(John Kemp is a Reuters market analyst. The views expressed are
By John Kemp
LONDON Jan 24 Most analysts and journalists
still draw a sharp distinction between the production of oil and
gas from conventional fields and from unconventional resources
such as shale. The reality is more complex.
In practice it is not easy to tell where conventional
petroleum production ends and unconventional production begins.
In assessing how quickly shale and other unconventional
petroleum resources will be developed, location matters.
Large shale resources in countries which are already major
conventional producers and exporters may not have much impact on
oil and gas availability: the shale accumulations may end up
"queued" behind a long line of conventional projects as the host
nation restricts resource development to support prices.
By contrast, shale accumulations in countries which are net
importers and/or have few conventional supplies of their own
look set to be developed much more quickly.
Unconventional oil and gas resources are often located in
the same sedimentary basins as conventional oil and gas fields.
In many cases, the shale or tight rocks which are targeted by
horizontal drilling and hydraulic fracturing were the original
source for the oil and gas found in more conventional
Petroleum geologists talk about a "total petroleum system"
(TPS) that includes all the essential elements (source,
reservoir, seal and overburden rocks) and processes (generation,
migration and accumulation) linked to a particular source of oil
A total petroleum system will normally include both discrete
accumulations of oil and gas in conventional pools, reservoirs
and fields, as well as more extensive "continuous-type
accumulations" in shales and tight rocks ("The total petroleum
system: the natural fluid network that constrains the assessment
unit" U.S. Geological Survey, 2000).
For decades, North Dakota produced millions of barrels from
wells drilled into conventional oil accumulations found in the
Madison and Lodgepole formations. But the source of that oil was
probably the Bakken and Three Forks formations, which are
continuous-type accumulations, and are now being targeted
directly by fracking firms.
The result is that much of the prospecting for shale oil and
gas is occurring in areas that have already produced
conventional oil and gas. Frackers have turned their attention
to the Anadarko Basin beneath Oklahoma and Kansas, areas that
have been producing substantial quantities of oil and gas for a
Argentina's enormous Vaca Muerta shale formation is thought
to be the source for several conventional oil fields in the
region. China's Sichuan basin, which is highly prospective for
shale gas, has been the home of the country's conventional gas
industry for thousands of years.
The North Sea is also thought to contain substantial
quantities of unconventional petroleum.
The main difference between conventional and unconventional
accumulations is the ease with which oil and gas flows through
the formation. Geologists measure this permeability in Darcy
units. Permeability for the giant carbonate and sandstone
reservoirs of the Middle East is a thousand times or more than
for shale formations.
Until the advent of horizontal drilling and hydraulic
fracturing, there was no way to extract oil and gas in
commercial quantities from low-permeability rock formations such
as shale. But by creating a network of tiny fissures in the rock
formation, hydraulic fracturing can enable oil and gas to flow
through rocks that were formerly impermeable.
However, it is important not to overstate the differences
between conventional and unconventional production. Conventional
oil and gas producers regularly use hydraulic fracturing,
acidizing and other treatments to stimulate production from
Hydraulic fracturing treatments have been performed more
than a million times in the United States since 1947, in most
cases on "conventional" oil and gas wells, according to the
National Petroleum Council ("Prudent Development: Realising the
Potential of North America's Abundant Gas and Oil Resources"
OLD AND NEW INDUSTRIES
The U.S. Energy Information Administration (EIA) estimates
there are 6,622 trillion cubic feet (tcf) of technically
recoverable shale gas resources in the United States and 32
To put this in perspective, the world's proven resources of
(conventional) natural gas are about 6,600 tcf, and total
technically recoverable resources are roughly 16,000 tcf, so
shale gas extends the conventional resource base by 40 percent
("World Shale Gas Resources: An Initial Assessment of 14 Regions
Outside the United States" Apr 2011).
Some of the biggest shale accumulations are likely to be
found in countries that already have substantial conventional
gas resources. The United States is thought to have 862 tcf of
shale gas, Libya's shale resources are put at 290 tcf, and
Algeria's at 231 tcf.
The EIA study did not assess shale accumulations around the
Middle East Gulf or in Russia and the other countries of the
former Soviet Union, but they are thought to be extensive.
The report did not assess shale oil resources at all. But
given the geology of total petroleum systems, it is very likely
large shale accumulations will be found in the same areas and
countries that already have large accumulations of conventional
Crude-laden shale formations like North Dakota's Bakken,
Eagle Ford and Permian in Texas, Oklahoma's Anadarko and
California's Monterey are all in areas that have produced
billions of barrels of conventional oil in the past.
The relationship between conventional and unconventional
production in the same area is interesting and has not been
properly explored yet. The basic question can be stated simply:
Are unconventional oil and gas accumulations in areas already
producing substantial volumes from conventional fields more or
less likely to be developed than those in areas without
substantial conventional petroleum production?
There are some reasons to think unconventional oil and gas
deposits may be developed more quickly if an area has a (recent)
history of conventional production.
Producing areas like North Dakota, Texas and the North Sea
already have pipelines and other infrastructure to enable quick
development of extra oil and gas from fracked wells. They
benefit from a well-developed network of service companies.
Local residents may be more comfortable about oil and gas
drilling in their midst.
But in other countries, shale gas and oil accumulations may
be developed much more slowly, or not at all, if there are
already substantial conventional resources.
If Saudi Arabia discovered significant quantities of shale
oil that doubled its conventional resources, would it double
output? The answer is almost certainly that it would not.
Marketing significant quantities of unconventional oil or gas
would threaten to undermine the price for its existing
Saudi Arabia is prospecting for shale accumulations, but for
gas, not oil.
The same logic probably applies to Algeria (which has
enormous shale gas resources according to the EIA) and Qatar
(which was not assessed). Both are already major conventional
gas exporters. Neither country has an interest in producing
large volumes of unconventional gas as well.
The main exception is the United States, which has produced
enormous amounts of shale gas, and is now producing large
volumes of shale oil, in addition to its large conventional
output. The result has been a dramatic drop in prices which has
caused severe problems for natural gas producers and cut returns
for oil drillers.
In the United States, however, oil and gas exploration and
production is disbursed among a large number of companies, the
market is highly competitive, and strict antitrust rules outlaw
any attempt to coordinate production decisions.
In contrast, in countries like Algeria or Libya, let along
Qatar or Saudi Arabia, production is in the hands of one or a
small number of companies, under state control or at least
heavily regulated. Monopoly suppliers of oil and gas are likely
to produce less and seek higher prices.
Only countries like Argentina or Ukraine, which have
relatively modest conventional production but large shale
resources, are likely to push for rapid development of
China is something of an intermediate case. The country has
enormous unconventional gas resources, especially in the Sichuan
basin, which the government is keen to develop. But until now
most of the prospecting activity has been controlled by a small
number of state-owned firms that already produce conventional
oil and gas.
Some observers, like the International Energy Agency,
question whether this has blunted their incentive to explore and
develop shale fields. The latest licensing round seems to try to
solve that problem by awarding exploration licences to a much
wider range of firms, many of which do not currently have
(Editing by Anthony Barker)