FOCUS: UNCONVENTIONAL OIL & GAS — Europe, Africa, Asia governments assess shale development policies

Governments that implement overly stringent policies for the development of natural gas resources, including shale gas and coal-seam methane, could hinder economic growth and risk seeing their economies go "backwards," ExxonMobil Corp. Chief Executive Rex Tillerson warned recently.

Speaking June 5 to the World Gas Conference in Kuala Lumpur, Malaysia, Tillerson stopped short of addressing his remarks toward any specific country. He said industry and governments can study and learn from the successes and shortcomings of the North American shale experience.

"Governments must be prudent so as not to stifle development or the investments in innovation that improve safety and performance," Tillerson said. "Regulations must strike an appropriate balance between proper risk management and economic viability.

"Governing or setting policy and regulation based upon the precautionary principle will stifle innovation and investment and bring development to a standstill. I recognize this is, in fact, the objective of some. But if governments put development of these new sources of energy at a standstill, they will find their economies walking backwards," Tillerson said.

Private investment led to technological breakthroughs in unconventional gas recovery, he noted. "They are not the result of government policy that picks winners and losers."

Industry must continue to invest, innovate, and create partnerships to meet rising global energy demand, he said. Such investment hinges upon what he called "appropriate" government policies.

"Both industry and government must...each fulfill our respective roles...within a legal and policy framework that encourages long-term relationships, long-term investments, and long-term technological progress," Tillerson said.

He urged industry and government to promote unconventional gas development "in a safe, efficient, and responsible way for the economic and environmental benefit of every nation."

Emerging shale regulations

Tillerson's remarks came about 2 weeks before media reports that ExxonMobil has decided against proceeding with exploration of shale gas in Poland.

A spokesman for ExxonMobil in Poland told Reuters that ExxonMobil has not decided yet what it would do with its exploration licenses. ExxonMobil controls four licenses and jointly holds two with Total SA.

Poland granted more than 100 shale exploration licenses to a host of companies including Chevron Corp., ConocoPhillips, and Marathon Oil Corp. Poland has three shale basins: the Baltic in the north, the Lublin in the south, and the Podlasie in the east (see map, OGJ, Nov. 7, 2011, p. 36).

Polish officials suddenly called off a planned June presentation of a legal framework for unconventional gas development policy, Reuters reported, saying the Polish government instead plans to release a draft law by July 31.

One attorney suggested the planned presentation was delayed because of ExxonMobil's pending announcement to leave Poland.

"If this draft was published, and Exxon later declared it was leaving the country, it would most likely have been a disaster in terms of the country's image," Piotr Spaczynski, partner at law firm Spaczynski, Szczepaniak & Wspolnicy, told Reuters. He advises foreign oil companies investing in Polish shale.

Meanwhile, countries in Europe, Africa, and Asia continue deliberating and implementing their unconventional energy policies.

The US Energy Information Administration estimates Poland could have some 5.3 trillion cu m of technically recoverable resources, which is believed to be the largest shale resources in Europe.

The EIA report also identified France as having large shale gas potential. Both Poland and France rely heavily on imported gas.

France, Bulgaria, and Romania have moratoriums on shale gas exploration pending environmental studies.

On July 13, 2011, France enacted a law prohibiting exploration and exploitation of liquids or gas using hydraulic fracturing. The law repealed exclusive exploration permits that France already granted.

The UK temporarily suspended hydraulic fracturing during an investigation into whether the practice was linked to a series of earthquakes.

Regulations increase cost

Melissa Stark, Accenture clean energy global lead, told OGJ that oil and gas executives realize more restrictive regulations mean additional operating costs. Stark works out of Accenture's London office.

Underground injection wells are commonly used in the US and provide industry with one of the lowest-cost water disposal methods.

"But a lot of countries are worried about injection wells," Stark said. "In the absence of the option of wastewater disposal in underground disposal wells, the cost of other forms of wastewater management is likely to be much higher."

In addition to the cost of waste disposal options, other parts of the world will face water sourcing, population density issues, and infrastructure logistics that are different than what US federal and state agencies have faced.

Accenture is studying how other countries might use lessons learned in the US about shale development, in particular water regulation, water management, and water movement. Accenture expects to complete a report on its study in September or October .

Other potential issues being contemplated by various governments include water availability and the protection of groundwater drinking supplies from possible contamination by chemicals used in oil and gas activities.

Stark notes scarcity of water creates public concern for residents and governments as well as operational concerns for operators.

Lack of an accessible, reliable water supply severely compromises the ability of operators to function and to grow in a particular area. Many oil and gas companies are placing sustainable water management higher on their corporate agenda.

Stark talked with OGJ about emerging unconventional energy regulations and water regulations in Poland, China, and South Africa.

"The Polish government is very keen to develop shale gas," Stark said. So far, Poland has relied upon its conventional gas framework to regulate shale gas activities. She noted that Poland has ample water supplies and already has a water act on permitting and wastewater discharge. Poland also has a mandatory chemical disclosure rule.

China

China, vigorously promoting shale gas exploitation, is in the early stages of its shale development and is forming its regulations (OGJ, Mar. 5, 2012, p. 60).

Stark sees China as having the biggest parallels with the US in terms of size. China's shale deposits are spread across four regions with varying depths and different geology from one another.

China's National Energy Administration forecasts shale gas output by 2020 of 60-100 billion cu m. Currently, China has no commercial shale production.

"China's potentially enormous deposits could play a major role in helping boost the share of natural gas in its energy mix, and easing its dependence on coal," Peter Voser, Royal Dutch Shell PLC chief executive officer, told the World Gas Conference on June 5.

He compared the potential of Chinese shale to US and Canada shale operations, noting China's shale is geologically more complex than in the US.

Shell reports promising early results on joint projects with China National Petroleum Corp., including the Changbei tight gas field in Shaanxi Province. China National Petroleum Corp. (CNPC) and Shell China Exploration & Production Co. Ltd. have a production-sharing contract for shale gas on the Fushun-Yongchuan block in China's Sichuan basin (OGJ Online, Mar. 26, 2012).

Stark noted China's shale deposits are at 3,000-5,000 m compared with less than 3,000 m deep for most US shale deposits. The depth, coupled with infrastructure challenges, makes development of China's shale more complex and more expensive than the development of US shale plays, she said.

"Take Sichuan basin as an example. It is one of the regions with highest population density in China and most of the landscape in Chongqing and Guizhou are mountains."

China's shale resources are dispersed throughout the country. About 40% of the China's shale is found around the center of the country, an area known for droughts and seasonal water shortages, Stark noted.

"Companies want to develop the Chinese shale," Stark said, adding that costs can increase when government agencies layer in environmental regulation such as water monitoring and water treatment.

Stark said industry will have to find ways to transport gas to urban markets, noting that China does not yet have as extensive a pipeline network as the US.

China's National Development and Reform Commission is working on shale-specific policy, outlining requirements to cover drilling activities, wastewater discharge, and fracing. China's Ministry of Environmental Protection monitors underground water supplies.

South Africa

South Africa has awarded technical cooperation permits to some companies to study shale gas in the Karoo basin, including Shell, Statoil ASA, Chesapeake Energy Corp., Sasol Petroleum International Pty. Ltd., and Falcon Oil & Gas Ltd. (OGJ Online, July 19, 2010).

The depth of the shale in central and southern South Africa is 2,500 m, which makes it similar to the US Marcellus play.

The South African Department of Mineral Resources is compiling a shale development feasibility study scheduled for completion by July 31.

"Water and water sourcing are going to be big issues given lower-than-average rainfall," in South Africa, Stark said. She anticipated "lots of public engagement on water use."

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