The Future of Unconventionals in Latin America
As the ‘shale craze’ of North America transforms oil and gas economics globally, where will the next boom be? One region under scrutiny is just to the south in Latin America, from Mexico to Argentina. Intense activity in the Permian, Williston and Appalachian Basins has not been matched, however, in this region, despite so many shared attributes. Why? Is it the geology, or something else? And will there be breakthroughs in the foreseeable future?
Part of the answer lies in the well-known story of how the ‘shale craze’ spread in North America’s onshore. Everyone is familiar with the way a few pioneering geologists and engineers tackled the challenges of the Barnett Shale, and how they and colleagues eagerly tried the new technologies of laterals and multi-stage fracking in other brittle organic zones in nearby basins. They soon learned, however, that cookie-cutter approaches do not work so well, and every basin and area requires tailored technology plus some trial and error – or, as they say, an element of ‘pump and pray’. This has met with varying degrees of success from region to region, with an expansion of the general technology and growth of oil and gas shale production from Pennsylvania to California and from Alabama to British Columbia. In addition to favourable geology, the pumping and praying pioneers in North America enjoyed one common denominator – an advantageous above-ground mix of topography and vegetation, regulations, service industry, land ownership and pipelines.
Factors Affecting Unconventional Hydrocarbon Exploration & Production in Latin America
Latin America has great geology too, with the Eagle Ford bookend, La Luna and its equivalents, occurring across a broad swath of the North Andean realm from Trinidad to Peru, and the thick, rich, brittle Vaca Muerta Formation occupying a large basin complex in Argentina. The aboveground conditions are very different in Latin America, however. Few regions from Mexico to Argentina have much of a paved road network, let alone railroads or pipeline networks to support the massive drilling campaigns and gorilla industry needed for the multistage fracking or high water cut production associated with shale development. Much of Latin America is associated with high-volume rivers and heavy vegetation. Additionally, the local population have put up varying degrees of resistance and host government legislation often fails to cater for the intense drilling operations demanded by shale’s modest per-well IPs and EURs.
Another, less recognised impediment exists to a ‘shale boom’ in the countries of Latin America: competition with remaining potential from onshore conventional production. Well density and technology in most of onshore Latin American is well behind that of North America and conventional exploration will vie for investment capital with any North America-like pure shale plays in most basins for the foreseeable future. In addition, with the significant exception of the Vaca Muerta, a shale boom will not happen soon because of very high remaining conventional gas potential.
These issues do not preclude the region from benefiting from the technological advances of North America shale. Many of the great organic-rich brittle rocks in Latin America have been subjected to major transpressional forces, especially in the North Andean realm. This has resulted in natural fracturing similar to the Monterey in California and giant fields have already yielded billions of barrels out of these brittle shales, most notably the La Paz-Mara complex on the north side of the Maracaibo Basin in Venezuela. Other large structures have been vertically drilled in a number of countries with less well-developed natural fractures and are ripe candidates for laterals or high-angle wells coupled with completion techniques adapted from the latest North American practices. A few enlightened operators are starting this trend, albeit modestly.
Unconventional Hydrocarbon Potential in Latin America
Let’s take a look at some of the basins in Latin America where activity is most likely to be positively affected by applications of recent ‘shale’ drilling and completion technology.
The Eagle Ford trends into Mexico, but any sustained commercial activity there will have to compete with the incredible remaining onshore conventional potential further south in the Tampico-Misantla, Veracruz, and Sureste Basins. There is ripe opportunity here for shale technology to substantively enhance production in marginally fractured reservoirs, that have only seen vertical wells and decades-old completion techniques. With the recent ‘opening’ of Mexico, international operators are just starting this trend, but it will take a number of years to ramp up.
The afore-mentioned greater North Andean belt from Trinidad through Venezuela to Colombia, Ecuador and Peru harbours major potential for focused action with new techniques to open up historically stubborn rocks to supplement the high permeability sand reservoirs that have yielded most of the production to date. Progress will be very different from country to country, of course, as the above-ground considerations discussed above come into play.
An outlier of Tertiary rocks with shale gas potential in the Pacific realm’s Talara Basin awaits a critical mass of activity.
Farther south we have seen a perfect storm of factors combine to create a major emerging shale producing region, the Neuquen Basin’s Vaca Muerta. These include the world’s thickest prospective zone; a relatively mature infrastructure from decades of conventional production; a flat, semi-arid, lightly-populated terrain similar to west Texas; a strong gas price; and a receptive provincial government. Success here could easily spill out to the nearby Northwest Basin and south to the San Jorge and Austral Basins, as long as provincial governments are receptive.
Also in the southern sub-Andean foldbelt realm in Bolivia, Argentina and Chile high angle or lateral wells with tailored completions might enhance gas production from naturally fractured Palaeozoics.
The interior of South America harbours broad swaths of Palaeozoic shales of varying degrees of potential for shale technology, with predominantly robust gas markets, but a variety of above ground factors such as competition with other markets, remoteness with poor infrastructure and dense vegetation probably preclude this resource from the current boom.
The Future of Unconventionals in Latin America
So, to sum up, there will not be any ‘shale boom’ in Latin America outside of the Neuquen Basin any time soon, but an educated application of tailored technology from North America’s shale basins could sustain and grow oil and gas production in certain settings for decades to come. It is up to a collaboration of enlightened operators and collaborative local and national governments.