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Editorial comment

Shale prospects outside of the USA
In my comment last month, I discussed shale gas driven pipeline expenditure in the USA. I talked about how, according to a report by Douglas Westwood, spend on pipelines will be US$ 22 billion before 2020. US natural gas production will increase by an estimated 44% in the next 25 years, and the majority of this will be due to exploitation of shale plays. There is therefore much potential for pipeline construction, as transportation is needed from the shale basins to point of sale. Some shale gas will continue to be moved by rail, but new pipeline infrastructure will also be required nationwide. “What we probably need is more of a pipeline infrastructure and to diminish the need for rail transport over time,” said US Energy Secretary Ernest Moniz last month. “Frankly, I think pipeline transport overall probably has overall a better record in terms of cost, in terms of emissions and in terms of safety.” The success story of US domestic natural gas is great news for pipeliners.

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However, there is a second part to the story I told last time: the question of how shale oil and gas developments will fare internationally, given that this might call for increased pipeline construction in corresponding areas.

Let’s start with Australia, where analysts predict the next shale boom will occur. According to recent research, Australia is a most attractive venue for shale and tight oil and gas development, with characteristics that are “conducive to successful commercial production”.1 The report views positively the fact that Australia has existing transport infrastructure; has low population density in the areas where shale extraction operations would be necessary; and has a population that is amenable to the capitalisation of resources (having witnessed and benefited from a long history of coal mining). Shale-derived natural gas can be exported to Asia by means of LNG tanker and this is attracting unprecendented levels of investment: BG Group’s QCLNG project will see gas flow by the end of 2014. Pipeline infrastructure is being built to connect up shale gas fields to terminals and hubs.

Where else in the world are we seeing shale production potential?

Argentina has a lot of shale gas but it isn’t seen as a good investment prospect because of political turbulence. China could be one to watch. Although Ukraine holds much promise, it has been beset by social and political unrest, wth no change so far this year. Poland has suffered setbacks as challenging geography and regulatory problems forced Eni (and others) to pull out of deals. In the UK, the government has announced financial incentives for communities that welcome the fracking industry – in effect a friendly bribe for those prepared to put up with the trappings and potential trapdoors associated with exploiting shale in relatively built-up areas. What Britain may have in potential shale resources, it lacks in wide open spaces. As for pipelines, these are a long way off, with activities still in the testing and initial exploration stages. However, there are reasons to push ahead despite environmental opposition: the UK is more dependant on gas imports than ever and domestic shale gas could go some way to providing jobs, revenue and a homegrown energy source.

Finally, Russia is rumoured to have entered the shale exploration market with a joint venture between Shell and Gazprom Neft to drill in Western Siberia. The Bazhenov formation could be the world’s largest deposit of shale oil. It covers 570 million acres, which is the size of Texas and the Gulf of Mexico combined. It could possibly be 80 times as big as the huge Bakken shale in North Dakota, USA. Bazhenov already has significant oil pipeline infrastructure running across it, due to its proximity to other oilfields.

Reproducing anything akin to the US shale boom elsewhere in the world is not likely to be an easy task, but as long as the US stands as an example, other nations will look to capitalise on their own hard-fought shale battles.

‘Uncovering further opportunities in the booming frac market’, Daniel Choi, Lux Research, 16th December, 2013.

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