Unconventionals in the US: What Next?
How do you think the new Biden administration’s energy policies and attitude towards oil and gas will impact unconventionals in the US?
The Biden administration’s stated objective #5 of the 9 Key Elements of Joe Biden’s Plan for a Clean Energy Revolution is to “accelerate the deployment of clean technology throughout our economy.” This is creating a massive impetus to transition to low-carbon energy, and to invest in geothermal energy and energy storage such as in carbon capture usage and storage (CCUS). For example, ExxonMobil has announced a $100 billion carbon capture and storage plan that utilises the salt domes in the Gulf of Mexico. Government support is also providing tremendous incentive to further modify operations in order to avoid emissions, waste, and pollution. Most people think of ‘unconventionals’ as being shale gas, but in reality, the term, ‘unconventional resources’, can apply to any energy that is not a high permeability, high porosity reservoir. It is also providing tremendous incentives to further modify operations to avoid emissions, waste, and pollution. Therefore, there are a number of ways in which low permeability, often laterally drilled wells, can be partnered with green energy. For example, low-volume gas can be used in conjunction with geothermal, as can solar, to utilise existing wells to store energy as well as produce it. Repurposing suitable oil and gas wells for geothermal energy may also be a growth area in the future.
US unconventionals will probably look different in the next few years – perhaps smaller and dominated by a high-graded or integrated portfolio of data-driven operators. How will new technology feed into this scenario?
In the case of data-driven operators, success hinges on new technologies: sensors, cloud-based analytics, software that enables ‘smart’ operations, and machine-learning powered programmrs that have the predictive power necessary to make it possible to automate maintenance and operations. Interventions in the case of leaks or emissions can be automated as well. Perhaps one of the most promising areas of incorporating new tools and technologies and solving supply-chain issues is in the area of additive manufacturing. The use of drones and satellites for monitoring and planning surface logistics is also beginning to be an integral part of operations. Surface images are provided by satellites owned by companies such as Maxar or gathered at lower altitude by drones by providers such as Juniper Engineering.
The future of US shale could also hinge on how successfully it can adapt itself into a greener future. Do you see any trends in this area? I see a tremendous investment in diversification, both in avoiding greenhouse gas emissions and hazards such as induced seismicity, as well as in rethinking the depleted laterals and considering ways to use them for energy storage, or in energy optimisation. It is interesting to see how many people are doing creative work that cuts across energy silos. For example, energy minerals expertise is vital in newly implemented produced brine mining where lithium is being extracted. The concentrations are low, but the volume can be very high in certain reservoirs. Water management in general is developing in many new and important directions, and something to consider as water scarcity is an increasingly urgent issue in the world. If water processing technologies can bring costs down, today’s shale industry could be tomorrow’s water industry.
Unconventional development in the US has been characterised by three trends: rapidly rising production, continual investment, and persistent negative free cash flow for the independents. How do investors currently view investment in this area?
Investors are currently looking closely at gas sourcing, and closely evaluating the technologies used to produce ‘blue’ hydrogen from natural gas, with carbon capture and storage (CCS) technology disposing of the in-situ CO2. Service company giant Schlumberger has teamed with Thermal Energy Partners (TEP) to create STEP Energy, a geothermal energy company, to develop efficient and profitable geothermal power generation projects. Companies such as Project Canary are focused on ‘ethically sourced gas’ and certify that companies are producing their gas with the proper safeguards against leaks and emissions. There are potential tax benefits and even grants that were passed as a part of the Covid relief bill(s), which provides even more incentive. The key is to turn a short-term stimulus into a long-term sustainable benefit.
With countries such as Mexico and Australia having potential shale plays, what developments do you see coming internationally in this area?
Mexico has vast potential shale plays which several geologists have been promoting for many years. There is little appetite at present for exploring and putting them in production in the near term due to the public’s negative view of hydraulic fracturing and a few internal issues. Further, the initial capital investment required is significant. As soon as the climate is more positive for foreign investment, and technologies are in place to create blue hydrogen as well as clean electricity, the situation may change. There are also significant water issues to be considered, which must be addressed in the overall plan.
Australia’s mining industry has great synchronicity with shale, particularly in co-production of brine minerals and the use of blue hydrogen to help process battery metals.
In general, one can say that the future will consist of complementarity and using the resources where one has the highest comparative advantage to spur local economic growth and increase meaningful economic access.