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Gaurav Agnihotri

Gaurav Agnihotri

Gaurav Agnihotri, a Mechanical engineer and an MBA -Marketing from ICFAI (Institute of Chartered Financial Accountants), Mumbai, is a result oriented and a business focused…

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Does Fracking Have A Future In Asia?

Does Fracking Have A Future In Asia?

The Future of Shale in Asia

All of us know how Shale gas changed the fortune of the United States energy sector over the last few decades. Extracted from sedimentary rocks by a combination of horizontal drilling and hydraulic fracturing or ‘fracking’, Shale gas was first produced commercially in the year 2000 by Mitchell Energy and Development Corporation in north central Texas.

During the intervening fifteen years, we realized that Shale has the potential of being a major contributor to the world’s ever increasing energy requirements.

As per EIA, Shale oil and Shale gas represents around 10% of the global crude oil and 32% of the global natural gas resources respectively. Looking at the holistic picture, we can infer that shale has the potential to satisfy about 20% of the energy demand that is currently met from conventional oil and gas.

These are big numbers!

These numbers are the reason why Asian countries like Saudi Arabia, Indonesia, China, India and Pakistan have been trying their luck on shale over the past few years. The two Asian Giants, China and India, are among the biggest global importers of oil and according to the International Energy Agency (IEA), China, India and West Asia would account for 60% of the world’s total energy demand by 2035. It is very important for Asia and the rest of the world to ask: Does shale have a future in Asia? Let us find out…

EIAShaleBasins

Source: EIA Basins with assessed shale oil and shale gas formation

China: So near and yet so far.

According to EIA data, China has abundant shale oil and shale gas reserves in its Sichuan, Tarim, Juggar, Songliao, Yangtze Platform, Jianghan and Subei Basins. China has about 1115 Trillion Cubic Feet (TCF) of technically recoverable Shale gas reserves. Related: Oil Markets Blow Yemen Crisis Out Of Proportion

In fact, China has the largest shale reserves in the world and it is the only country apart from US and Canada that has commercially produced natural gas from shale in a major way. Shale gas was first discovered in China in 1996 and its shale gas output in 2014 was around 1.3 billion cubic meters. Around 90% of the total output came from a single field owned by Sinopec. However, this output was negligible when compared with the output of its conventional natural gas (around 0.2 % of the conventional natural gas in 2013).

In spite of some good discoveries, the fact remains that China has tested only a small number of wells and it is slowly and steadily catching up on the technology, tools and equipment that played a big part in the US shale boom. Until now, China has drilled about 400 wells. By contrast, as per the EIA, the US had drilled almost 65, 000 wells in less than decade!

ShaleGasAsShareOfTotalGasProduction12

Money Matters

In 2012, the Chinese government declared an ambitious production target of 60- 100 billion cubic meters (bcm) of shale gas by the year 2020. However, in September 2014, the production target for 2020 was dramatically slashed down to about 30 bcm, which is around 1% of the country’s annual energy requirement. Related: Oil Price Speed Limit Presaging An Age Of Austerity?

If we dig deep, we can see some of the biggest hurdles that China faces: it’s tough and complex geology, high extraction costs and lack of technically skilled manpower. Moreover, the Chinese are more willing to benefit from the current falling energy prices (especially cheap oil) rather than going all out for shale gas production which is comparatively more expensive and complicated.

In short, the Chinese are aspiring to replicate US in tapping the immense potential of shale but are unable to do so, with one of the main reasons being money.

India: An unknown contributor to the Shale Boom

Few people know that India is the biggest producer and exporter of ‘Guar Gum’, a processed powder produced from a crop called ‘Guar’ which is a key ingredient for the extraction of shale gas. It is quite ironic that a country which is the biggest exporter of Guar Gum does not produce shale gas at all.

However, as per EIA, the country has approximately 96 trillion cubic feet (TCF) of commercially recoverable shale gas reserves. According to the Directorate General of Hydrocarbon (DGH) India, the country has vast shale reserves in basins such as Cambay, Gondwana, Krishna Godavari and Cauvery.

In 2013, the government of India introduced a Shale Gas and Oil Exploration policy under which its national oil companies: Oil and Natural Gas Corporation Limited and Oil India Limited would be initially permitted to explore for shale from the blocks that were already awarded to them. Strangely, private companies such as Reliance Industries Limited and Cairn India are currently not allowed to explore for Shale in their existing blocks.
The biggest challenge that India faces is the huge requirement of water for the exploration of shale (around 3-4 million gallons per well) and high costs for drilling these wells. In addition, there is a lack of appropriate geo-scientific data that is required for shale exploration.

Another grave issue is the impact of shale gas drilling on the environment. The ministry of environment and forests (Government of India) has expressed its concerns over the effect of different chemicals processes and its ecological impact. India’s Reliance Industries Limited currently has a 40% stake in Chevron’s Marcellus Shale acreage, 45 % stake in Eagle Ford Basin Shale oil and a 60% stake in Carrizo Oil and Gas Inc.’s Marcellus Shale acreage.

Saudi Arabia: Shale – An enemy or a friend?

By refusing to bow down to the international pressure and by refusing to reduce the crude oil production levels of OPEC, Saudi Arabia is seen by many (especially the US) as one of the main reasons for the current slump in the international crude oil prices.

However, it is not only crude oil in which the Saudis are interested; they are very much interested in Shale gas too. According to estimates from Baker Hughes, Saudi Arabia might have around 645 trillion cubic feet (TCF) of technically recoverable shale gas, making it the fifth largest shale gas reserve in the world. Saudi Aramco, the biggest state owned oil and gas company in Saudi Arabia, is said to be investing close to $7 billion in shale gas drilling in 2015.

However, much like India, the requirement of huge quantities of water would be a challenge for Saudi Arabia.

Pakistan and Indonesia: Pakistan has an impressive shale gas reserve of 51 TCF according to EIA data. Currently, the country does not produce from shale formations, despite being a big producer of Guar like India. Similarly, Indonesia, which is one of the most prominent oil importers in the world has a decent amount of shale reserves which could potentially measure as much as 574 TCF ( Source: Ministry of energy and mineral resources, Indonesia).

In 2013, Indonesia’s PERTAMINA was awarded the first shale gas project in North Sumatra. However, much like its other Asian neighbors, the country still needs to tackle some critical issues related to land acquisitions, shortage of technology related to fracking, high production costs and prevention of ground water pollution.

Why Shale matters

Shale can actually be a game changer for China, India and Indonesia as all these countries are big importers of crude oil and shale has the potential to drastically reduce the huge import bills of these nations. Related: Three Triggers That Will Send Oil Crashing Again

Also, it is important to note that both China and India are big users of coal which satisfies around 70% and 52% of their respective energy requirements. Coal is one of the reasons why India and China have some of the most polluted cities in the world. Studies have found that shale gas has lower emissions and pollution levels as compared to coal. Also, India’s domestic gas production has fallen rapidly over the past year which has added to the country’s energy woes. Shale can be a much needed lifeline for India.

US- A much needed partner for shale in Asia

The future of Shale in Asia depends on how the host nations tackle their commercial and technical issues related to the exploration of shale assets. Issues such as high production costs, poor technology, shortage of water, environmental pollution, proper treatment and disposal of waste water resulting from shale gas extraction, non-availability of proper geo scientific data along with difficult and vast terrain plague most of the Asian nations.

Apart from China, most of the other Asian players still have a lot to do as far as commercial shale gas production is concerned and it would take them several years if not more to begin shale gas production. India is one of the Asian nations that have been talking to the US to seek assistance for exploiting shale resources for the past several years. For Asia, it wouldn’t be a bad idea to look to the US for assistance and investment. After all, “What seems to us as bitter trials are often blessings in disguise.”

By Gaurav Agnihotri for Oilprice.com

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