Geoscientists and others working the booming plays of Latin America know experience is a great tool.
When it comes to unconventional plays, that means learning from the experience of their peers in North America.
That was obvious during the 2011 AAPG Geosciences Technology Workshops(GTWs) held in Buenos Aires in June and Bogota in December, when operators from Argentina, Chile, Colombia, Ecuador and Venezuela were eager to maximize their capital investment by learning from the experience of U.S. and Canadian companies.
- First, in Buenos Aires, 155 geoscientists, engineers and geophysicists from 52 companies and eight countries participated in GTW Argentina. The workshop was co-hosted by the AAPG Latin America Region and the Asociación Argentina de Geólogos y Geofísicos Petroleros.
- Then in Bogota, the Latin America Region and the Asociacion Colombiana de Geologos y Geofisicos del Petroleo collaborated to co-host GTW Colombia, where a new record for GTW attendance was set by 163 professionals from 56 companies and seven countries.
Unconventional play development is costly, and by escalating the learning curve, Latin American companies hope to benefit from both the successes and failures of North American experiences.
In 2011, companies across Latin America and North America invested in learning through AAPG GTWs.
Measures of Success
U.S. natural gas production rates in the 1970s were in a state of continuous decline – and as recently as 2007 it was believed that U.S. consumption demand could only be met by importing large volumes of liquefied natural gas (LNG).
Instead, recent shale gas production has more than doubled the size of known natural gas reserves in North America, and is expected to supply over 100 years of consumption at current rates.
Currently there are at least six competing shale gas plays in the United States, including the Barnett, Marcellus, Haynesville, Fayetteville, Woodford and Eagle Ford, as well as several producing shale plays in Canada. If fully developed, the Marcellus is estimated to become one of the largest natural gas fields in the world.
In its February 2010 study, “Fueling North America’s Energy Future,” IHS CERA estimated the recoverable gas resource base of the six major U.S. shale gas plays exceeded 1,100 trillion cubic feet (Tcf), or about 40 percent of the total estimated U.S. natural gas resource base at the time of the report.
As recently as last month, the U.S. Energy Information Agency reported “natural gas working inventories continue to set new record highs and ended December 2011 at an estimated 3.5 Tcf, about 12 percent above the same time last year.”
Discoveries of abundant shale gas have not only reversed the nation’s declining energy supplies, but also made significant economic impacts across the United States and Canada.
And enormous untapped potential remains, as indicated by a U.S. Geological Survey’s Q3 2011 assessment of shale gas resources in the lower 48 states, which calculates “mean total shale gas resources of 336 Tcf of gas from yet undiscovered but technically recoverable resources” in nine basins.
The Learning Curve
Geoscientists have long known that vast volumes of natural gas and other forms of hydrocarbons are stored in low permeability rocks across North America. But only in the last few years – with improved methods and the combined use of technologies like multi-stage hydraulic fracturing and horizontal drilling – have operators been able to extract significant commercial quantities of these unconventional resources.
With each new play, North American teams apply learnings from the previous play along with improved drilling and completion methods. This “continuous learning” approach has yielded an exponential increase in unconventional resources production.
- Natural gas production from the Barnett Shale was discovered in the early 1980s. Laterally expansive, the shale formation covers over 5,000 square miles in North Texas. Production was steady but remained relatively flat until approximately 2001, when production increased dramatically and continued increasing to a rate of 1 Bcfd around 2004.
The production spike is attributed to substantial field development efforts induced by technological improvements in recovery methods and a favorable economic environment.
- The Fayetteville shale gas play covers 9,000 square miles across the Arkoma Basin. For practical purposes, development of the play began in 2005 with the introduction of horizontal drilling. Beginning in approximately 2006, production rates soared to the 1 Bcfd level within three years.
- The Marcellus Shale covers 54,000 square miles, running through Ohio, West Virginia, Pennsylvania and into New York. In 2002, the U.S. Geological Survey estimated the Marcellus Shale held 30.7 Tcf of natural gas. Actual gas production from the Marcellus Shale jumped to 1 bcfd between 2008 and 2010.
According to the most recent USGS assessment, the Marcellus is now estimated to contain about 84 Tcf of undiscovered, technically recoverable natural gas and 3.4 billion barrels of undiscovered, technically recoverable natural gas liquids.
“The increase in resource is due to new geologic information and engineering data,” according to the report, “as technological developments in producing unconventional resources have been significant in the last decade.”
Economic Impact of Unconventionals
Examples of the positive economic impacts of unconventional resource development are not hypothetical. Positive contributions to economic growth, employment, government revenues and capital investment have been quantified across North America.
The shale gas industry alone contributes significantly to the U.S. economy both in terms of direct employment of workers and indirect employment of supplier industries.
The December 2011 IHS Global Insight report attributed economic benefits from unconventional resource production in terms of employment.
“In 2010, the shale gas industry supported over 600,000 jobs,” the report read. “By 2015, the total number of U.S. jobs supported by the shale gas industry is projected to increase by 45 percent to nearly 870,000 jobs.”
The IHS report further said that in addition to jobs creation and support in 2010, “shale gas production contributed $18.6 billion in federal, state – and local tax revenues and federal royalty revenues.”
By 2015, total government tax revenues from the shale gas industry, government tax revenues – comprised of federal, state and local taxes – plus federal royalty payments are projected to increase by 54 percent to $28.5 billion, according to IHS reported data.
A number of recent independent studies have assessed the economic impact of unconventional shale plays in the United States from the Barnett, Haynesville and Marcellus plays, among others. Without exception, communities, states and regions have benefitted from the shale gas industry’s contribution of jobs, infrastructure improvements and tax revenues.
Lower energy costs resulting from plentiful natural gas supplies also are attracting new industries. Similar economic benefits from production of shale gas and shale oil can also be cited for Canada.
A Perryman Group’s 2011 study of the Barnett Shale’s impact on business activity said, “Direct spending for exploration and production activity … leads to multiplier effects through the economy, which, in turn, initiate a chain of spillover business stimulus through the area.”
Lessons for Latin America
What are the lessons learned from the North American experience that can be applied and will foster the development of unconventional resources in Latin America?
Because the unconventional oil and gas business is fundamentally different than conventional exploration and production, company and individual investment in learning is critically important. Over the last few years, technical expertise has been acquired to economically benefit producers of unconventional resources and communities in North America.
Clearly, AAPG GTWs are serving to facilitate knowledge transfer.
This year, AAPG will continue the trend by partnering with local affiliate societies to offer GTWs in Brazil and Peru.
In time, economic benefits similar to those derived in North America can also be realized in Latin America from development of unconventional resources. And as recent operations by companies in Argentina, Brazil, Colombia and Uruguay indicate, the understanding of unconventional reservoir systems gained in North America already is being applied as analogs for undrilled areas in Latin America.
And if the business environment is right, the high cost of producing unconventional resource plays will pay off in reduced reliance on imported oil or LNG for the producing country plus much needed economic activity in the form of jobs, tax revenues and infrastructure development.