Risks and opportunities associated with shale plays as unconventional projects go global. (Part 4/5)
Posted by D Nathan Meehan December 19, 2013

Risks and opportunities associated with shale plays as unconventional projects go global. (Part 4)

Some of this material was prepared for presentation at the ADIPEC 2013 Technical Conference, Abu Dhabi, UAE, 10-13 November 2013 in a presentation titled “A Consistent Approach to Source Rock Resource Evaluation and Optimization.” This is the fourth in a series of blog entries on the subject.

 

Risk-taking and Mitigation

Shales are in fact radically different than conventional reservoirs in many ways. Invariably, more wells will need to be drilled to prove up an area than in a conventional play.  Some of the variation in well performance can be explained; however, the correlation range of good reservoir properties (such as the areal extent and quality of critically stressed fractures) may be small compared with lateral lengths or wellbore spacing and may not be directly detectable by 3-D seismic.

One of the most impressive things about the explosive development of North American shale resources is the rapidity at which it happened. Readily available risk-seeking capital and dozens of aggressive firms coupled with service companies to develop the technology necessary to drill thousands of wells and commercialize previously uneconomic resources. Major oil companies and foreign NOCs began participating meaningfully somewhat later in the game and were able to bring massive capital and technical resources as the plays matured. It is not clear that an individual operator, particularly with risk profiles associated with majors or even the mega-independents could have lead the way in these processes. Multiple, parallel activities no doubt resulted in some inefficiencies; however, new approaches in multiple plays were developed simultaneously. There is a real argument that suggests such parallel and highly competitive (high risk tolerance) approaches are necessary for the timely evaluation of numerous shale plays.

In this and the next entry we will discuss a series of potential risks associated with achieving widespread commercial shale production developed at a recent SPE ATW. These were meant to be applied to China; however, the issues are relevant in many countries outside North America. the entire list includes:

  • Availability of leases (land access)
  • Operability: Difficult terrain/other operating conditions
  • Service company capabilities
  • Well costs
  • Lack of numerous risk seeking firms (fast failure and technology acceleration)
  • Environmentally acceptable practices/social issues
  • Inadequate well productivity/resources
  • Low gas prices/ Achieving economic thresholds
  • Infrastructure challenges including pipelines
  • The technology to stimulate wells is not optimized for local stress conditions.
  • Data availability (Basin) both G&G and Production

Data availability (Basin) both G&G and Production

Log and production data are generally public information in the US and Canada with Canada with Canada requiring more public sharing of data than does the US where individual states control data reporting requirements. Collective data sharing agreements and joint ventures to spur R&D are common. Some seismic is proprietary; however, significant amounts of recent vintage spec seismic are commercially available for all shale plays. This has to some extent leveled the playing field among potential operators and accelerated learning for everyone.

International rules vary from nation to nation; however, as a general rule there is limited data sharing among operators and few well logs or even production logs become public record. This risk scored surprisingly high among ATW participants in China. To some extent this may have been an expression of an inability to access data that existed; however, it clearly also was a reflection of a lack of data due to some of the plays being quite immature. The only way to address the latter concern is data acquisition and drilling.

Infrastructure challenges including pipelines

Examining pipeline maps of the US or Canada compared to most other countries is instructive. There are many locations in the US where existing pipeline infrastructure was locally inadequate.  Significant volumes of liquids from the Bakken play are transported by rail; this option is widely viewed as being less attractive than pipeline options for environmental and safety reasons. Efforts are underway to export US natural gas volumes and/or NGLs that exceed domestic demand; there is no conclusive proof that this will be required long-term. Export options are more important for Canada.

Countries with shale resources vary in their need for pipelines and export capacity. Middle east region and Chinese shale participants are most likely to use incremental gas production domestically while Russian tight oil/shale volumes would result in incremental export capacity.

Low gas prices/ Achieving economic thresholds

Natural gas prices in the US are now essentially free market prices. Natural gas prices were previously tightly controlled and complex rules regulated the prices. Interstate and intrastate bound gas was priced differently. Tax credits or other subsidies have been offered at various times for tight gas, coal-bed methane or oil from stripper wells. These are just examples; all states make elections about how hydrocarbons are to be priced based on their national interests. “Free market” pricing is just one such pricing model.   There are no “right or wrong” pricing models; however, many countries have natural gas pricing models that will not justify shale gas development based on even the best-case examples of US gas plays. In fact, the declining activity levels for gas wells in the US (Figure 8) suggests that North American gas prices are too low to sustain widespread shale development activity.  Some shale activity has been driven by the need to hold acreage and/or evaluate which areas were most suitable. In another leasing model, development activity with recent gas prices could have dropped more rapidly.

References

Barton, C. M. (1997, 10 1). In situ stress measurements can help define local variations in fracture hydraulic conductivity at shallow depths. The Leading Edge , 16, pp. 1653-1656.

BP. (2013). Statistical Review of World Energy 2013. Retrieved from Statistical Review of World Energy 2013: http://www.bp.com/en/global/corporate/about-bp/statistical-review-of-world-energy-2013.html

Ebrahim Fathi, I. Y. (2009, November 1). Matrix Heterogeneity Effects on Gas Transport and Adsorption in Coalbed and Shale Gas Reservoirs. Transport in Porous Media , pp. 281-304.

Lafollette, R. (2012). Shale Gas and Light Tight Oil Reservoir Production Results: What Matters? Proceedings of the Twenty-third (2013) International Offshore and Polar Engineering. ISBN 978-1-880653-99–9 (Set);, pp. 54-60. Anchorage, AK: International Society of Offshore and Polar Engineers (ISOPE).

Meehan, D. N. (2012, 1 23). Hydraulic Fracturing: An Environmentally Responsible Technology for Ensuring our Energy Future (I of III). Retrieved 9 1, 2013, from Baker Hughes Reservoir Blog: http://blogs.bakerhughes.com/reservoir/2012/01/23/hydraulic-fracturing-an-environmentally-responsible-technology-for-ensuring-our-energy-future-i-of-iii/

Meehan, D. N. (2012, 1 23). Hydraulic Fracturing: An Environmentally Responsible Technology for Ensuring our Energy Future (I of III). Retrieved 9 1, 2013, from Baker Hughes Reservoir Blog: http://blogs.bakerhughes.com/reservoir/2012/01/23/hydraulic-fracturing-an-environmentally-responsible-technology-for-ensuring-our-energy-future-i-of-iii/

Meehan, D. N. (2012, 2 6). Hydraulic Fracturing: An Environmentally Responsible Technology for Ensuring our Energy Future (II of III). Retrieved 9 1, 2013, from Baker Hughes Reservoir Blog: http://blogs.bakerhughes.com/reservoir/2012/02/06/hydraulic-fracturing-an-environmentally-responsible-technology-for-ensuring-our-energy-future-ii-of-iii/

Meehan, D. N. (2012, 2 2). Hydraulic Fracturing: An Environmentally Responsible Technology for Ensuring Our Energy Future (Part III of III). Retrieved 9 1, 2013, from Baker Hughes Reservoir Blog: http://blogs.bakerhughes.com/reservoir/2012/02/20/hydraulic-fracturing-an-environmentally-responsible-technology-for-ensuring-our-energy-future-part-iii-of-iii/

Randy F. LaFollette, W. D. (2012). Practical Data Mining: Analysis of Barnett Shale Production Results with Emphasis on Well Completion and Fracture Stimulation . SPE Hydraulic Fracturing Technology Conference . SPE 152531. The Woodlands, Texas, USA,: Society of Petroleum Engineers.

U.S. Energy and Information Administration. (2013). Technically Recoverable Shale Oil and Shale Gas Resources: An Assessment of 137 Shale Formations in 41 Countries Outside the United States. Retrieved September 1, 2013, from Analysis & Projections: http://www.eia.gov/analysis/studies/worldshalegas/

U.S. Energy and Information Administration. (2013). U.S. Imports of Crude Oil. Retrieved 9 1, 2013, from EIA Crude Oil data: http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=mcrimus1&f=m

Z. Dong, S. H. (2012, January). Resource Evaluation for Shale Gas Reservoirs . SPE Economics & Management , 5-16.

Zoback, M. (2012, 7 1). Identification and Hydraulic Properties of Critically-Stressed Faults and Anticipating Triggered Seismic and Aseismic Fault Slip. Retrieved 9 1, 2013, from https://pangea.stanford.edu: https://pangea.stanford.edu/researchgroups/scits/sites/default/files/Zoback%20Presentation.pdf

 

 

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