The
U.S. Government today nearly halved its estimate of U.S. shale gas
resources. This follows an even
more drastic decline in Poland’s shale gas resources by its national geological
institute. As China starts serious
drilling of its shale gas resources, will its optimistic resource assessment
also drop?
In
April 2011, the Energy Information Administration of the U.S. Department of
Energy released World Shale Gas
Resources: An Initial Assessment
of 14 Regions Outside of the United States. That ground-breaking study
suggested that global shale gas technically recoverable resources (TRR) of 6622
trillion cubic feet (tcf) roughly equaled global proved natural gas
reserves. TRR clearly is a more speculative measure than proved reserves, which
define known gas that can be economically produced with current
technology. Still, the TRR figure
firmly established global shale gas as a worldwide energy sector game changer.
World Shale Gas Resources crowned China as
king with 1275 tcf of TRR, followed by the U.S. with 862 tcf, Argentina with
774 tcf, and Mexico at 681. The
study found the largest shale gas resources in Europe in Poland (187 tcf) and
France (180 tcf).
In
its 2012 Annual Energy Outlook, released
today (June 25), the EIA lowered its estimate of U.S. shale gas TRR to 482
tcf—a 44 percent decline. The fall
resulted largely from a 67 percent drop in EIA’s estimate of TRR in the 100,000
square mile Marcellus shale that spreads across eight states from Tennessee to
New York, but with most drilling in Pennsylvania and West Virginia. (New York imposed a moratorium on shale
gas exploitation, pending an environmental assessment.) EIA followed a revision by the U.S.
Geological Survey of the Marcellus shale.
EIA emphasized that further drilling could result in a future upward
revision of resources and that the lower TRR does not directly correlate to
projected production.
The
Polish Geological Institute announced its Assessment
of shale gas and shale oil resources in Poland—First report on March
21. The PGI emphasized that the
report should be considered only a conservative, initial estimate as it was
based on 39 wells drilled between 1950 and 1990. Still, Minister Piotr Woźniak, Poland’s Chief Geologist,
noted that only 22 wells had been completed since 2010 and a mere 14 were
planned for 2012, compared to the thousands drilled annually in the U.S. The PGI estimated the most probable
level of Polish shale gas resources between 346.1 billion cubic metres (12.2
tcf) and 767.9 bcm (27.1 tcf).
Even the high end of the range is 85.5 percent lower than EIA’s estimate
in World Shale Gas Resources a year
earlier. Last week the Gazeta
Wyborcza reported that ExxonMobil would abandon its shale gas exploration projects
in Poland after test wells failed to produce commercial results.
So
back to China. Already in March
2012, China’s Ministry of Land and Resources scaled back its estimate of the
country’s shale gas TRR from 31 tcm (1095 tcf) to 25.1 tcm (886 tcf) based on
its most extensive appraisal to date.
The MLR noted that the complicated geology of its shale gas reserves and
the relative inexperience of its companies would make shale gas production
difficult. Others have cited
China’s regulatory regime, including administrative (versus market) pricing of
gas, the lack of pipeline infrastructure, and the fact that some of China’s
large shale gas resources, such as those in Xinjiang, are in semi-arid areas,
as potential impediments.
Nonetheless, the government of China has moved forward on leasing shale
gas tracts. China’s big
three—China National Petroleum Corp./PetroChina, China National Offshore Oil
Corp. and Sinopec—all have purchased North American shale gas assets to learn the
technology and have brought in Shell, Chevron, BP and others to work Chinese
basins.
China’s
current Five Year Plan calls for production of 6.5 bcm (230 bcf) by 2015 from
19 major shale gas regions across the country. By 2020, China’s National Development and Planning
Commission expects shale gas production to jump to between 60 and 100 bcm (2 to
3.5 trillion cubic feet).
Whether
or not China meets its ambitious shale gas production plans, the U.S. and Polish
cases suggest that further drilling in China may well mean further reductions
in the estimates of China’s overall shale gas resource.
