Rethinking unconventional oil and gas: Kemp

Jan 24 2013, 00:01 IST
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production of oil and gas from conventional fields and from unconventional resources such as shale. production of oil and gas from conventional fields and from unconventional resources such as shale.
SummaryIn practice it is not easy to tell where conventional petroleum production ends and unconventional production begins.

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.

Location, Location

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 conventional output.

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,

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