Shale Gas / OIL
Is Asia ready for the market? Given that Asia has abundant shale gas/ oil deposits, the lack of infrastructure and technologies related to water supply and utilisation, chemicals and drilling are curbing its potential to clinch a bigger market share in this capital-intensive sector, says Angelica Buan in this report.
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he stakes are high when exploring and fracking shale gas/oil, which is a key plastic resin precursor. It has been said that the logistics as well as social costs of unearthing shale may be too heavy for Asian nations to bear. The region could easily reap the rewards, since it is endowed with vast reserves, to bridge the supply-demand gap. But, despite the availability of horizontal drilling, for creating wells, and hydraulic fracturing technology (fracking) for fracturing the tight shale, a type of sedimentary rock with pressurised liquid mixed with chemicals and sand, the region’s shale gas/oil-rich nations are nowhere near accessing it readily and commercialising it. Meanwhile, the shale gas/oil sector in the US is surging on. Natural gas/oil from the Utica and other various shale-based fields throughout the country have seen major resin makers expanding PE and ethylene capacities for the first time in more than a decade. Most of these will be on the US Gulf Coast, but some have been proposed for Pennsylvania, West Virginia or Ohio. Asia Pacific only accounts for 7% of the total global output, according to research firm MarketsandMarkets's latest report. It also forecasts that the region, along with Europe, is expected to produce shale gas on a broader commercial scale by 2016.
China, closest in the race Meanwhile, China has 1,300 trillion cu ft of recoverable shale reserves, compared to the US’s 862 trillion cu ft (based on estimates provided by the US Energy Information Administration). Now, China has not kept up with the US’s production pace of 4.8 trillion cu ft since the boom from 2010, even though it produced 7.062 billion cu ft of gas last year, according to the Land and Resources Ministry. Nevertheless, China’s National Energy Administration has projected that the production surge of 229 billion cu ft in 2015 will rise to 2.8 trillion cu ft by 2020. But the pressure is on for China to hit its production targets and this is set out in its five-year (2011-2015) energy road map. However, inadequate funds and the lack of fracking technology as well as water sourcing and utilisation Shale Gas & Oil Assessment (Identified Asian Countries) could thwart China’s exploration targets. This and the fact that the 4,746 geological feature of China’s basins, 1,115 China 644 which mostly have a high clay 32.2 content, making them more complex than that of the US and thereby 22 5 would require greater logistics to tap. Thailand Risked gas China’s national oil refiner in place (in trillion cu ft) Sinopec recently discovered the 303 Technically Dingye-2HF, a 4,417-m deep shale 46 recoverable gas Indonesia source in Guizhou province in the (in trillion cu ft) 234 7.9 southwest. This is expected to cough Risked oil up 1.5 million cu ft of gas/day but will in place 584 (in billion barrels) require more extensive drilling and 96 India 87 Technically more pipes for the well. 3.8 recoverable oil According to energy information (in billion barrels) provider Platts, it costs about 0 960 1,920 2,880 3,840 4,800 US$14.7 million to drill a single EIA/ARI World Shale Gas Report, June 2013 shale well in China compared to US$3.2 million in the US.
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Shale Gas / OIL 100%
Shale Gas and Oil Assessment (Identified Asian Countries)
90% 80%
Technically recoverable oil (in billion barrels)
70%
Risked oil in place (in billion barrels)
60%
Technically recoverable gas (in trillion cu ft)
50%
Risked oil in place (in trillion cu ft)
40% EIA/ARI World Shale Gas report June 2013
30% 20% 10% 0%
China
Thailand
Indonesia
India
The opportunity to tap China’s energy sector, which has been state-owned and controlled, has become more liberal now that private non-state owned and partly foreign-owned investors are being ushered into its oil and gas folds. One way to offset the high costs of extraction is to set up joint ventures with foreign firms, including ExxonMobil, Chevron, Eni and Total, since a number of foreign firms are beginning to take an interest in exploring the region’s natural gas basins. Premature exploration in India Like China, India is another top potential hotbed. The country is teeming with shale gas/oil reserves, estimated at 96 trillion cu ft. An exploration policy gave the nod to proceed by the third quarter of last year but limited the opportunity to state-owned companies like Oil and Natural Gas Corporation (ONGC) and Oil India Limited (OIL). Late last year, ONGC started up its Rs6 billion shale gas exploration venture, aiming to complete exploration of 30 wells. ONGC drilled its first well in Jambusar, Gujarat, and is looking at drilling more wells in the Cambay Basin, which is estimated to have 20 trillion cu ft of gas. This was preceded by an MOU signed with Texasheadquartered chemicals firm ConocoPhillips a year earlier. Both firms chartered the Cambay, Krishna Godavari, Cauvery and Damodar basins. ONGC estimates that these four basins would have the amount of recoverable shale gas/oil close to the country’s projection. Apart from the above basins, three more: AssamArakan, Gondwana and Indo-Gangetic, have been identified in a separate evaluation undertaken by the Ministry of Petroleum and Natural Gas. However, the country faces several stumbling blocks, especially since the essential technology implemented is fracking, a process that requires gargantuan volumes of water.
Shale Gas / OIL According to the National Bureau of Asian Research, in 2013, water supply was a major problem in India, stemming from its rapid population growth, inadequate water treatment facilities that fail to supply clean water, and depleting ground water supply, generally due to overextraction by farmers. Conversely, the chemical-laced water used in fracking could flow back to untreated water sources, thus aggravating India’s water pollution problem. Overseas, India has played a key role in the US shale boom. Indian chemicals firm Reliance Industries (RIL) invested about US$3.5 billion into the Marcellus and Eagle Ford shales in 2010, followed by a subsequent investment of US$10.8 billion until 2016. Other big Indian players such as OIL, Indian Oil Corporation (IOC) and GAIL India are also eyeing the US shale production platform. Indonesia, costly to set-up Contamination of groundwater sources is also among Indonesia’s pressing issues. Local geological data indicates that Indonesia has 60 shale-rich basins. Bereft of technology to conduct exploration and fracking, the former Organisation of Petroleum Exporting Countries (OPEC) member has also put the reserve blocks up for bids, with the government already having auctioned six shale blocks. State-owned oil refiner Pertamina is the first to be granted an exploration contract for a site in northern Sumatra, which is projected to have 16 trillion cu ft of gas. The firm is expected to commence production in 2018. Possessing some 574 trillion cu ft of shale gas/oil in Sumatra, Kalimantan, Papua and Java, the Southeast Asian country has also cajoled the US to invest and transfer technology to the country. Its appeal to investors has yet to materialise, considering that drilling costs of a shale gas/oil well is estimated at US$8 million, almost three-fold compared to the US. Thailand, no domestic exploration Thailand is also investing in the US shale production through its flagship PTT Exploration & Production (PTTEP), a subsidiary of state-owned gas/oil firm PTT, and joint ventures to achieve its output range by 2020. The government maintains that the overseas investments are cheaper compared to exploring local reserves – a precursor that shale gas/oil potentials of its four main onshore sedimentary basins, in Khorat Plateau, Northern Inter-Montane Basin, Central Plain and Southern Plains, will be left in a moribund state for the time being. Nevertheless in 2011, an MOU was signed between the Petroleum Authority of Thailand and Statoil to undertake exploratory work on both conventional and unconventional gas deposits in Thailand. Plus, the government is also garnering bids for the Phu Phra block located in Sakon Nakhon province in the northeast. Rest of Asia Other Asian countries, specifically Pakistan, Myanmar, and
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Khorat Plateu
Mae Sot. Tak
Li, Lampoon (Lamphun)
Sakon Nakhon
Shale deposits in Thailand
Vietnam are continually seeking to either explore or develop potential areas of shale oil/gas reserves. Citing a 2013 assessment, Pakistan has an estimated total oil reserve of 227 billion barrels; 9.1 billion barrels of which are technically recoverable with today’s technology. Likewise, the country possesses about 105 trillion cu ft of technically recoverable gas out of the 586 trillion cu ft risked total gas reserve. Based on the study, most of Pakistan's shale oil/gas resources are located in the Lower Indus Basin region, particularly in Ranikot and Sembar shale formations. Nonetheless, there has been no publicly available data report on shale gas exploration or development. As for Myanmar and Vietnam, the two countries have already spotted offshore blocks with potential oil/gas reserves. In April last year, Myanmar auctioned its offshore shale oil blocks for exploration and development. Some 30 companies submitted their proposals. Recently this year, major energy firms Chevron, Shell, Total, ConocoPhillips, Statoil, British Gas, and Reliance Industries have been awarded offshore oil and gas exploration rights. Vietnam’s oil/gas sector is an important revenue earner for the country, accounting for nearly 30% of its GDP according to the 2013 oil and gas machinery and services market report of the US Commercial Service. Vietnam’s offshore oil/gas reserves stretch along the South China Sea and the Gulf of Thailand. However, because the country’s reserves are diminishing, particularly in Bach Ho field in the Cuu Long Basin, it has to look for other fields, like shale, to tap. Conclusion Of the 142 shale basins identified in the world, 32 already have infrastructure set-ups, which could relieve initial capital expenditures for shale gas exploitation, according to a 2010 report by the World Energy Council. Nonetheless, more money needs to be pumped into the process, storage and distribution of gas through the pipeline systems, and this is something that Asian countries lack.