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№ 6 (June 2011)

A New Monsoon – North America’s “Shale Gale” Reaches Asia

   North America’s “Shale Gale” is now blowing into China, India and Indonesia as Asian producers turn to unconventional gas resources including tight sand, coal bed methane (CBM) and shale gas.

By Debasmita Moulick

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   The recent nuclear disaster in Japan, political instability in the Middle East and high oil prices has caused Asian producers to form alliances with Western firms to evaluate unconventional reserves in their own domestic markets that can ease energy shortages as their economies grow.

   Primarily financed by PetroChina, the National Energy Administration of China is establishing a shale gas research centre in Langfang, near Beijing.

   By 2020, China aims to triple its natural gas use to 10 percent of total energy consumption wean its economy from coal and oil and some of that gas will come from shale. The country’s first horizontal shale gas well was completed after 11 months of drilling at the Sichuan Basin in March of this year. China National Petroleum Corporation (CNPC) is working in Sichuan with Royal Dutch Shell Plc and Chevron Corp.

   In a report in April 2011 the U.S. Energy Information Administration indicated that China’s untapped deposits of natural gas from shale formations are 12 times higher than conventional natural gas reserves.  EIA estimates China’s recoverable shale gas reserves at 36.1 trillion cubic meters (tcm), considerably higher than the 24.4 trillion cubic meters found in the United States.

   India, whose economic growth rate is second only to China, is experiencing increase demand for gas to supply new power stations and fertilizer plants. By using gas instead of naphtha, the country can diminish its fertilizer subsidy, another plus for raising gas production. According to a 2010 estimate by McKinsey consultants, India’s natural gas demand is forecast to nearly double from 166 million cubic meters (mcm) per day to 320 million cubic meters  by 2015.

   India has abundant shale across its Damodar, Cambay, Krishna-Godavari (KG), Cauvery and Assam-Arakan basins. Oil and Natural Gas Corporation (ONGC), India’s largest upstream oil company, spudded the country’s first shale well in September 2010 at Durgapur, in the Damodar Valley basin. Further, in January of 2011, ONGC scientists discovered a huge reserve of shale gas at the Sarpi deposit in the Damodar basin. State-owned ONGC hired Schlumberger to carry out a wide-ranging shale-gas pilot project in the basin with an investment of approximately $28, 5 million has given a preliminary estimate of 300-2,100 trillion cubic feet in Indian shale gas basins. Reliance Industries, India’s largest private oil refining and production group struck three deals in rapid succession in shale gas joint ventures with U.S. firms in 2010. By the end of second quarter 2012, India is expected to auction the first of its shale gas blocks.

   With a number of basins currently under evaluation, Indonesia is also trying to tap its unconventional potential. Coal bed methane production in the country is expected to begin this year with a target of 1.5 billion cubic feet per day by 2025.

Prospects for Commercial Development
Producing hydrocarbons from shale is not a new thing. But until fairly recently there hasn’t been the technology to produce hydrocarbons from shale cheaply enough. Advances in horizontal drilling and hydraulic fracturing (hydro fracking) have, however, changed things. Horizontal wells enable tapping of larger gas deposits than vertical wells. The fracking process releases the shale gas by pumping large volumes of highly pressurized water into shale formations to fracture and re-fracture them. As fracking results in creating more gas flow, it improves the gas yield per well considerably.
Touted as the cheap green fuel, shale gas has a focus of research by governments, National Oil Companies (NOCs) and E&P companies.

   Controversies exist regarding the fracking process as studies have revealed considerable methane leaks from gas wells during exploitation. There are two main concerns: carbon dioxide is released when the gas is burnt and methane leaks from the wells.

   Environmentalists are also worried about the amount of water used in the extraction process. China already has a water shortage and that can make shale gas production expensive. And there is a debate over the risks of contamination  of aquifers for drinking water during hydraulic fracking. Recycling fracturing water is one solution.

Regulatory Drivers
Designing government strategies and incentives to attract foreign participation for exploration and acquisition partnerships is needed to fully exploit Asia’s shale potential. Government regulation for opening up blocks for bidding, for monitoring issue of fracking licenses and environmental impact assessment are required. There are some rules that need altering.

   For example, in India the government-issued leases for exploration of conventional petroleum exclude unconventional sources like shale gas. By relaxing the boundaries of exploration and allowing exploitation of both shale as well as conventional gas terms might become more attractive for E&P companies.

   If wells are required to be drilled in inhabited areas, special regulatory policies in land lease regulation taking into consideration socio-political aspects are essential. In India the Damodar basin, a highly prospective area, is well populated. Public support is necessary for shale production to prosper on a substantial scale.

   Given the rapid shale development trajectory in the US, majority of the technological innovations are concentrated there. Hence technology transfer is key in boosting shale gas development in Asia. Policy frameworks in forming joint venture partnerships to leverage foreign expertise and technical know-how are also essential.

   When the millennium dawned in 2000, shale gas accounted for only 1 percent of the U.S. natural gas supply. Today, it is about 25 percent and could rise to 50 percent in the next 20 years, some experts say. That doesn’t mean that Asia can mirror the United States, however. Asian geology is quite different and each sub basin needs to be dealt with on its own merit. Moreover geological and geochemical parameters, gas content measurements, logistics, cost and ease of operations are crucial parameters that need to be considered.

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