“Several times in the past we have thought that we were running out of oil, when actually we were running out of ideas.”
Professor Parke A. Dickey
University of Tulsa Petroleum Geology, September 1958
“When I started out in this industry 25 years ago, if someone had told me that shale could be a reservoir, I would have laughed,” says Dr. Basim Faraj. “Yet now we realise that we have a substantial new resource – and it is spread throughout the globe!
“The influence of shale gas has been huge in North America and I believe that its global impact is on the horizon, with Australia, Asia and Europe all set to benefit greatly from this new resource,” Basim, who is Vice President of New Ventures with Tamboran Resources, explains. The Australian company is well placed to analyse the situation, as it holds permits and applications covering more than 120,000 km2 of land, all prospective for unconventional oil and gas, including acreage in Ireland, Australia and Botswana.
Gas has been steadily increasing its proportion of the energy mix, but the huge increase in gas resources in the US has been driven largely by the discovery of five giant ‘fields’: the Eagleford, Haynesville, Montney, Horn River and Marcellus shales. Although these were all discovered since 2007, deep shale gas production had actually become a commercial reality in the 1980s and 90s, with the discovery of the Barnett Shale in North-Central Texas.
“Shale gas now accounts for about 25 Bcfgpd – 35% of the total US annual gas production,” Basim explains. “The Haynesville and Marcellus shales, which only started producing three years ago, together now account for production of 9.6 Bcfgpd – that is over 130% of total Canadian annual gas production and 420% of the amount that Australia produces.
“To appreciate the huge size of these resources and their implication on global resources, it is instructive to compare them to the largest known producing play to date, the Zagros-Mesopotamian Cretaceous to Tertiary petroleum systems of the Middle East. This has been producing since the 1960s and is estimated to have had a total resource of nearly 500,000 MMboe. The Bakken petroleum system is now considered to hold a similar amount and is ranked second in the world after the Zagros-Mesopotamian system. And the Eagle Ford shale system, which was not even mentioned four years ago, is now ranked in the top fifteen in world resources estimates.”
Technological Innovation is Key
Basim believes that innovation in operational techniques is key to value creation in unconventional projects. “Shale is obviously very different from other reservoirs, and key to its development in the US has been constant technological innovation. Unlike, for example, coalbed methane, shale is a hard, brittle rock with a low TOC (Total Organic Content), but on the plus side it is usually found in units that are hundreds of metres thick, allowing us to go deeper and endeavour to get better production rates.”
“Similarly, the tight nature of the rock – a ‘good’ shale has permeability of between 0.001 and 0.0001 mD, in comparison to the 0.01 mD permeability of sidewalk cement – means that innovative thought had to go into creating methods of commercially producing gas from shales. Persistence was key – as was not being blinded by accepted practices. Before fraccing was found to be effective, a number of other methodologies, such as pumping propane and gel, were tried unsuccessfully in attempts to extract the gas from tight shales. Slickwater fracs were the answer: large volumes of water and sand pumped under high pressure (~100 barrels per minute).”
Another recent development which has proved important in the exploitation of shale gas is the use of micro-seismic technology. “This has shown that our standard models don’t work,” Basim continues. “As a result of this innovation, our understanding of frac geometry and stimulated rock volumes, and thence gas and oil recovery factors, has vastly improved.
“Operational techniques have evolved considerably over the past few years, in particular with respect to 3D seismic, which has been taken to a whole new level from wells with a lateral length of 1,180m, while by 2012 the cost of these wells, nearly 1.5 km long and producing 3.6 MMcfgpd, had dropped to $2.5 million. “It is this continuous innovation in a play that allows operators such as Southwestern to be commercially successful despite a relatively low gas price, and indeed positions them well for any upturn in gas prices as their production processes are extremely efficient. It is almost like the application of the Japanese ‘kaizen’, or continual improvement philosophy, to the shale industry.
“However, the price of gas in the US means that many wells are currently shut in,” he continues. “Efficient operators are looking to reduce their cost per well to remain in the game or are switching to condensate and shale oil targets as these command higher prices.”
Basim is also quick to point out that there are many myths about the impact and use of water resources – often a factor used to suggest that the development of shale gas may not be feasible in parts of the world where water is a scarce commodity. As he points out: “In Texas, more than half the total state water consumption is used by agriculture for irrigation, and 9% in manufacturing, in comparison to the less than 1% being used in the production of shale gas. In Arkansas, duck hunting clubs alone use a billion litres of water a day, 2.3% of the state’s total consumption!”
What Makes A Good Shale Play?
Basim remarks on how it is useful to look at the various properties and features of a good oil play, such as the Eagle Ford, to identify just what makes it successful – and how important it is to carry this information into exploration of other plays. “The Eagle Ford has some of the best rock properties of all US shale plays,” he explains. “Porosity is between 6 and 7% and is distributed both intergranually and intra-kerogen, which is ideal, while permeability can be as much as 0.003 mD – relatively high for a shale. The horizons are up to 137m thick, with TOCs of 3–7% and water saturation between 13 and 25%, and as a result, the recovery factor for wet gas is in the region of 30 to 40%.
“These are the sorts of factors we are looking at in our licences outside North America. It is very important to check all the properties of each prospective formation carefully, wherever it is in the world, and not make assumptions about the geology until new cores are cut and analysed.
“We believe that in the shale market, Australia will be the next big thing after Canada,” he continues. “The Northern Territory Beetaloo Basin has shale oil potential and Tamboran signed recently a joint venture agreement with Santos for $80 million to explore this area. Australia is looking at the large Japanese and other Asian markets for its gas production, but further work needs to be done in the area of developing efficient small scale GTL (gas to liquids) projects for the smaller fields before these can be economically produced. Other parts of our acreage, including Botswana, are under investigation, although it is too early to tell the full potential of these.”
“Shale gas has had a major positive influence in North America,” Basim points out. “However, there are interesting impacts of this resource development which are rarely discussed, but which have global influence. Take, for example, the petrochemical industry; Dow are closing plants around the world and moving them to Texas to use the cheap dry gas as feed stock for their petrochemical products. Elsewhere in the US, plans to build new import terminals have been switched to the construction of export terminals – and the export of that gas worldwide will have a crucial impact on the energy supply and balance in many countries, both those that expected to export hydrocarbons to the US and those that are now finding the supply of cheap gas is having a major effect on their own developments.
“As I have already explained, technological innovation and economics have been, and will continue to be, of fundamental importance in the effective exploitation of unconventional resources. We have undergone a steep learning curve in North America, and it is vital that we learn from mistakes made there when looking at the rest of the world, and don’t repeat them. Natural variability is inherent to all unconventional plays, and this must be considered when evaluating the viability of new shale resources.
“The revolutionary concept of hydrocarbon production from shale is without a doubt the most exciting accomplishment of geosciences and petroleum engineering integration in the last several decades.” Basim concludes. “For our industry to continue developing, we must use all available resources and innovate continuously. We must never run out of ideas, so we can continue providing the most needed commodity to the world: energy.”