Where to Find Shale Gas in MENA: Our Top 4 Venues

While these Middle East/North Africa venues are global oil giants and net oil exporters, demand for natural gas here is growing faster than supply. Combined with the natural gas boom in the US and new technology to unlock gas trapped in shale, this has spurred exploration in MENA. And it makes sense: this tight and shale gas occurs in rock formations that are likely the source rocks of conventional oil and gas, which the region has plenty of. Despite the commercial challenges and in some cases water shortages for hydraulic fracturing, some MENA countries are pursuing shale full-on.

The potential is definitely there: Across the region there is an estimated almost 1,500 trillion cubic feet of natural gas. Much of this is tight and shale gas, and the race is on now to determine the potential.

Here are our top venue picks in order of potential:

Algeria

Algerian officials believe they're sitting on shale gas reserves that rival the US'. The country's state-own energy company, Sonatrach, has signed a cooperation agreement with Italy's Eni SpA to develop unconventional gas resources, with a focus on shale. The partnership deal also includes Talisman (Canada), Shell and Anadarko.

As we've noted before, Algeria is focusing so strongly on shale that its latest legislation targets this sector specifically, attempting to lure foreign partners to these plays with more favorable terms.

Algeria has an estimated 2 trillion cubic meters of technically recoverable shale gas reserves valued at $2.6 trillion. These reserves span three provinces and about 180,000 square kilometers. For more information about the "sweet spots" among Algeria's shale plays, read more here.

There is currently no shale infrastructure in place, but the government has an ambitious $80 billion energy investment plan, and $60 billion of that will go to exploration and infrastructure.

We're still years away from commercial viability (about 400 new test wells away, to be more precise), but the investors and end clients (Europe) are already queuing.

Agreements have already been signed with Eni, Shell and Exxon Mobil. In 2011, Sonatrach discovered the first shale gas wells in the Ahnet Basin in Salah (Tamenrasset province). 

Algeria's got the geopolitics down, too. Its attempt to lure investors is hinged on the reality that eventually Europe may more ambitiously pursue its own shale gas reserves, and this is the key market Algeria is eyeing. The plan is to achieve commercial viability and export to Europe before Europe jumps on the bandwagon.

Saudi Arabia

Though it's the world's biggest oil exporter, Saudi Arabia is now seeking to exploit its shale gas potential to meet domestic energy demand. With that in mind, Saudi Arabia has drilled seven test wells in deep and shallow waters in the Red Sea so far for shale gas already this year. Saudi Oil Minister Ali al-Naimi says the country has roughly 645 trillion cubic feet of technically recoverable shale gas. That would put it in fifth place globally (after China, the US, Argentina and Mexico). The Oil Ministry also says it is sitting on another 280 trillion cubic feet of proven unconventional gas resources. 

For shale gas, the exploration focus is in the country's northwest, while unconventional sour gas resources are being explored in the east, where all the oil is, and in the Empty Quarter deserts. 

The largest identified shale gas deposit is in the Qusaiba Paleozoic reservoir in the Rub al-Khalih, near the giant Ghawar oil field in the Kingdom's eastern province.

Saudi Aramco is drilling for sour gas right now with Shell in the Empty Quarter desert. Other players on the scene include Kuwait Oil Co., which has already found a shale gas deposit, but will now need help developing it.

Water scarcity, however, will be the key impediment to developing shale gas resources, which rely on hydraulic fracturing. There is also a lack of infrastructure. All told, it would take half a decade (at least) to see any commercial development of the country's shale resources. (They'd also have to remove fuel subsidies in order to make this gas economically feasible).  

The Saudis have already engaged the help of the world's leader in hydraulic fracturing services: Halliburton Co. (HAL), along with service giants Baker Hughes Inc. and Schlumberger Ltd. (SLB). The three are launching research centers in Saudi Arabia with an eye on new technology for the water-scarce shale scene.

Oman

Exploration momentum for unconventional light tight oil and shale gas is also picking up in Oman. Right now, light tight oil (crude oil trapped in shale, limestone or sandstone formations) has gained the most ground, but shale is lurking less than conspicuously on the development agenda.

State-run Petroleum Development Oman (PDO) is particularly eyeing the Al Shomou Formation in the South Oman Salt Basin for light tight oil, which PDO has a successful track record of developing since 2000. The results from test wells in Block 6 have yielded "encouraging", according to officials. But there is also strong potential in onshore Block 65 (1,230 sq km) of this formation, which was tendered out in April 2012 and is believed to have multiple play concessions. Block 65 is surrounded by major oil and gas fields that produce from the shallow Cretaceous formations (Natih and Shuaiba) with deeper opportunities in the Mafraq, Khuff, Gharif, Barik and Miqrat Formations.

PDO is the only one pursuing the LTO, but there are plans in the works for foreign operators to pursue shale plays on their blocks.

We like Oman because it's the only country to have really pursued light tight oil to this extent using fracking technology, and we believe its shale gas potential will be explored with an equal ambition.

Backing that up, PDO will invest around $26 billion in new oil and gas exploration and production over the next five years. Much of this money will be focused on development LTO and shale gas.

The key operators working with PDO include BP Oman, Occidental, and state-owned Oman Oil Company Exploration and Production (OOCEP).

BP is appraising tight gas reservoirs in its Block 61, and eyeing an additional $20 billion investment here, while OOCEP is doing the same in Block 60 and PDO remains most strongly focused on Block 6, which is the largest in the country and responsible for most of the current oil and gas production. 

Kuwait

Kuwait has unconventional reserves of heavy oil, tight gas, shale gas and shale oil. While traditionally exploration for heavy oil and tight gas has been fairly ambitious by global comparisons, exploration of shale reserves has only recently been put on the agenda in earnest.

According to Kuwaiti geologists, there are 16 possible shale plays in the country. Three of these 16 shale plays have been prioritized: the Makhul Formation (Berriasian Age), the Najmah Formation (Oxfordian-Kimmeridgian Age), and the Jilh Formation (Anisian-Ladinian Age). We don't have estimates just yet, but geologists say that initial research indicates substantial in-place resources in these plays, which are located both onshore and offshore in the country's east. 

Shell has signed a technical cooperation agreement with Kuwait to develop the Jurassic field.

It's VERY early days here, and a dearth of available data, but this is one venue to keep a close eye on for shale developments.