Shale gas next frontier for Mena states

13 March 2013

Countries in the region look to unlock unconventional gas reserves as population growth and industrial demands squeeze energy supplies, with North Africa taking the lead

North America’s shale gas boom has radically altered the global energy landscape. Hydraulic fracturing (fracking), honed in US wells, has the potential to unlock unconventional gas reserves in markets from Europe to China, helping to plug energy shortfalls. The International Energy Agency in 2011 predicted global gas production could jump 50 per cent by 2035, with unconventional sources generating two-thirds of new supply.

The gas price … is the primary challenge. Below $1 per thousand cubic feet isn’t economically viable”

Niall Rowantree, unconventional gas analyst

Countries in the Middle East and North Africa (Mena) have been slow to show interest, in part because many have plentiful reserves of conventional gas. But surging energy demand, driven by swelling populations and industrial growth, has prompted some countries to review their options, particularly the fuel potential presented by tight gas and deeper shale.

Unconventional gas reserves

A 2011 report by the US Energy Information Administration says about 5,760 trillion cubic feet of technically recoverable gas exists outside North America. North Africa appears to have significant reserves, with Libya leading the pack.

The country is home to an estimated 290 trillion cubic feet of gas. Algeria has 231 trillion cubic feet and Tunisia 18 trillion cubic feet, with Morocco and the Western Sahara holding 11 trillion cubic feet and 7 trillion cubic feet respectively. The two major shale gas basins in the region are the Ghadames Basin, which straddles eastern Algeria, southern Tunisia and northwest Libya, and the Sirt basin in northern Libya.

Tunisia has led efforts to tap unconventional reserves. The North African state was the first in the region to establish fracking, contracting with firms including Canada’s Cygam Energy and France’s Perenco. UK/Dutch Shell Group in June was reported to be in talks with the government over the possible exploration of shale gas deposits in the country.

Algeria is also bullish on the potential of unconventional gas to safeguard its future energy supply. “The initial results of the evaluation of non-conventional gases, mainly shale gas, have shown the reserves in the country as at least equal to US reserves,” Youcef Yousfi, Algeria’s energy minister, told the Algerian Press Service in February.

This is perhaps optimistic, but Algeria has been quick to press ahead with exploration efforts. National oil company Sonatrach in July confirmed it was in talks with Shell and Exxon Mobile to invest in the sector. In 2010, it inked a cooperation agreement with Italy’s Eni to carry out shale gas exploration. Oil ministry officials said in May the government planned to roll out new legislation and tax incentives to attract foreign investment to the sector.

Fracking has also caught the attention of Gulf countries. The world’s biggest oil producer, Saudi Arabia, may hold the world’s fifth-largest deposits of shale gas, according to an estimate by Baker Hughes, with as much as 645 trillion cubic feet of recoverable fuel. This has not escaped attention. MEED reported on 3 October that oil major Saudi Aramco plans to fast-track the development of its shale gas resources seven years ahead of its previously stated schedule, following delays to some conventional gas projects. The state-owned company is carrying out seismic surveys in the northern desert area, close to borders with Iraq and Jordan, and has instructed US oilfield services companies Halliburton and Schlumberger to begin feasibility studies for potential production.

“Aramco knows it needs to increase the amount of gas it produces and shale gas is an option it has to do this,” an oil and gas source based in the kingdom told MEED at the time. “It has really started to move on this now and 2013 should see it accelerate operations even further.”Aramco had previously said it intended to develop its shale gas reserves by 2020.

Gas investment

In Oman, the focus is on tight gas. In 2007, the sultanate signed a major exploration and production-sharing agreement with UK oil major BP for the appraisal and development of Block 61. Critical to the deal was BP’s position as a leading specialist in the production of tight gas.

The block, which covers 2,800 square kilometres, includes the Khazzan and Makarem gas fields, discovered in 1993. BP says they remained undeveloped due to the complexity of the reservoirs and the difficulty of unlocking gas trapped in scattered, low-permeability rock. The company hopes to transplant techniques used to unlock unconventional gas reserves in North America, to Oman.

BP last year said it planned to invest as much as $15bn in Oman’s gas sector, with the Khazzan project representing the first phase of the development of Block 61. The proposed plant is expected to produce about 1 billion cubic feet a day of sales gas from 275 to 325 wells drilled in the field. The initial phase of development in Block 61 will target about 7 trillion cubic feet of recoverable resource.

BP expects to sign the final agreement with Muscat in 2013 and start production at Khazzan in late 2016, or early 2017.

Unconventional gas will always be more expensive to exploit than shallower, conventional reserves. It usually requires more data and engineering manpower, while more wells have to be drilled, and closer together. The Mena region faces specific challenges in this respect as a number of countries have restrictive gas pricing policies, with the result being that some projects may prove uneconomical.

Gas pricing incentives

“The gas price that might be achieved is the primary challenge,” says unconventional gas analyst Niall Rowantree. “Below $1 per thousand cubic feet isn’t economically viable.”

Countries keen to push ahead with the successful development of unconventional resources will need to look again at pricing and incentives, he adds.

“The development of unconventional gas depends on the commitment of governments in terms of pricing and fiscal regimes. If the price is right, there’s nothing to stop it. One positive is that the gas can be used as an alternative generation feedstock to oil. Every barrel they don’t need to burn in a power station can be sold by countries on the global oil market.”

Another concern is the scarcity of water. Fracking involves pumping water at high pressure into gas-bearing rock to create hairline fractures 1-2 millimetres in width. These allow gas to flow into the well bore to be captured. A shale gas well can reach 428 metres below the surface and a typical well requires 2million-6 million gallons of water. In countries such as Saudi Arabia, securing water that cannot be used for drinking or agricultural purposes will be a challenge.

As complex is the issue of manpower. Unconventional gas requires skilled workers, who are often in short supply, or committed elsewhere. “It’s not an easy resource, whether looking at price, labour or technology,” says Rowantree. “An alignment of these factors is needed, and then the region can move ahead.”

The biggest driver is likely to be domestic gas requirements. The GCC is facing a projected shortfall of up to 31 billion cubic metres of gas a day by 2015, driven by rising demand. Associated gas cannot always meet this growing need as a generation fuel, as it is required to keep up the pressure in depleted oilfields.

“As countries in the region begin to move away from associated gas, and as reserves of conventional non-associated gas begin to run out, unconventional gas will come more into the regional supply picture,” says Hakim Darbouche from the Oxford Institute for Energy Studies.

A boom in unconventional gas could create thousands of industry jobs, push down energy prices and lead to a significant drop in carbon emissions. With its unconventional gas reserves, the Mena region is well-placed for success.

Key fact

Tunisia was the first North African state to use fracking to unlock unconventional gas reserves

Source: MEED

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