Right now global growth in unconventional oil and gas is a pipe dream. The action, profits and share growth are all happening with companies right here in the United States.
The United States is the undisputed leader in shale gas and oil exploration and production (E&P). But that’s not because we have the most recoverable shale resources under our soil.
We’re second in the world (after Russia) in technically recoverable shale oil, and fourth in the world in recoverable shale gas.
In fact, according to the Energy Information Administration (EIA), a mere 9.1% of global recoverable shale gas and 16.8% of global recoverable shale oil are located here in the United States.
Yet more oil and gas are coming out of U.S. shale than any other place in the world. Why?
1. A legal framework that allows and encourages new technology development and innovation.
2. Entrepreneurial and inventive oil and gas E&P companies.
3. Favorable market forces and pricing.
4. The U.S. system that allows private mineral ownership.
5. A favorable regulatory and judicial environment that has (at least so far) made shale development cost-effective.
Here (and in Canada) there are literally thousands of market players, big and small, active in every area of the oil and gas sectors.
Nowhere else in the world is the oil and gas E&P industry as competitive and diversified. Nationalized oil companies control nearly 85% of the oil and gas reserves and 55% of production outside of North America.
In many countries, nationalized oil companies have sole access to the reserves. In these places, the governments own the resources and allow no foreign ownership. As a result, many international oil companies lack the financial incentives to drill.
Even without these roadblocks, lack of equipment is a big issue. Take drill rigs, for instance. The United States has 1,176; Asia 639; Latin America 423; and Europe 138.
Let’s look at a few of the big potential players in shale oil and gas.
The largest gas reserves in the world
At 31.6 trillion cubic meters, China’s shale gas reserves are the largest in the world. China’s reserves are over 50% greater than those of the United States. Its shale oil reserves are the third-largest in the world at 32 billion barrels.
China has big plans for shale gas production. So far, the government has invested $1.13 billion in shale exploration.
It wants to produce 6.5 billion cubic meters per year by 2015. So far, it’s produced only 15 million cubic meters. It would need to increase that production by a factor of 433 to hit its target.
Part of the problem is a lack of technology, water and access. As a country, China has severe water shortages. Fracking and horizontal drilling for oil and gas depend on the availability of large volumes of water.
Unconventional oil and gas production also requires experienced petroleum engineers and geologists, drilling crews and management teams. China has few if any of those. It also lacks an established supply chain for equipment and parts.
Pipeline infrastructure to transport gas to population centers is virtually nonexistent. Thousands of miles of new pipelines will be required.
Some of the best quality shale reserves on the planet are found in Argentina. With 22.7 trillion cubic meters of shale gas and 27 billion barrels of shale oil, Argentina is right behind China.
International oil companies are excited about prospects in Argentina. But they worry about regulatory issues and political uncertainty there — as you can imagine.
Most are taking a wait-and-see attitude before partnering with the country’s state-run energy company Yacimientos Petrolíferos Fiscales (YPF).
And like China, drilling costs are a big issue in Argentina. Apache Corp. (NYSE: APA) has done some exploratory drilling there. It finds that it is twice as expensive to drill and four times as expensive to fracture wells in Argentina compared to the United States.
Australia shows some promise. It’s partnering with a few American companies to delineate its unconventional gas resources.
The U.K. and (with few exceptions) the rest of Europe are taking a dim view on hydraulic fracturing. Some countries have an outright ban; others make permits difficult to acquire.
The bottom line is global growth in unconventional oil and gas is a pipe dream (pun intended) right now. That may change in a few years, but the action, profits and share growth are all happening with companies right here in the United States.
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