at the extensive potential for shale gas — and the above examples are by no means the only ones — the casual observer cannot but be impressed by the speed, ingenuity and entrepreneurial spirit shown by small US firms that, in the space of a few years, transformed the US energy scene. It seems unlikely that even with the technology now established, any of these other sources will be developed with equal dynamism.

–Stuart Burns

Comment (1)

  1. Ipoel says:

    Amy Myers Jaffe, director of Baker Institute Energy Forum, a plcioy think tank at Rice University in Houston. “They are saying to themselves: I am going to produce the gas regardless of what the price is, because I’m making money on the oil and liquids.”The article isn’t about shale gas. It talks a great deal about gas production coming from drilling for oil. A lot of that gas comes from conventional oil wells, not shale. Yes, these companies can make a lot of money. But that does not mean that the shale gas producers who get a bit of liquids can make it with prices as low as they are. With petroleum selling for $90 a barrel, drillers in places like the Eagle Ford shale or the Bakken can give away their natural gas for nothing and still make 100% annual returns on their drilling dollars. — ForbesShow me the 10-K forms that tell me that shale gas is profitable. (And when you do make sure that you are not just looking at the production cost, which is a fraction of the total.)Technology development and application are and will remain key elements in maximizing the full value of these large, long-life resources. Here are some examples: Unconventional production from Haynesville increased four-fold in 2010, while production in Fayetteville doubled in 2010. The Barnett Shale, where we currently have gross production of approximately 900 million cubic feet per day of gas, is another good example of value creation through technology. We have been able to maximize long-term ultimate recovery with longer lateral lengths and improved drilling and completion efficiency. And our net unit development cost in this shale play is about $1 per thousand cubic feet equivalent, a 50 percent improvement in the last five years …” — ExxonMobileWhat exactly is meant by net unit development cost? What happens when you include all of the other costs? Does this cost include the full depreciation or is Exxon using the overstated reserve estimates and the high EURs that have yet to be seen in the real world?And surely if shale gas were this profitable the pure shale gas players would be swimming in cash. But if that were true why are they swimming in read ink instead and trying to sell themselves off or find new credit lines.

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