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Global shift to shale - part two

Oilfield Technology,

Recap: The phenomenal growth in shale gas production can be attributed to two technological innovations: horizontal drilling, which immensely increases the wellbore’s exposure to a reservoir; and hydraulic fracturing, which shatters the reservoir in order to allow large volumes of hydrocarbons to escape.

Recently, the EIA examined 137 shale basins around the world and concluded that there were almost 8000 trillion ft3 of technically recoverable natural gas in regions outside North America; China, Argentina, Algeria and Mexico accounted for almost half of these resources, so how can the rest of the world benefit from the shale gas revolution?


Argentina contains both significant conventional gas supplies, as well as unconventional; according to the EIA, the country could contain up to 774 trillion ft3 of recoverable shale gas, mostly in the Neuquen Basin in western central Argentina, and Golfo San Jorge, in the southeast.

Several international oil and gas companies have negotiated land packages in the shale regions and are beginning to gain a stronger understanding of its potential.

Earlier this year, Chevron signed a deal with Argentinian oil and gas firm YPF to develop shale oil and gas reserves in the Vaca Meurta formation in Neuquen province. The company will invest US$ 1.24 billion in the first phase, which will see 100 wells drilled in a 5000 acre parcel. Bridas, a China based firm, signed a similar deal with YPF to invest US$ 1.5 billion.

While the shale gas play holds minor below-ground risk, Argentina itself has significant above-ground risks. The federal government has imposed price and export controls on oil and natural gas prices. Production has fallen from over 900 000 bpd in 1998 to current levels of 750 000 bpd, and gas from 4.5 billion ft3/d in 2007 to 3.8 billion ft3/d.

At the same time, low prices have encouraged domestic consumption to rise, and the country is now experiencing frequent shortages. In 2012, amid public criticism, Argentina nationalised the country’s largest hydrocarbon producer, seizing 51% of oil producer YPF SA from Spain’s Repsol (which had purchased the shares after YPF was privatised in the 1990s). Repsol has taken legal action against Bridas and filed a complaint against Argentina before the World Bank’s arbitration centre.

The CIA reports that Argentina has almost 30 000 km of natural gas pipelines, primarily connecting production in the Neuquen, San Jorge and Austral basins to Buenos Aires and other large centres. There are also numerous export pipelines running to Brazil, Uruguay and Chile.

Most of the lines are owned and operated by TGS. Currently, state-controlled Enarsa is proposing the development of GNEA, a new, 1465 km gas pipeline to distribute Bolivian gas to north and central Argentina. Although the state allows private participation in the transportation sector, future pipeline development due to the growth of shale gas is hindered by several factors, including under-utilised capacity, gas price and transportation tariff controls, and the uncertainty surrounding unilateral nationalisation of oil and gas assets.


According to EIA estimates, China holds approximately 1275 trillion ft3 of shale gas reserves, double the amount of the US. The country, faced with mounting pollution from coal-fired utilities and industry, is keen on developing these massive deposits as an alternate source of home-grown fuel.

Unlike the US however, which developed its first shale gas resources on the flat plains of Texas, many of China’s reserves are located in the remote, mountainous Sichuan Basin. Seismic is difficult to procure due to rough terrain, and rigs and related equipment must be transported along steep, winding roads. Operators have to contend with folded and faulted strata that make reservoirs complicated to drill and complete. All of this makes production that much more expensive and unpredictable.

In addition, China’s energy sector is largely controlled through state entities like Sinopec and CNCP. Shale gas in the US was not pioneered by industry giants, but by small, innovative companies that were able to work independently to find a large variety of solutions to the technological challenges facing operators. Such a system is unlikely to emerge in monopolistic China. Although the country’s national oil companies have made numerous investments with shale gas operators in North America in an effort to learn more about horizontal drilling and hydraulic fracturing, the technologies are not easily transferable from one shale play to another, and any effort to exploit Chinese shales will face a steep, expensive learning curve.

Regardless, the need to provide energy for a massive population quickly moving into the middle class will drive China to develop shale gas over the next decade. Deposits are far from the populous seaboards, however. China’s national gas pipeline grid has over 32 000 km of line to move product from conventional reservoirs (as well as import gas from Central Asia and Southeast Asia), but thousands of kilometres of new pipe will have to be laid to tap into unconventional resources. Although Beijing has allowed some limited private and international participation in exploration, LNG and local gas distribution, most of the current gas lines are owned by CNCP, and it is uncertain if international pipeline firms will be involved in significant infrastructure development.


Much interest has been recently focused on Mexico after President Enrique Peña Nieto made announcements regarding sweeping changes to the monopolistic hydrocarbon sector in an effort to bolster faltering oil production.

However, the country also possesses vast natural gas potential; the EIA estimates that there are 555 trillion ft3 of recoverable shale gas, the sixth largest reserves in the world.

But natural gas in Mexico is a poor cousin to oil. Pemex produced almost 6.4 billion ft3/d in 2012, mostly as gas associated with oil production; thanks to low prices, however, the company has reduced production from over 7 billion ft3/d in 2009.

Conversely, industry and utilities have driven up demand to the point where it must be purchased internationally as LNG, or imported via pipe. Recently, NET Midstream announced it is building a 124 mile, 42 in. gas pipeline from the Agua Dulce Hub in Nueces County in Texas to the Mexican border in order to supply Pemex with up to 4.2 billion ft3/d of gas sourced from the Eagle Ford shale play. The pipeline is expected to enter service in late 2014.

Ironically, the Eagle Ford shale play extends across the border into northern Mexico, and has the potential to supply the country internally. But shale plays require a host of players to innovate and produce the resource efficiently and economically, something that is lacking in Mexico due to constitutional restrictions on hydrocarbon resource extraction. Although the Comisión Federal de Electricidad (CFE), Mexico’s federal power company, has awarded contracts to Sempra International and TransCanada to build, own, and operate numerous gas pipelines, the prospects of a vibrant, private sector oilpatch arising in Mexico are slim, and shale gas resources are likely to remain largely untapped for the foreseeable future.


Clearly, the shale gas revolution has benefited North America in many ways, including abundant, inexpensive fuel that reduces GHG emissions, the resurgence of the petrochemical sector, LNG export potential, and new transportation infrastructure.

Whether this revolution can be exported to other countries, however, depends on many factors. Those jurisdictions that will benefit most will do so by first establishing regulations, policies and fiscal regimes that encourage the participation of oil and gas companies and service providers. Secondly, there must be open and transparent communication between government, industry and the general public regarding its merits and challenges. The potential for shale gas is widespread; those countries that accommodate its needs will benefit from its riches.

Click here to read part one of this article.

This is an abridged version of an article written by Gordon Cope, published in the December 2013 issue of World Pipelines. To read the full article, click here.

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