China, UK, Poland, South Africa and Argentina hold the best hope of bringing shale gas to market outside North America, says the BDO partner.
“Despite recent doubts, China is still on the top of my list. Primary reason for that is political will and of course, next comes Beijing’s policy of central planning on matters of strategic importance. Given the internal dynamic, China is best placed for moving its shale drive forward and dealing with various issues and challenges from environmental to procedural much faster than others. Ultimately, it is about improving security of supply.”
Supply concerns also have much to do with European shale gas prospection with the continent’s importers wanting to rid themselves of Russian gas in wake of the Ukrainian standoff. However, Fitch Ratings analyst Stephane Buemi feels there’s little medium-term prospect of that happening.
“European shale gas remains in its infancy and we believe it will take at least a decade for production to reach meaningful volumes. By that point it would probably only offset the decline in production from Europe’s conventional gas wells,” he says.
Like Dewhurst, Buemi flags up infrastructural concerns as well. “Piped gas imports from markets other than Russia are likely to remain limited. We believe the Trans Anatolian Gas Pipeline is the only viable non-Russian pipeline under consideration in Europe. This could provide 31 bcm of gas per year by 2026, but that is not enough to cover the incremental increase in gas demand we expect over the period, let alone replace any supplies from Russia.”
Nonetheless, even if at best European shale gas production helps stem a significant increase Russian imports, then that’s persuasive enough for some.
Poland is a case in point. It currently requires 16 bcm of gas per year, nearly 70% of which is imported from Russia. Recent Polish Government estimates suggest the country’s shale reserves are in the region of 346 to 768 bcm. Cost of each prospection well ranges from $15 to $20 million and around 250 of these will have to be dug before the Government knows what’s commercially viable. Yet, the recent departures of major companies and costs involved have done little to dampen things given the political imperative.
The UK is said to have 1,300 trillion cubic feet (36,812 bcm), over 10% of which is thought to be commercially viable at the time of writing this article. The estimate prompted UK Chancellor George Osborne to issue planning guidelines last year aimed at making the process of approving new drilling sites more streamlined, and a consultation on tax incentives to encourage exploration.
Local districts affected by shale gas drilling are also expected to receive £100,000 ($162,200) in “community benefits” and 1% of production revenues, should the production sites yield gas. Germany, with potential reserves of 481 bcm, is studying what the UK government is up to. While having to contend with a moratorium at home, France’s Total has bought a stake in a UK project.
Ultimately, need and ensuring security of supply are and have always been great drivers of investment, says Dewhurst. However, there is wider acceptance that it is going to be a slow drive for most with a few kinks along the road.