Guillermo Pineda
Energy Leader
PwC México

Why Shale Gas Has Become Such a Hot Topic?

Mon, 01/23/2012 - 12:40

Many companies are developing shale gas in parallel, all over the world. For starters, NOCs and IOCs are making significant investments in US shale gas. Companies based overseas spent around US$33 billion buying into US shale gas through acquisitions or joint ventures last year. Marubeni, Statoil, Total, Sinopec, CNOOC, Reliance Industries, and BHP Billiton are among the companies making these investments. US companies benefit from the cash injections from these deals. The main US shale gas areas are in the states of Michigan, Texas, Oklahoma, Alabama, Arkansas, Colorado, Louisiana, Illinois, Tennessee, Ohio and New York. US Shale production in 2009 for the lower 48 states reached 3,110 Bcf, up 47% from 2008, and technically recoverable resources are estimated at 862 Tcf.

In Canada, total shale gas in place is estimated at 1,111 Tcf, according to the Canadian Society for Unconventional Resources. In December 2010, Talisman Energy concluded a strategic partnership agreement with Sasol of South Africa to develop shale gas with estimated reserves of 4-12 Tcf. Encana has concluded deals with the Korean Gas (KoGas), as well as Chinese state oil firms PetroChina and China National Petroleum Corporation (CNPC). The deals indicate a high level of foreign interest in Canadian shale deposits.

The Society of Petroleum Engineers estimates 2,116 Tcf of shale gas in South America. Argentina ranks third in the world in technically recoverable shale gas resources with 774 Tcf, according to the US EIA in April 2011. Key shale gas players in Argentina include Apache, Total, ExxonMobil, EOG Resources and YPF. In 2008, President Cristina Fernández launched a “Gas Plus” programme to encourage E&P of unconventional gas resources, and reduce Argentina’s dependency on Bolivian and other imported gas. In December 2010, YPF discovered 4.5 Tcf proven shale reserves in Patagonia: the first discovery of its kind in South America. In Brazil’s Paraíba Valley, two areas totaling 86km2 contain reserves of 840 million barrels of in-situ shale oil; the total resource is estimated at 2 billion barrels.

Shale gas development in Europe is still in its infancy, but exploration is occurring in a number of European countries: Austria, Denmark, France, Germany, Hungary, the Netherlands, Poland, Spain, Sweden, Switzerland and the United Kingdom. According to the US EIA, Europe is estimated to have 624 Tcf of technically recoverable shale gas resources. However, the reserves are located deeper in the ground than in the US, making it more dicult and more costly to access.

PwC’s perspective on shale gas in Mexico

Considering the fact that shale gas is a relatively new topic in Mexico, there is an opportunity to develop in the medium and long-term. However, shale gas should be treated separately from exploration and production of oil and conventional natural gas. Mexico has dierent priorities for development of shale gas and conventional hydrocarbons because the two resources have such dissimilar degrees of maturity, production processes, extraction costs, and sale prices.

Aside from a separate Pemex subsidiary for shale gas, legal and even constitutional amendments must be made to provide private investors (both domestic and foreign) the security to participate in these projects. Most NOCs are in consortium with international oil companies and with other domestic oil companies, and Pemex should follow suit. The current integrated service contracts would be insucient for shale gas projects, given their novelty and complexity. Shale development represents high geological, environmental, legal and consequently economic risks that must be addressed and mitigated in any new laws or agreements.

In countries with more shale experience and up-to-date laws, economically sound domestic and multinational companies for the most part do not handle these projects alone. Instead they work with similar companies to share and take advantage of experience, technology, and group teams. This enables them to share both the risks and benefits, which benefits both parties. During the last half of 2011, a number of bills were expected for shale gas in Mexico, but have been postponed to 2012. There is a risk these laws will fail to be approved given the timing of presidential, governor and congressional campaigns in July. Hopefully, the parties will share the political costs and do something for the good of the country and its citizens by approving the needed shale amendments.