Does EIA’s latest shale report raise hopes too high?

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In April 2011 the US Energy Information Administration (EIA) published an assessment of technically recoverable world shale gas resources that generated considerable excitement about the prospects of the North American shale gas revolution being replicated elsewhere. A little over two years on, last month the administration published an update, extending the range of countries and including an assessment of shale oil.

The 2011 report, World Shale Gas Resources: An Initial Assessment of 14 Regions Outside the United States, covered 48 shale gas basins in 32 countries, containing almost 70 shale gas formations. It concluded that technically recoverable gas resources in the assessed basins totalled 5,760 Tcf, which, added to estimated US technically recoverable resources of 862 Tcf, gave a total of 6,662 Tcf.

That was a 40% increase on prevailing assessments of global technically recoverable gas resources, excluding the assessed shale basins – so little wonder that people got excited. The EIA’s overall conclusion was that: “Shale gas is a global phenomenon”

The 2013 report, Technically Recoverable Shale Oil and Shale Gas Resources: An Assessment of 137 Shale Formations in 41 Countries Outside the United States, not only extends the range of countries covered, it also ups the estimate of the global shale gas resource by 10% to 7,299 Tcf. And yet it has generated much less excitement than the 2011 assessment.

Shale gas production is still a North American phenomenon: Why is this? Most probably for the simple reason that, despite the passage of more than two years, there has been little progress outside North America in replicating the shale gas revolution. As the EIA itself notes: “Currently, only the United States and Canada are producing shale oil and shale gas in commercial quantities.”

The new assessment, like the 2011 report, was commissioned from Advanced Resources International (ARI). Explaining why the EIA had commissioned an update, EIA Administrator Adam Sieminski, said:

"As shale oil and shale gas production has grown in the United States to become 30% of oil and 40% of natural gas total production, interest in the oil and natural gas resource potential of shale formations outside the United States has grown. Today's report indicates a significant potential for international shale oil and shale gas, though the extent to which technically recoverable shale resources will prove to be economically recoverable is not yet clear."

The distinction between “technically recoverable” and “economically recoverable” is a crucial one, in understanding why there has been little progress in oil and shale gas development outside North America. Technically recoverable resources will only be developed if they are also deemed to be economically recoverable.

Ticking all the boxes: The shale gas and oil revolution took hold the way it did in North America because of a complex range of inter-related factors that worked in its favour. North America ticked all the boxes in a way that other regions so far do not. These factors, in a non-exhaustive list, include:

  • Geology – How much data exists? How deep and fragmented are the shale plays? Is the shale clay-rich, which makes it less suitable for hydraulic fracturing?
  • Demographics – Is the population density low, as in the US, or high, as in, for example, Europe?
  • Incentives – Is the owner of the land also the owner of the resources under it? Are there tax breaks or subsidies to promote shale gas development?
  • Economics – Can recoverable reserves be developed at sufficiently low cost? Are market prices high enough?
  • Midstream infrastructure – Is there access to transmission pipelines so that gas can be transported to market?
  • Policy and regulation – Do policy and regulatory frameworks exist that provide sufficient certainty for investors?
  • Environmental factors – How much opposition is there from local people to the use of the necessary technologies?
  • Service industry capabilities – Are there sufficient drilling rigs? Does a midstream services industry exist to gather, store and transport gas to transportation pipeline networks?

This is not to say that we will never see shale gas development outside North America. But people need to be realistic with their expectations. In particular, policy-makers need to be aware that they have a crucial role to play in creating the right conditions for shale gas investment.

(Photo courtesy of Nexen)