Global shale development threatened by water availability, says WRI

By Kasia Patel
Published: Monday, 22 September 2014

Water challenges and strict regulation could hinder development of fracking industry while technology drives its growth.

Water availability could limit shale resource development on every continent except Antarctica, according to a new report by the World Resources Institute (WRI).

In its report, Global Shale Gas Development: Water Availability and Business Risks, the WRI found that out of the 20 countries with the largest shale gas and tight oil resources, 40% face high water stress or arid conditions.

“Hydraulic fracturing (fracking) requires up to 25m litres of fresh water per well, meaning shale resources can be hard to develop where fresh water is hard to find - including in some of the world’s fastest-growing economies and populations,” the WRI said.

Based on US Energy Information Administration (EIA) figures, although China, Mexico and South Africa have some of the largest technically recoverable shale gas resources, these locations face high to extremely high water stress where shale is located.

“Furthermore, 386m people live on the land over these shale plays, and in 40% of the shale plays irrigated agriculture is the largest water user,” the report outlined.

Seasonal and spatial variations in hydrological conditions within shale plays can cause difficulties for companies to meet the freshwater demands of fracking, leading to uncertainty and high business risks, while public concerns are also likely to threaten operations, the WRI said.

The WRI added that these serious challenges can, however, be addressed through strategic engagement in water management both locally and regionally, as well as by working with governments and other sectors to reduce environmental impacts and depletion of water resources.

Based on its findings, the organisation recommended a number of actions to manage freshwater if shale resources are looking to be developed.

These include conducting water risk assessments to reduce business risk; increasing transparency and engaging with local regulators, communities and industry to minimise uncertainty; ensuring adequate water governance to guarantee water security and reducing regulatory and reputational risks; and minimising freshwater use and engaging in corporate water stewardship.

Shale boom to continue

Meanwhile, oil and gas companies leading the US shale revolution have seen their financial positions substantially improved, which has boosted confidence in continued growth in this sector.

According to analysis by Factset for the Financial Times, cash earned from operations by 25 leading North American exploration and production companies is predicted to exceed capital spending in 2015 for the first time since 2008.

Critics have warned that the industry could collapse when companies run out of financing to drill more wells, having so far relied on inflows of capital to finance drilling and using the positive spin over the shale boom to attract new investment.

However, recent forecasts have indicated an improvement in the finances of shale companies, with operating cash flows expected to exceed $2.4bn over capital spending for the top 25, compared with a shortfall of $8.8bn last year.

The Financial Times added that in 2012, only two of the leading 25 could cover capital spending from operating costs, while in 2014 this number is expected to rise to 10.

Technology driving shale market

The global shale gas market is expected to reach revenues of $104.1bn by 2020 as the hydraulic fracturing (fracking) boom and new horizontal drilling techniques have almost doubled the efficiency of shale gas extraction, Allied Market Research (AMR) has said.

In its new market report titled ‘Global shale gas market (technology, application and geography) - Industry analysis, trends, share, opportunities and forecast 2013-2020’, AMR said that shale volume consumption is also expected to reach 19,619.4bn cubic feet (bcf) at this time.

Shale gas has applications in power generation, industrial usage, residential and commercial utility and in transport. Increased extraction will mean increased demand for minerals used in the process such as silica (frac) sand, barite (barytes) and bentonite.

According to the report, demand will additionally be driven by China owing to its growing energy needs and increasing dependence on natural gas.

This is supported by a new report, China’s Proppants Market Raw Material, Supply, & Consumption produced by IM Research, which states that China could overtake the US in terms of gas production.

The report outlines that China is pursuing three main unconventional resource routes which will help stimulate fracking activity: coal bed methane (CBM), coal-to-gas (CTG) or synthetic natural gas (SNG), and shale gas and shale oil.

“Shale gas, as potent alternative source of natural gas, is expected to shake up the global energy market in the coming years. The availability of large number of shale plays, which is estimated at 6,148 tcf in total, is presenting opportunity for marketer,” analysts at AMR said.

Analysts added that technological advancements in shale gas extraction have enabled companies to gain a strategically advanced position in the competitive market.

Driving economic stability

Despite the availability of shale gas in various locations such as North America (1,685 trillion cubic feet (tcf)), South America (1,430 tcf), Europe (470 tcf), Middle East and Africa (1,393 tcf) and Asia Pacific (1,170 tcf), extraction remains challenging owing to high costs and water usage in conventional processes.

However, technological developments such as fracking are enabling the increasing production of shale gas globally, with mass production lowering dependence on fossil fuels, which are only available in specific regions.

AMR’s report outlines that more energy independence from fossil fuels will lead to better economic stability and could lower electricity costs.

Despite the benefits and commercial potential of worldwide shale gas adoption as an energy resource, AMR said that regulatory issues in various regions are likely to impede market growth.

The UK government, for example, has said that fracking in some parts of the UK would be impractical owing to scarce water supplies.

Shale plays in the UK extend to around 30% of England and Wales, with the US Geological Survey (USGS) identifying two specific areas with potential for shale gas development.

Development of the resource so far has been limited to the North West by Cuadrilla Resources, but proposals have already been put forward for further developments in South Wales, North Yorkshire, West Sussex, Kent and Northern Ireland, which have led to concerns regarding additional water resource pressure.

Some areas in the south east and East Anglia source up to 80% of public water supply from groundwater, although this figure averages around 30% throughout the UK.

However, the USGS has said that based on the assumption that 100 wells are drilled and fracked in one year, annual water usage in the UK would not be unreasonably high. The challenge, rather lies with managing the overlap between exploration and areas with limited groundwater.

The body also outlined that water used for shale gas extraction will be a small percentage of the total usage, amounting to only 0.02%.

Other regions outlined in the AMR report as potentially being hindered by strict regulatory hurdles include European counties such as Poland. Though shale gas production could begin in the next two or three years with advances in extraction technology, this may be hindered by restricting policies.

Policy-makers in Germany also announced earlier this year that a law could be implemented to limit the fracking process in the country only to rare cases, rather than lifting the moratorium all together.

This would be a blow to business leaders, who have lobbied to lift the moratorium on fracking in the country to lessen its dependence on natural gas from Russia, which supplies a third of Germany’s consumption.

Oilfield Minerals News Review

Halliburton CoreVault accurately estimates oil and gas

Halliburton, the world’s largest oilfield services provider, has launched a system to more accurately measure the amount of oil and gas trapped in unconventional reservoir rocks.

The CoreVault system allows operators to measure the volume of hydrocarbons in place by containing and bringing the reservoir fluids trapped within rock samples to the surface.

According to the vice president of Wireline & Perforating, David Topping, traditional coring tools allow 50-70% of the hydrocarbons to escape from the rock when samples are depressurised.

This requires operators to estimate fluid loss rather than measuring fluids in place when building a model of the volume of oil and gas in a reservoir, and can often lead to inaccurate estimates.

Using the CoreVault system often reveals dramatically more oil and gas than previous estimates, chief advisor of Global Unconventional Reservoirs, Don Westacott, said.

Double Crown receives first order for high grade barite

US-based oilfield minerals junior, Double Crown Resources, has received its first high grade barite ore order from an oilfield service company based in Texas, US.

The unnamed company has now requested an additional 200 tonne shipment of high grade barite from Double Crown’s second mine site in Mexico.

“Upon successful completion of test drilling operations, it is anticipated that our customer will move forward with the signing of a planned, five year supply purchase contract for regular monthly shipments of Double Crown’s high grade barite product,” the company said.

According to Double Crown it is an ideal fit for its first customer owing to the plentiful, high quality resources it has to offer, as much of the customer’s activity is in off-shore oil drilling in the Gulf of Mexico.

Fracking boom moves production industries back to US

The fracking boom is helping to move production in many industries back to the US, according to a market update from UK-based Heartwood Investment Management.

Heartwood noted that over 40,000 wells in the US have so far been drilled using fracking technology, and the impact has surpassed the expectations of even the most optimistic forecasters.

“The impact on the wider economy is also being felt as energy input costs fall well below global averages and competitiveness rises,” Heartwood said in its market overview.

“There are many documented cases of production, especially in chemicals, moving back to the US,” the firm added.

Falling energy costs are also benefitting consumers, having a direct positive effect on disposable income, while inflation has also been positively impacted.

Though the initial focus of fracking has been on natural gas, Heartwood said that the technology enables the production of liquids which can be used in refineries after some modification.

This is dramatically reducing the need for oil imports in the US owing to further substitution of various products which have in part displaced crude oil.

Energy Information Administration (EIA) figures show that the US imports of crude oil dropped 26% in May to 7.17m barrels per day (bpd) compared with 2008, and accounted for 22% of US oil consumption - the lowest level since 1970.

EIA figures indicate, according to Heartwood, that this trend is set to continue, and output in the US will climb to 9.28m barrels crude oil a day by 2015, the highest level since 1972.