The Shale Gas Shock

Matt Ridley
Foreword by Freeman Dyson

The Global Warming Policy Foundation

GWPF Report 2

GWPF Reports
Views expressed in the publications of the Global Warming Policy Foundation are those of these authors, not those of the GWPF, its Trustees, its Academic Advisory Council members or its Directors.

The Global Warming Policy Foundation

Director Dr Benny Peiser

Board of Trustees
Lord Lawson (Chairman) Lord Barnett Lord Donoughue Lord Fellowes Rt Rev Peter Forster, Bishop of Chester Sir Martin Jacomb Henri Lepage Baroness Nicholson Lord Turnbull

Academic Advisory Council

Professor David Henderson (Chairman) Professor Richard Lindzen Adrian Berry (Viscount Camrose) Sir Samuel Brittan Sir Ian Byatt Professor Robert Carter Professor Vincent Courtillot Professor Freeman Dyson Christian Gerondeau Dr Indur Goklany Professor William Happer Dr Terence Kealey Professor Anthony Kelly Professor Deepak Lal Professor Harold Lewis Professor Ross McKitrick Professor Robert Mendelsohn Professor Sir Alan Peacock Professor Ian Plimer Professor Gwyn Prins Professor B P Radhakrishna Professor Paul Reiter Dr Matt Ridley Sir Alan Rudge Professor Philip Stott Professor Richard Tol Dr David Whitehouse

The Shale Gas Shock

Matt Ridley
Foreword by Freeman Dyson

ISBN: 978-0-9566875-2-4 Copyright 2011 The Global Warming Policy Foundation

The Shale Gas Shock

Contents
Foreword ....................................................................................3 Summary ....................................................................................4 Introduction ................................................................................5 History ........................................................................................7 Peak gas? ................................................................................11 Sceptical counter-arguments ........................................................13 Worldwide interest ....................................................................14 Coal-bed methane and tight gas in sandstone................................15 Shale gas exploitation worldwide ................................................16 Shale gas in Europe ..................................................................16 The predictability of shale gas ....................................................18 Environmental impacts ................................................................19 Fracking fluid ............................................................................19 Flaming faucets ..........................................................................21 Waste water ..............................................................................21 Water depletion ........................................................................22 Landscape and habitat impact ....................................................23 Shale gas price ..........................................................................24 Energy efficiency........................................................................25 New markets for gas in transport ................................................27 Feedstock and fertiliser................................................................28 Effect on world trade ..................................................................29 Greenhouse gas emissions ..........................................................30 Conclusion: gas and decarbonisation ..........................................31

About the Author

Matt Ridley is one of the worlds foremost science writers. His books have sold over 800,000 copies and been translated into 27 languages. His new book The Rational Optimist was published in 2010. He is a member of the GWPFs Academic Advisory Council.

Freeman Dyson
Freeman Dyson FRS, a world-renowned theoretical physicist, is Professor Emeritus of Mathematical Physics and Astrophysics at the Institute of Advanced Study in Princeton where he held a chair for many years. Dyson is the author of numerous widely read science books. He is a member of the GWPFs Academic Advisory Council. 2

The Shale Gas Shock

Foreword by Freeman Dyson

I agree emphatically with the conclusions of Matt Ridleys report. This foreword explains why. Two scenes from my middle-class childhood in England. In my home in Winchester, coming wet and cold into the nursery after the obligatory daily outing, I sit on the rug in front of the red glowing gas-stove and quickly get warm and dry. In the Albert Hall in London, in a posh seat in the front row of the balcony, I listen with my father to a concert and hear majestic music emerging out of yellow nothingness, seeing neither the orchestra nor the conductor, because the hall is filled with Londons famous pea-soup fog. The gas-fire was the quick, clean and efficient way to warm our rooms in a damp climate. The fog was the result of a million opengrate coal fires heating rooms in other homes. In those days the gas was coal-gas, with a large fraction of poisonous carbon monoxide, manufactured locally in gas-works situated at the smelly and slummy east end of the town. Since those days, the open-grate coal fire was prohibited by law, and the coal-gas was replaced by cleaner and safer natural gas. London is no longer the place where your shirt-collar is black with soot at the end of each day. But I am left with the indelible impressions of childhood. Coal is a yellow foulness in the air. Gas is the soft purring of the fire in a cozy nursery. In America when I raised my own children, two more scenes carried the same message. In America homes are centrally heated. Our first home was heated by coal. One night I was stoking the furnace when a rat scuttled out of a dark corner of the filthy coal-cellar, and I killed him with my coal-shovel. Our second home was heated by oil. One happy day, the oil-furnace was replaced by a gas-furnace and the mess of the oil was gone. We were then told that the supply of natural gas would last only thirty years. Now the thirty years are over, but shale gas has extended the supply to a couple of centuries. While the price of oil goes up and up, the price of gas goes down. In America, coal is a bloody fight in the dark. Gas is a clean cellar which became the kids playroom. The most important improvements of the human condition caused by new technologies are often unexpected before they happen and quickly forgotten afterwards. My grandmother was born around 1850 in the industrial West Riding of Yorkshire. She said that the really important change in working-class homes when she was young was the change from tallow candles to wax candles. With wax candles you could read comfortably at night. With tallow candles you could not. Compared with that, the later change from wax candles to electric light was not so important. According to my grandmother, wax candles did more than government schools to produce a literate working class. Shale gas is like wax candles. It is not a perfect solution to our economic and environmental problems, but it is here when it is needed, and it makes an enormous difference to the human condition. Matt Ridley gives us a fair and even-handed account of the environmental costs and benefits of shale gas. The lessons to be learned are clear. The environmental costs of shale gas are much smaller than the environmental costs of coal. Because of shale gas, the air in Beijing will be cleaned up as the air in London was cleaned up sixty years ago. Because of shale gas, clean air will no longer be a luxury that only rich countries can afford. Because of shale gas, wealth and health will be distributed more equitably over the face of our planet. Freeman Dyson, 22 April 2011
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Summary
Shale gas is proving to be an abundant new source of energy in the United States. Because it is globally ubiquitous and can probably be produced both cheaply and close to major markets, it promises to stabilise and lower gas prices relative to oil prices. This could happen even if, in investment terms, a speculative bubble may have formed in the rush to drill for shale gas in North America. Abundant and low-cost shale gas probably will where politics allows cause gas to take or defend market share from coal, nuclear and renewables in the electricity generating market, and from oil in the transport market, over coming decades. It will also keep the price of nitrogen fertiliser low and hence keep food prices down, other things being equal. None the less, shale gas faces a formidable host of enemies in the coal, nuclear, renewable and environmental industries all keen, it seems, to strangle it at birth, especially in Europe. It undoubtedly carries environmental risks, which may be exploited to generate sufficient public concern to prevent its expansion in much of western Europe and parts of North America, even though the evidence suggests that these hazards are much smaller than in competing industries. Elsewhere, though, increased production of shale gas looks inevitable. A surge in gas production and use may prove to be both the cheapest and most effective way to hasten the decarbonisation of the world economy, given the cost and land requirements of most renewables.

The Shale Gas Shock

Introduction
1. The detection and exploitation of shale gas has been described as nothing less than a revolution in the world energy industry, promising to transform not only the prospects of the gas industry, but of world energy trade, geopolitics and climate policy. Production of unconventional gas in the U.S. has rocketed in the past few years, going beyond even the most optimistic forecasts. It is no wonder that its success has sparked such international interest A few years ago the United States was ready to import gas. In 2009 it had become the world's biggest gas producer. This is phenomenal, unbelievable. -- Anne-Sophie Corbeau, International Energy 1 Agency 2. The claim made by shale gass champions is that, in defiance of early scepticism, shale gas is proving to be: ubiquitous, with the result that it promises to be developed near to markets rather than in places where it happens to be abundant, like oil; cheap, with the result that it promises gradually to take market share from nuclear, coal and renewable energy and to replace oil in some transport and industrial uses; environmentally benign, with the result that it promises to reduce pollution and accelerate the decarbonisation of the world economy. 3. This report considers these claims and assesses them against various counter-claims. It finds that although there are considerable uncertainties that make hyperbole unwise, shale gas will undoubtedly prove to be a significant new force in the world energy scene, with far-reaching consequences.

http://www.bbc.co.uk/news/business-12245633

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Geological definitions
4. Shale gas is one form of unconventional gas extracted from source rocks such as shale, coal and sandstone. Shale is a common form of fine-grained sedimentary rock laid down as mud in relatively calm seas or lakes. Black shale is shale that was laid down in especially anoxic conditions on the floors of stagnant seas and is rich in organic compounds derived from bacterial, plant and animal matter. Conventional gas is gas that has migrated, usually from shale, to permeable reservoirs, predominantly sandstone. Shale gas is gas that remains tightly trapped in shale and consists chiefly of methane, but with ethane, propane, butane and other organic compounds mixed in. It forms when black shale has been subjected to heat and pressure over millions of years, usually at depths of 5,000-15,000 feet. Coal-bed methane is gas trapped in coal seams that can be tapped by similar methods to those used for shale gas. Tight sand gas is gas held in sandstone reservoirs that are unusually impermeable; it can be extracted by fracturing the rock.

Shale gas drilling

5. The technology of shale gas production is changing all the time, but the basic steps are these: Seismic exploration. Underground rock formations are mapped using sound waves and 3D reconstruction to identify the depth and thickness of appropriate shales. This may be done from the air, desktop (re-analysing old data) or ground survey. Pad construction. A platform for the drilling rig is levelled and hard-cored over an area of about 5 acres. Vertical drilling. A small drilling derrick drills up to 12 holes down to the shale rock, encasing the borehole in five concentric sleeves of steel and concrete near the surface, falling to one sleeve as the depth increases. Suitable shales are typically 4,000-12,000 feet below the surface. Horizontal drilling. A larger drilling derrick, 150 feet high, is assembled on site and slant-drills each well horizontally into the shale formation for up to 4,000 feet in different directions, using gas sensors to ensure it stays within the seam. The derrick is then removed after about 30-40 days and the wellhead capped.

The Shale Gas Shock

Fracturing or `fracking. The concrete casing of the horizontal pipe is perforated with small explosive charges and water mixed with sand is pumped through the holes at 5,000 psi (pounds per square inch) to fracture the rock with hairline cracks up to 1,000 feet from the pipe. The sand is used to prop open the fissures, finer sand being used as the cracks propagate further from the pipe. This takes about 3-10 days. The effectiveness of fracking is rising, as 12-stage fracking replaces 5-stage fracking. Waste disposal. Tanks collect water that flows back out of the well. The water is generally reused in future fracking, or desalinated and disposed of as waste water through the sewage system. Production. A Christmas tree valve assembly about the size of a garden shed, and a set of small tanks about the size of a small garage, remains on site to collect gas (and small quantities of oil), which then flows through underground pipes to a large compressor station serving a large number of wellheads and onwards to trunk pipelines. 6. Approximately 25% of a shale gas wells gas production emerges in the first year and 50% within four years. Thereafter the output falls very slowly and wells are expected to continue supplying gas for about 30-50 years. There is considerable disagreement over how rapidly gas production declines during this period.

History
7. Like many technological revolutions, shale gas came about through a timely combination of existing technologies rather than through one new invention: The knowledge that shale rock contains gas is old; brief bursts (`shows) of gas would be encountered when drilling through shales to reach oil reservoirs. Hydraulic fracking of rock to open pores and allow the extraction of hydrocarbons dates back to the 1940s. Horizontal drilling was already in use in the oil industry in the 1970s but improved in the 1990s. Seismic exploration was also old, but growing computer power led to the development of sophisticated 3D reconstructions of rock strata in the 2000s. 8. It was George Mitchells genius to bring these four elements together in the 1990s in Texas and discover that significant quantities of natural gas could be extracted from deep shales that had been subjected over the aeons to heat and pressure, using `slick (i.e., treated for lowviscosity) water and sand, rather than gel, in just the right mixture to fracture the rock and horizontal drilling to expand the reach of each well.

The Shale Gas Shock

9. This turned conventional wisdom on its head. Shales had always been thought unprofitable rocks, not because they lacked hydrocarbons they derive from muds rich in organic matter laid down in ancient seas or lakes but because they were not permeable enough for the oil or gas to escape. Indeed, shale often forms the `cap that holds in place the profitable oil and gas reservoirs that have migrated into permeable sandstones beneath. 10. The Barnett Shale in the Fort Worth Basin was the first to be developed and surprised many forecasters by its extent and the productivity of its wells. The Barnett Shale now provides about 5% of US natural gas supply. Mitchell Energy and Development began experimenting with hydraulic fracking in the Barnett Shale in 1981 but it was not until 1999 that it found the 2 right `light sand frac to release worthwhile amounts of gas . Mitchell was then acquired by Devon Energy, bringing the expertise of horizontal drilling. The success of Mitchell spun off imitators and attracted rivals to learn the new technology. Some of these then began to hunt out other shale basins, including the Fayetteville and Woodford Shales in Arkansas and Oklahoma, first developed in 2004, and the Haynesville Shale in Louisiana, first developed in 2008.

Yearly production of gas from the Barnett Shale in the Fort Worth Basin in BCF(Billion Cubic Feet) Source: geology.com

http://www.jsg.utexas.edu/news/feats/2007/barnett/father_of_barnett.html

The Shale Gas Shock

11. A greater surprise lay in Pennsylvania, where oil drilling had first been invented in 1859 by Edwin Drake and which had long been thought `played out by the beginning of the 21st century. In 2003 a disappointing $6m series of `dry wells drilled by Range Resources into a very deep Lockport Dolomite formation had passed through black shale called the Marcellus Formation. Visiting Texas, Ranges geologist, Bill Zagorski, suddenly realised the similarity of Marcellus Shale to the Barnett Shale. He suggested the use of hydraulic fracking of the Marcellus Shale. 12. Range Resources returned to Washington County, Pennsylvania, and hydraulically fracked 3 the Renz 1 well in October 2004, to stimulate gas flow . Over the next three years it perfected 4 the formula for stimulating quantities of gas from the Marcellus shale . When Range announced in December 2007 that it had succeeded in producing a flow of 22 million cubic feet of gas per day from seven horizontal wells, geologists led by Terry Engelder of Penn State University realised that the sheer extent of the Marcellus Formation, a black shale laid down in 5 a stagnant sea 385 million years ago, implied a large resource, of perhaps 50 Tcf . 13. Yet even this estimate proved conservative. By 2011, some estimates of the gas 6 recoverable from the `beast in the east had reached 516 Tcf , equivalent to 25 years US consumption and worth potentially $2 trillion. This could prove over-optimistic: the proportion that will be recovered, between 10% and 40%, depends on the price of gas and the evolution of technology. Yet it is possible that the Marcellus shale could be not only the largest gas field ever discovered in North America, but possibly larger than any conventional gas field in Russia, the Middle East or North Africa bar the giant South Pars field shared by Qatar and 7 Iran . 14. In arguing for high recovery rates from Marcellus, shale gas champions maintain that shallow wells (which have been subjected to less gas-creating pressure and heat) in the Northeastern part of the Marcellus shale are among the most productive. And Marcellus is only one of three overlapping shale strata in the Appalachian Basin. The Utica and Devonian shales cover similarly large areas, extending into Quebec and Ohio respectively. Neither is yet fully tested. 15. Shale gas sceptics counter that gas production in the Barnett and Haynesville shales has quickly focussed on a relatively small `core area or sweet spot, where wells are most productive. They consider it likely that this will also happen in the Marcellus Shale, raising both 8 the risk and cost incurred drilling unproductive wells and lead to lower recovery percentages .

3 4 5 6 7 8

http://www.aapg.org/explorer/2010/04apr/marcellus0410.cfm http://www.post-gazette.com/pg/11079/1133325-503.stm http://www.geosc.psu.edu/~jte2/references/link150.pdf Penn State University. IPC Petroleum Consulting inc http://www.theoildrum.com/node/7075

The Shale Gas Shock

16. There is thus considerable uncertainty about how much gas the Marcellus Shale will eventually produce. Combining the probable, possible and speculative quantities in the Marcellus, Haynesville, Barnett, Woodville and other shales, together with conventional fields, the Potential Gas Committee of the Colorado School of Mines (PGC), estimated in 2009 that America holds 2,074 Tcf of gas. In 2010, IHS CERA estimated resources between 2,000 Tcf 9 `discovered and 3,000 Tcf `expected .

Finding: Shale gas resources are large.

IHS Cambridge Energy Research Associates Report `Fuelling North Americas Energy Future, 2010.

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Peak gas?
17. Until 2008, most experts believed that world natural gas supplies would run out sooner than oil or coal supplies. The exhaustion of natural gas reserves has been regularly predicted. For example, in 1922 President Warren Hardings US Coal Commission, after interviewing 500 experts over 11 months, opined: Already the output of [natural] gas has begun to wane. Production of oil cannot long maintain its present rate. 10 US Coal Commission, 1922 18. In 1956, M. King Hubbert predicted that gas production in the United States would peak at about 14 trillion cubic feet per year some time around 1970. In 2002, an Exxon executive 11 pointed out that US gas discoveries had peaked before 1980 . 19. In fact, though oil may yet grow more scarce and costly during this century, there is no realistic prospect of the world `running out of coal or gas this millennium. As the GBR 2009 Report put it: If one compares the global annual production of all energy resources at the end of 2007 (439 EJ) and the amount of reserves (38 700 EJ) and resources (571 700 EJ), a ratio of approximately 1 : 90 : 1300 results. 12 GBR 2009 20. Like the peak-oil theory of the 1970s (when Jimmy Carter, influenced by E.F. Schumacher, argued that oil could be used up within a decade) and the peak-coal debate of 1865 (when W.E. Gladstone, influenced by W.S. Jevons, argued that Britain should retire its national debt before its coal ran out), all these forecasts proved to be far too pessimistic. It is notable that shale gas was first exploited in the most explored part of the world, the United States. Part of the reason for these false predictions was that strict price regulation of gas in the 1970s halted gas exploration in its tracks, producing a peak that some mistook for the beginning of exhaustion of reserves.

10 11 12

Quoted in Bradley, R.L. 2007. Capitalism at Work. Scrivener Press. P 206. http://www.worldenergysource.com/articles/pdf/longwell_WE_v5n3.pdf http://www.bgr.bund.de/cln_116/nn_335082/EN/Themen/Energie/Produkte/energyresources__2009.html?__nnn=true

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21. Recently, the Congressional Research Service has claimed that America now has the worlds largest fossil-fuel resources greater than Saudi Arabia, Canada and China 13 combined -- thanks to shale gas. This is misleading and not just because Canadas 3 trillion barrels of oil sands, one trillion of which are now thought to be economically recoverable, were omitted from the calculation. It is important to realise that the shale gas revolution will not much change estimates of the total hydrocarbon resources existing in the world. Coal, shale oil and oil sands already exist in quantities far greater than can be consumed over the next few centuries. The question has always been one of price: many of these resources are inaccessible at anything less than very high prices. This is especially true of methane hydrates, also known as clathrates, found near the continental margins of the ocean floor. Estimates of the quantities of methane in such reservoirs are that they contain at least twice as much energy, possibly ten times as much, as in all coal, oil and natural gas resources combined: up to 3 million Tcf. To date no practical means to mine this solid fuel, even in shallow permafrost, has been found, and commercial development is probably at least 30 years away. None the less, they serve to 14 remind us that methane is not in any sense likely to `run out . 22. The key question about shale gas is not therefore whether it exists in huge quantities, but whether it can now be exploited on a large scale at a reasonable price. This is what potentially makes it different from shale oil, tar sands and clathrates: its champions claim that it can compete on volume and price, and even undercut conventional gas reserves.

Source: Al Fin Energy blog

13 14

http://www.energytribune.com/articles.cfm/6933/US-Has-Earths-Largest-Energy-Resources http://fossil.energy.gov/programs/oilgas/publications/methane_hydrates/MHydrate_overview_06-2007.pdf

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Sceptical counter-arguments
23. Not everybody agrees with these estimates. Art Berman, a geological consultant, is a well known sceptic, who argues that early experience suggests that only about 10% of each shale gas field will prove to be recoverable. Given that there are large uncertainties about the size of shale gas fields, a careful reading of the PGC report would conclude that US shale gas 15 resources may last for as little as seven years rather than 100 . 24. Berman also argues that far from continuing to produce gas for 40 years, each well may have a rapid decline rate and cease to be commercial within just a few years; decline rates are so high that, without continuous drilling, overall production would plummet. So if you take the position that were going to get all these great reserves because these wells are going to last 40-plus years, then you need to explain why one-third of wells drilled 4 and 5 and 6 years ago are already dead. -- Art Berman, 16 interview with the Energy Bulletin, 19 July 2010 25. Consequently, in the rush to develop shale gas wells and demonstrate high volumes of production to shareholders, most companies are spending 200-400% of cashflow on drilling and are creating only negative shareholder value as they accumulate debt. As volumes depress prices, this becomes a self-fulfilling prophecy, exacerbated by the `use-it-or-lose-it character of 5-year drilling leases. However great the resource proves to be, companies will go bust trying to develop it. This is a pattern familiar to historians of early railways and dot-com companies. 17 In short, there is a speculative bubble in shale gas . 26. This argument has force, but Bermans audience is investors, not consumers. It is quite possible that investment in shale gas firms will indeed prove risky as their very success drives gas prices down. But that will only happen if volumes of gas produced are high; and it does not mean that exploration and drilling will cease, for if they did, prices would rise again and exploitation would resume. After all, this has been the experience of the coal industry, the oil industry, and many other industries throughout history: success drives down prices, leading to business failures, but over the long term this does not prevent continuing expansion of production because low prices stimulate expanding consumption.

15 16 17

http://www.theoildrum.com/node/7075 http://energybulletin.net/node/53556 http://energybulletin.net/node/53556

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27. What makes it possible for prices to fall while production expands in an industry is unit cost reduction through innovation: a farmer, for example, works out how to continue to grow wheat profitably at lower wheat prices. The chief cost of shale gas production is the leasing of drilling and fracking equipment. The cost of this has been falling as companies learn to complete drilling and fracking in shorter and shorter times. With horizontal drilling and hydraulic fracturing being still a fairly new combination of technologies, less than ten years old, unit cost reduction has been dramatic. Some companies are claiming to have halved their 18 costs in approximately two years as they climbed the learning curve . The key question is how far this can continue and when unit costs will flatten out. At present, the overwhelming weight of opinion is that further cost reductions are possible. This means that, even though there is a speculative bubble leading to low prices and some bankruptcies, a large and sustained increase in gas production from shale is none the less likely.

Finding: Low gas prices are a consequence of high production

Worldwide interest
28. The Marcellus discovery alerted the world beyond the gas industry to shale gas. Similar shales exist on all continents, wherever ancient seas and lakes have left deposits of mud. By one estimate, there are 688 suitable shale deposits in 142 basins, only a handful of which 19 have yet been explored . Exploration of shale gas basins has begun in Poland, Morocco, South Africa, Australia, New Zealand, China and other places. It is unlikely that Marcellus will turn out to be the richest deposit in the world. 29. No reliable estimate of unconventional gas resources worldwide yet exists . Most observers follow Rogners 1997 stab in saying that about 16,110 Tcf of in-place shale gas are 21 likely to exist, of which 10-40% would be recoverable . In March 2011, The Energy Information Administration commissioned a report from Advanced Resources International to assess 48 shale basins in 32 countries. The study arrived at an estimate of technically 22 recoverable resources totaling 5,760 Tcf in those basins (plus 862 Tcf in the United States) and total in-place resources of 25,300 Tcf, not counting large parts of the globe that were not covered, which included Russia. These numbers could prove either too optimistic or too pessimistic. 30. World energy consumption is less than 500 exajoules per year, equivalent to approximately 500 Tcf. Thus recoverable shale gas resources of, say, 8,000 Tcf (i.e., 20-30% of in-place resources) would last at least a century if their consumption displaced half of conventional gas use (which is 23% of total energy use). In January 2011 the International Energy Agency raised its estimate of how long world gas reserves will actually last to quarter 23 of a millennium . Given the likelihood of other energy sources coming on line long before 24 then, the energy expert Nick Grealy has said that shale gas may be `essentially eternal .
20

Finding: Shale gas is likely to occur abundantly worldwide

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Map of 48 major shale gas basins in 32 countries Source: Energy Information Administration: World Shale Gas Resources: An Initial Assessment of 14 Regions Outside the United States, April 2011

Coal-bed methane and tight gas in sandstone

31. Shale is not the only source of unconventional gas. The same horizontal drilling and hydraulic fracking technology can extract methane from tight sandstones and coal seams. Coal-bed methane is already a major contributor to US gas supplies in the San Juan basin of New Mexico. One estimate of coal-bed methane resources worldwide comes to a range of 25 3,540 to 7,630 Tcf , of which 830 Tcf is recoverable with current technology, or about onethird of shale gas quantities. Total tight gas sands could be similar in quantity but with lower recoverable percentages.

18 19

http://www.oxfordenergy.org/pdfs/NG46.pdf http://www.worldenergy.org/documents/shalegasreport.pdf 20 http://www.rpsea.org/attachments/articles/239/KuuskraaHandoutPaperExpandedPresentWorldwideGasShalesPresentation.pdf 21 http://www.worldenergy.org/documents/shalegasreport.pdf 22 http://www.eia.doe.gov/todayinenergy/detail.cfm?id=811 23 http://www.bbc.co.uk/news/business-12245633 24 Grealy, N. 2010. Global Shale Gas: What now? What next? No Hot Air, London. 25 http://www.rpsea.org/attachments/articles/239/KuuskraaHandoutPaperExpandedPresentWorldwideGasShalesPresentation.pdf

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Shale gas exploitation worldwide

32. The rate at which shale gas deposits are exploited worldwide will depend on how fast other countries develop the necessary techniques, and on political will. To take one example, there is little doubt that there will be a shale gas boom in China, for three reasons: China has a policy of encouraging gas use to replace coal; Chinese firms have invested $6 billion in buying into US shale gas firms to learn techniques; and Chinese recoverable resources of shale 26 gas are estimated by EIA/ARI to exceed US ones by 40% . 33. In Russia, by contrast, the powerful position of Gazprom, with its control over gas exports and its huge reserves of conventional gas, will be an impediment to shale gas development. In an indication that it does not welcome shale gas as a competitor in export markets, Gazproms chief executive Alexander Medvedev has suddenly shown a touching and surprising concern for the environmental health of American women: Every American housewife is aware of shale gas, but not every housewife is aware of the environmental consequences of the use of shale gas. I dont know who would take the risk of endangering drinking water reservoirs. -- Alexander 27 Medvedev, interview with the Daily Telegraph, 12 February 2010 .

Shale gas in Europe

34. There is disagreement as to whether the US experience will prove typical in Europe. Lane Energy and other firms began drilling and fracking in the Silurian shales of Poland in 2010 and are expected to announce imminently that they have found gas. Rich shale gas basins occur in Austria and Hungary. Cuadrilla has drilled a well near Blackpool in England and expects to frack it soon. 35. Chatham House argues that in Europe shale gas may encounter new and special difficulties: In Europe the geology is less favourable, there are no tax breaks and the service industry for onshore drilling is far behind that in the United States. -- Paul Stevens, 28 Chatham House, September 2010 .

26 27

http://www.bloomberg.com/news/2011-04-14/china-may-start-shale-gas-production-by-2015-ministry-says-1-.html http://blogs.telegraph.co.uk/finance/rowenamason/100003741/russian-energy-giant-gazprom-shale-gas-is-really-really-reallyrubbish-no-really-it-is/ 28 http://www.chathamhouse.org.uk/files/17344_r_0910stevens_es.pdf 29 http://www.oxfordenergy.org/pdfs/NG46.pdf

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36. Certainly, there is less experience with entrepreneurial wildcat drilling than in the US; there are fewer firms to compete for contracts; there is higher population density and less tolerance of industrial activity in rural areas (though this has not stopped the wind industry); and planning laws and environmental regulation are tighter and more sluggish. Consequently, Florence Geny argues that the cost of drilling for shale gas in Europe could be double that of 29 America . France has already imposed a moratorium on shale gas drilling. 37. On the other hand, Europe also has advantages. Hydrocarbons are mostly nationalised, so there is no need for gas firms to negotiate with many different landowners (though the owner of the site of the actual drilling pad will surely need compensation); European drillers can benefit from prior American experimentation and can go straight to the newest kind of horizontal drilling and fracking technology with its small footprint and high success rate; many countries in Europe already have well developed gas pipeline infrastructure. 38. None the less, shale gas will encounter formidable opposition from entrenched and powerful interests in the environmental pressure groups, in the coal, nuclear and renewable industries, and from political inertia. Ultimately, it will be a matter of whether overborrowed European governments, businesses and people will be able to resist such a hefty source of new revenue and a clean energy source requiring no subsidy.

Finding: Europes politics will decide whether shale gas exploitation occurs.

Shale gas exploration sites in Europe Source: shalegas.com

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The predictability of shale gas

39. The shale gas industry argues that, on the whole, dry wells do not now happen because gas occurs throughout the continuous shale stratum, rather than being concentrated in `traps as conventional gas is. Once the geology is better understood, production is predictable and similar for each well so long as the drilling is accurate and the fracking is successful. The more wells are drilled, the better the properties of the shale become known effectively `de-risking the field. This is unlike conventional gas drilling and means that gas companies can choose where to drill based on how close to pipelines and markets the site is, rather than gambling on lucky strikes in remote locations. 40. This is the so-called `manufacturing model, in which shale gas is said to resemble a widget factory more than an oil field. However, this is misleading. Since activity in shale gas fields usually contracts into core areas where productivity is highest, and since the decline rate of production from a shale gas well is still highly uncertain, there will still be great differences between good wells and bad ones. The claim of repeatable and uniform results by the shale play promoters cannot be supported by case histories to date. We contend that the factory model is not appropriate because the geology of these plays is more complex than operators 30 claim. -- Art Berman, The Oil Drum, 28 October 2010 . 41. None the less, the widespread nature of shale gas, together with the high cost of transporting gas, means that shale gas development will be concentrated in areas close to major markets. Interestingly, this makes shale gas less of a threat to wilderness areas than conventional gas. As Nick Grealy comments: A `weak shale in Northern Germany or Central Britain would be of far higher value than a `strong shale in central Australia or Alaska. -- Nick Grealy, No Hot 31 Air, 2010 . 42. This will damp volatility in price and lead to the viability of longer-term contracts to use gas and longer-term plans to substitute gas for oil and coal in chemical, industrial and transport applications.

Finding: shale gas is not just extra gas, it is potentially predictable, low-risk gas.

30 31

http://www.theoildrum.com/node/7075 Global Shale gas: what now? What next? No Hot Air.

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The Shale Gas Shock

Environmental impacts
43. Shale gas was welcomed at first by environmentalists as a lower-carbon alternative to coal. For example, Robert F Kennedy Jr wrote in the Financial Times: Surprisingly, America has more gas generation capacity 450 gigawatts than it does for coal. However, public regulators generally require utilities to dispatch coal-generated power in preference to gas. For that reason, high-efficiency gas plants are in operation only 36 per cent of the time. By changing the dispatch rule nationally to require that whenever coal and gas plants are competing head-tohead, gas generation must be utilised first, we could quickly reduce coal generation and achieve massive emissions reductions. -- Robert F. Kennedy, 32 Financial Times, 19 July 2009 . 44. However, as it became apparent that shale gas was a competitive threat to renewable energy as well as to coal, the green movement has turned against shale. Its criticism is fivefold: The shale gas industry uses dangerous chemicals in the fracking process that might contaminate groundwater; poorly cased wells allow gas to escape into underground aquifers; waste water returning to the surface during production, contaminated with salt and radon, may pollute streams; the industrys use of water for fracking depletes a scarce resource; the exploitation of shale gas damages amenity and landscape value.

Fracking fluid
45. The first problem came about because of the industrys initial refusal to reveal the ingredients of the slick water used in hydraulic fracking. Pressed by regulators, shale gas companies are now becoming more transparent about the chemicals in fracking fluid. Typically, what goes down the well is 94.62% water, 5.24% sand, 0.05% friction reducer, 33 0.05% antimicrobial, 0.03% hydrochloric acid and 0.01% scale inhibitor . The actual chemicals are used in many industrial and even domestic applications: polyacrylamide as a friction reducer, bromine, methanol and naphthalene as antimicrobials, hydrochloric acid and ethylene glycol as scale inhibitors, and butanol and ethylene glycol monobutyl ether as 34 surfactants . At high dilution these are unlikely to pose a risk to human health in the event they reach groundwater.

32 33 34

http://www.ft.com/cms/s/0/58ec3258-748b-11de-8ad5-00144feabdc0.html#ixzz1H4rIPSjl Range Resources. http://www.waytogoto.com/wiki/index.php/Slickwater

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The Shale Gas Shock

46. But can they even infiltrate groundwater? The aquifers used for well water in states like Pennsylvania lie just a few hundred feet below the surface, whereas the shale gas is several thousand feet below. Seismic studies show that there is approximately one mile of solid rock between the fracking fissures and the aquifer: Even in areas with the largest measured vertical fracture growth, such as the Marcellus, the tops of the hydraulic fractures are still thousands of feet below the deepest aquifers suitable for drinking water. -- Kevin Fisher, American Oil and 35 Gas Reporter, July 2010 47. The well pipe running down through the aquifer is encased in alternating layers of concrete and steel and is generally triple-encased down to the depth of aquifers (less than 500 feet). For the well to produce gas it is vital that there are no leaks of either gas or fracking fluids into the aquifer or any other strata, so it is not in the companys interest to allow this. However, on rare occasions wells may fail through the loss of the drilling bit and have to be abandoned. In such cases, the well must be sealed with cement but it is possible that this can be unsuccessful or that contamination can occur before it takes effect. 48. The industry contends that ground water contamination occurs much more frequently as a result of pollution unrelated to the shale-gas industry: agricultural run-off, oil spills from the transport industry, run-off from abandoned coal mines, and so forth. Wherever well water has been tested before and after gas drilling, no evidence has been found of groundwater contamination by fracking fluids. 49. Shale gas operations in the United States are heavily regulated and closely monitored. State regulators from Alaska, Colorado, Indiana, Louisiana, Michigan, Oklahoma, Pennsylvania, South Dakota, Texas and Wyoming have all asserted in writing that there have been no verified or documented cases of groundwater contamination as a result of hydraulic 36 fracking . Here is a typical statement: No groundwater pollution or disruption of underground sources of drinking water has been attributed to hydraulic fracturing of deep gas formations. --Joseph J. Lee, 37 Pennsylvania Department of Environmental Protection, 1 June 2009 .

Finding: groundwater contamination by fracking fluid is possible but unlikely if proper procedures are followed.

35 36 37

http://www.bfenvironmental.com/pdfs/inducedfracturingoilreporter.pdf Energy In Depth website Grealy, N. 2010. Global Shale Gas: What now? What next? No Hot Air, London.

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The Shale Gas Shock

Flaming faucets
50. Can gas escape into aquifers? Again, the industry has no interest in allowing this to happen because it would reduce the productivity of a well, so the casing of the well pipe is in everybodys interest. There are cases in Colorado, highlighted by a flaming tap in Fort Lupton in the film Gasland, where gas in domestic drinking water from an aquifer can be ignited. However, testing has shown that in Fort Lupton the water well penetrates several coal seams and the gas is `biogenic gas (from coal) with a chemical signature different from the `thermogenic deep shale gas below: In most cases, however, the [Colorado Oil and Gas Conservation Commission] has found that contamination is not present or that the methane comes from biogenic sources and is not attributable to oil and gas production. -- Colorado Oil and 38 Gas Conservation Commission , 2010 . 51. Natural gas in well water is a phenomenon that was known for many decades before shale-gas drilling began. (A similar phenomenon allows journalists to film scientists igniting methane that escapes through holes made in ice on Arctic lakes again this has always happened as a result of organic decay on the lake bed.) 52. In April 2010 Cabot Oil and Gas Corporation paid a fine to the state of Pennsylvania after contamination of the drinking water of 14 homes in Dimock following a water well explosion possibly caused by gas escaping from an incompletely cased well. Cabot maintains 39 that it was not the cause of gas contamination .

Finding: gas contamination of aquifers occurs naturally and has not usually been found to result from shale gas production.

Waste water
53. Approximately one-third of the water pumped down the well for fracking returns eventually to the surface together with gas during production. In the Marcellus Shale this water is saline, because the shale rock was formed on the bed of an ancient sea. The water is extracted from the gas, collected in pools doubly lined with heavy-duty polythene, and either re-used for fracking in other wells or desalinated, treated and disposed of as waste. This is no different from the treatment of waste water in any other industrial process. Pollution incidents involving such `produced water are rare. A gas well operated by EOG Resources blew out in Clearfield County, Pennsylvania, in June 2010, spilling 35,000 gallons of slick water. The water was contained by berms and linings, and there were no injuries or significant damage to the environment.

38 39

http://cogcc.state.co.us/library/GASLAND%20DOC.pdf http://www.cabotog.com/pdfs/Cabot_Release_Statement_9-28-10.pdf

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The Shale Gas Shock

54. The returning water is also slightly more radioactive than surface water because of naturally occurring isotopes within the rocks. However, this radioactivity drops when the salt is removed and before the water is disposed of in the sewage system. In any case many granite rocks have higher natural radioactivity, so exposure to waste water from gas drilling is likely to be no more hazardous than exposure to some other kinds of rock. There is no evidence that either gets close to being hazardous. Indeed the Pennsylvania Department of Environmental Protection has tested the water in seven rivers to which treated waste water from gas wells is discharged and found not only no elevation in radioactivity but: All samples were at or below background levels of radioactivity; and all samples showed levels below the federal drinking water standard for Radium 226 and 40 228. -- Pennsylvania Department of Environmental Protection, 7 March 2011 . 55. All technologies have environmental risks. Press coverage that talks about `toxic, `carcinogenic and `radioactive `chemicals is meaningless. Vitamin A is toxic. A single cup of coffee contains more known carcinogens than the average American ingests from pesticide 41 42 43 residues in a whole year . Bananas are radioactive . Dihydrogen monoxide is a chemical . The question that needs to be posed is always: how toxic, how carcinogenic, how radioactive?

Finding: the shale gas industry poses no new or special surface water pollution risks.

Water depletion
56. The shale gas industry uses water: 1-5 million gallons per well. However, its needs are not great in comparison with those of other industries, such as the power generation industry, or even the quantity used in domestic appliances. Gas drilling in Pennsylvania uses less than 60 million gallons per day, compared with 1,550 used in public water systems, 1,680 used in industry and 5,930 used in power generation in the state (US Geological Survey). A single shale gas well uses in total about the same amount of water as a golf course uses in three weeks.

Finding: the shale gas industry does not significantly contribute to depletion of water resources.

http://www.portal.state.pa.us/portal/server.pt/community/newsroom/14287?id=%2016532%20&typeid=1 There are more rodent carcinogens in a single cup of coffee than potentially carcinogenic pesticide residues in the average American diet in a year, and there are still a thousand chemicals left to test in roasted coffee Ames, B.N. and Gold, L.S. (1998) The causes and prevention of cancer: the role of environment. Biotherapy 11:205-20 42 http://chemistry.about.com/b/2008/08/11/bananas-are-radioactive.htm 43 H2O 44 http://www.nytimes.com/2011/02/27/us/27gas.html?pagewanted=3&_r=1&ref=homepage&src=me
41

40

22

The Shale Gas Shock

Landscape and habitat impact

57. According to some sources, shale gas exploitation has a major impact on the landscape and habitat. For example a New York Times article in February 2011 described western Pennsylvania thus: Drilling derricks tower over barns, lining rural roads like feed silos. Drilling sites bustle around the clock with workers, some in yellow hazardous material suits, and 18-wheelers haul equipment, water and waste along back roads. The New York 44 Times, 26 February 2011 . 58. I visited the same area shortly after this article was published and found this picture misleading in the extreme. Drilling derricks were few, hard to spot in the rolling landscape and they bustled for about a month only on each site before being dismantled. The `back roads had in many cases been extensively improved and paved by the gas drilling companies. Gas production Christmas trees small, green pieces of plumbing about the size of a garage or a large garden shed were inaudible and all but invisible among woods, horse pastures, corn fields and houses. Red-tailed hawks soared over drilling sites and a flock of wild turkeys crossed the road nearby. Signs of prosperity stemming from royalties and company spending, in the shape of new fences and barns, new community centres and revitalized town shops, were everywhere.

Shale gas well in production in the Marcellus area. The well head is seen in the midlde of the pad. To the right is shown separation equipment and tanks for storing produced water before being further treated. (photo: Statoil/Chesapeake)

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The Shale Gas Shock

59. Note that new technology further reduces the impact. The old technology of vertical drilling would require a footprint of many wells covering 19% of the surface of the area from which gas was being extracted. Horizontal drilling of several wells from one pad reduces this to less than 1%: a 6-acre drilling pad extracts gas from beneath 1,000 acres of land. And even this is gone after a few weeks, leaving just the `Christmas tree behind. The concrete, forest clearance and visual impact of more than 50 wind turbines with equivalent energy output is gigantic by comparison (see below).

Finding: shale gas can be extracted from a populated and attractive landscape with far more limited impact than other forms of energy.

Shale gas price

60. Until recently the conventional wisdom held that shale gas would be expensive compared with gas from conventional sources and would be uneconomic at prices below $8.50 per 45 MMBTU . However, according to IHS CERA, shale gas is now being produced more cheaply 46 than most conventional gas . The predictability of shale gas wells combined with the growing experience in how to reduce the time and cost of drilling and fracking wells, means that currently many firms are claiming to be able to produce shale gas at a marginal cost of less than $4 per MMBTU (4.5 cents per kilowatt-hour) not least because they are close to retail markets. In addition, multi-stage fracking has increased the effectiveness of the fracking process. If this proves sustainable, it effectively makes gas easily competitive with coal, usually the cheapest energy fuel. 61. According to the Institute of Energy Research, the cost of electricity from new plants designed to open in 2016 from different sources will be approximately as follows (in dollars per megawatt-hour): Solar thermal ..............................................312 Offshore Wind ............................................243 Solar photovoltaic ........................................211 Coal with CCS ............................................136 Nuclear ......................................................114 Biomass ......................................................112 Wind ..........................................................97 Coal ..........................................................95 Gas with CCS ..............................................89 Hydro ........................................................86 Gas, combined cycle ..................................63
Levelized Cost of New Generation Resources Source: U.S. Energy Information Administration, Annual Energy Outlook 2011 http://www.eia.doe.gov/oiaf/aeo/electricity_generation.html

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The Shale Gas Shock

62. These numbers include costs of capital, fuel, operation and maintenance, and transmission and take into account capacity factor how much of the time the plant can be on line. Of course, actual costs will vary greatly in practice according to location, design, subsidies and price regulation. None the less, it is clear that gas can, given a level playing field, beat all other technologies on price. As contracts that link gas to oil prices expire, and the price of gas decouples from that of oil, gass advantage may actually grow.

Finding: shale gas is inexpensive and its price advantage may widen.

Energy efficiency
63. Gas is the most efficient fuel for generating electricity. New combined-cycle gas turbines can achieve almost 60% heat-to-electricity conversion (5,785 btu/kWh), whereas even the 47 newest coal fired turbines cannot yet reach 50% (6,824 btu/kWh) . With waste heat capture for district heating (co-generation), thermal efficiency can approach 80%. Only a perception that gas is expensive, volatile in price, politically unreliable or likely to grow scarce has stood in the way of a global `dash for gas in power generation. If gas supplies prove to be diversified, domestic, abundant and long-lasting, then these perceptions will fade. 64. Moreover, gas-fired turbines are equally efficient at many different scales down to 50MW, whereas efficient coal or nuclear plants are much larger. And they reach peak efficiency within minutes, so can be powered up and down to meet demand spikes, or to back up intermittent renewable-energy output. This efficiency leads to gas being potentially the cheapest and most flexible fuel for generating electricity. 65. In addition, gas has various advantages over other ways of generating electricity: 66. Gas versus coal. Given the higher efficiency of gas turbines and the lower carbon content of gas, burning gas produces only 37% of carbon dioxide as burning coal for the 48 same electricity output . In addition, unlike burnt coal, burnt shale gas includes no sulphur dioxides, no mercury and fewer nitrogen oxides. It requires no surface mining and mountaintop removal, no tunnelling and ground subsidence and results in many fewer human fatalities. Gas is piped to customers rather than transported by congested road or rail. Therefore, while coal is cheap, it has many environmental externalities, not all of which are fully priced in. `Clean coal with carbon dioxide emissions removed would probably be at 9 cents per kilowatt hour roughly twice as costly as gas for electricity generation, yet have only a slim carbon emission advantage. Gas, because it burns cleaner, is also more amenable to carbon capture than coal.

45 46 47 48

http://www.energybulletin.net/node/49342 IHS Cambridge Energy Research Associates Report `Fuelling North Americas Energy Future, 2010. http://www.npc.org/Study_Topic_Papers/4-DTG-ElectricEfficiency.pdf http://www.npc.org/Study_Topic_Papers/4-DTG-ElectricEfficiency.pdf

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The Shale Gas Shock

67. Gas versus oil. Oil is very useful as a transport fuel but is generally too expensive as a fuel for electricity generation, outside the Middle East. The exhaustion of many onshore oil fields has driven oil exploration into deep offshore waters and towards expensive tar sands and tar shales. In the United States, the effect of shale gas has been to decouple the price of gas from that of oil, with gas prices now much lower per unit of energy, further pricing oil out of the electricity generating industry. The same decoupling will happen in the rest of the world as long term linked oil-and-gas contracts gradually expire. Oil is effectively priced out of baseload electricity generation for the foreseeable future. 68. Gas versus nuclear. Gas-fired electricity is cheap to build and costly to fuel; nuclear is the opposite. In practice, thanks to safety requirements, planning delays and design difficulties, nuclear power plants are generally proving far more expensive than expected and the price per kilowatt-hour of nuclear electricity is nearly double that of gas, though of course this may change. Besides, nuclear power, like coal, is most efficient when big. Gas-fired electricity is efficient even at relatively small scales. This means that small units of gas-fired power stations can be added to serve local urban markets, whereas nuclear comes in large units often far from markets. 69. Gas versus wind. A gas drilling rig, like a wind turbine, is an intrusion into a rural area. However, it need not be on a hilltop like a windmill and can be hidden in a rolling landscape. With each wellhead capable of producing gas from up to 12 wells, or about 50 billion cubic feet over 25 years, the output of one drilling pad is equivalent to the average output of about 47 giant 2.5MW wind turbines (which also last about 25 years), and is continuous rather than unpredictable and intermittent. Yet the footprint of a shale gas drilling derrick (about 6 acres) is only a little larger than the forest clearance necessary for a single wind turbine (4 acres), requires vastly less concrete per kilowatt-hour, stands one-third as tall and is present for just 30 days instead of 25 years. Additionally, gas drilling rigs have not been known to kill birds of prey or have any other impacts on wildlife, whereas wind farms kill 49 tens of thousands of birds of prey annually . 70. Gas versus solar. Unlike solar power, shale gas works even at night and on cloudy days. It can be stored cheaply in underground salt caverns, whereas storage of solar electricity is impossibly expensive. It produces electricity at about one-third the cost of solar power and it is found closer to large customer concentrations than the deserts where solar power is most efficient. None the less, abundant gas may prove to be the friend rather than the rival of solar power, because unlike coal and nuclear power it can be powered up and down quickly and efficiently. Using coal or nuclear to back-up intermittent renewable energy results in wasteful production of carbon dioxide, negating virtually all carbon-savings that the renewable resource promises. If the costs of solar power do fall rapidly, it is conceivable that one day an electricity system based on solar power by day and gas by night may well prove economically viable.

49

http://www.usatoday.com/news/nation/environment/2009-09-21-wind-farms_N.htm?csp=34&loc=interstitialskip; http://www.telegraph.co.uk/comment/columnists/christopherbooker/7437040/Eco-friendly-but-not-to-eagles.html; http://www.abcbirds.org/newsandreports/releases/070430_testimony.html

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The Shale Gas Shock

71. Gas versus biomass. Gas requires and attracts no subsidy, whereas the diversion of agricultural products into making fuel for power stations drives up world food prices by taking land away from growing food crops, exacerbating hunger, and does so while using far more water per unit of energy than gas. It also creates ash and has to be transported to power stations by road, neither of which is true of gas. 72. Unlike nuclear and renewable, gas-fired electricity requires no subsidy. As Nick Grealy put it to the House of Commons Energy and Climate Change committee: With respect, from what I see of the activities of your Committee, you are used to a large amount of people coming here and saying, "We need a subsidy for CCS, we need a subsidy for wind, we need a subsidy for nuclear" and so on. The shale gas industry wants to give you money. --Nick Grealy, testimony to House of Commons 50 Energy and Climate Change Committee, 2011 .

Finding: electricity generated using gas is cheaper, cleaner, more environmentally beneficial and more humane than electricity from coal, oil, nuclear, wind, solar and biomass.

New markets for gas in transport

73. Richly productive new shale gas fields like the Marcellus Shale lead to falling gas prices and to gas producers keen to entice new customers to use their product. Hence it is probable if the optimists are right about supply that gas will gradually find new markets. Besides partly displacing coal, nuclear and renewables in power generation, it may also expand into transport. 74. There are already nearly 15 million natural gas fuelled vehicles in the world. Natural gas fuelled vehicles are already widely used in some cities such as Washington DC, Kuala Lumpur and New Delhi as a pollution control measure. Now that natural gas tanks for cars have become much smaller, the only obstacle to car drivers also switching to cheap and lowemission gas is a lack of infrastructure in the form of refuelling stations admittedly a formidable hurdle. Gas-powered vehicles produce almost no particulates, 60% less volatile organics, 50% less nitrogen oxides and 90% less carbon monoxide, which means less smog, ozone and brown haze.

50

http://www.publications.parliament.uk/pa/cm201011/cmselect/cmenergy/uc795-ii/uc79501.htm

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The Shale Gas Shock

75. The fuel cost savings following this conversion could be considerable. At current prices the cost of fuelling a natural gas vehicle is approximately one-third that of diesel or petrol. This 51 gap is likely to increase. Furthermore, hybrid diesel-gas vehicles are under development . Even electric cars may benefit from cheaper gas: electricity generated from natural gas could have about twice the well-to-wheel efficiency of a petrol car. Only the high cost and long charging times of batteries stand in the way.

Finding: gas could begin to take market share from oil in transport.

Feedstock and fertiliser

76. Gas is a common feedstock for the chemical industry; so is ethane, a glut of which is now coming out of shale gas wells as a byproduct. Thus the shale gas revolution has already begun to draw chemical companies back to the Gulf of Mexico from the Persian Gulf, and hand them 52 a competitive advantage . As well as being a fuel, gas and natural-gas liquids such as ethane are used in the manufacture of plastic, specialty chemicals, agrochemicals and pharmaceuticals. Shale gas is therefore revitalising the chemical industry wherever it can be produced. 77. Much environmental criticism of modern high-output farming argues that it is unsustainable because it depends of synthetic nitrogen fertiliser, which is manufactured from air and natural gas. Some have argued that famine will result when the gas, and therefore the fertiliser, runs out. It is now clear that the gas will not run out and will probably remain low-cost, so highoutput farming using fertiliser is indeed sustainable and affordable for the foreseeable future. This ensures not only food availability, but less pressure to convert wild lands to agriculture.

Finding: shale gas has reduced the risk of a fertiliser crisis.

51 52

http://www.publications.parliament.uk/pa/cm201011/cmselect/cmenergy/writev/shale/sg17.htm http://www.businessinsider.com/us-shale-gas-wont-just-revolutionize-energy-it-will-even-make-us-chemical-companies-ultracost-competitive-2010-3 53 http://www.federalreserve.gov/BoardDocs/testimony/2003/20030610/default.htm 54 http://www.montrealgazette.com/news/nukes+fade+exports+will+gain/4480633/story.html 55 http://www.reuters.com/article/2010/06/04/cheniere-lng-sabine-idUSN0423301520100604 56 http://online.wsj.com/article/SB10001424052702303491304575187880596301668.html 57 http://www.energytribune.com/articles.cfm/6941/One-Countrys-Disaster-Anothers-Boon

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The Shale Gas Shock

Effect on world trade

78. Unlike oil and coal, gas is not easily transported by sea, so a genuine world market in gas does not exist and prices can vary sharply between regions. Liquefaction of gas for transport is expensive and requires special deep-water facilities and ships. As recently as 2003, it was assumed that Americas gas production would decline and it would have to begin importing liquefied natural gas from Qatar and other exporters. No less an authority than Alan Greenspan, then chairman of the Federal Reserve, said so to Congress in 2003: Todays tight natural gas markets have been a long time in coming, and futures prices suggest that we are not apt to return to earlier periods of relative abundance and low prices anytime soon Access to world natural gas supplies will require a major expansion of LNG terminal import capacity. --Alan Greenspan, testimony to 53 Congress, June 2003 . 79. Sure enough America did invest in natural gas import terminals, but the price of LNG crashed in 2008 because of the recession and the news of shale gas. Most import terminals have now been mothballed. 80. With US gas prices low and easily supplied by domestic production, Canadian gas exports fell sharply. Conventional gas from Alberta (and Alaska) may also now seek export markets. A $4.7 billion LNG export terminal in Kitmat, British Columbia, aims to begin 54 exporting gas in 2015 . America may follow suit in gas fields remote from large conurbations. In one case, Sabine Pass in Louisiana, Cheniere has already received approval 55 to convert the terminal to an export facility capable of exporting gas within 5-10 years . 81. Loss of US export markets and the threat of Canadian competition in supplying Asian markets will in turn affect the ability of Qatar, Algeria, Venezuela and Russia to sustain LNG and pipeline export prices. Indeed, Qatari exports are now available to Europe and Asia at lower prices because of the loss of American markets. Consequently, an emerging cartel in the gas trade, through the Gas Exporting Countries Forum and run by Vladimir Putin, Hugo Chavez, Mahmoud Ahmadinejad and their ilk, now looks much less likely. Thus the emergence of shale gas, even if it were to happen only in the United States, may tip the geopolitical balance towards energy consumers like China, India, Japan and Europe at the expense of 56 energy producers . 82. On the other hand, the crippling of the ageing Fukushima reactors (and some coal-fired plants) by the earthquake and tsunami in Japan in March 2011 is a reminder that demand for LNG imports could also rise. The earthquake reduced Japans electricity generating capacity by 20%. It also led to the shutdown of Germanys older nuclear plants and promises of a review of nuclear plans in both the United States and China. The immediate effect was a rise in the price of gas, the only fuel that could quickly fill the gap in Japans electricity market. Japan is already the largest importer of liquefied natural gas and it does not have good shale-gas geology. Its imports could now increase from 3.3 to 4.8 Tcf per year, according to one estimate, or by nearly half of 57 Qatars LNG output, or more than Australias current capacity to export .
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The Shale Gas Shock

83. Likewise, Chinas efforts to diversify its energy sector away from coal for environmental reasons are also bound to benefit the gas trade. China aims to get 10% of its power from natural gas by 2020 and, given that shale gas production in China may rise only slowly at first, this could result in demand for imported LNG of up to 9Tcf a year. Australia and Canada 58 may be the beneficiaries .

Finding: shale gas may reduce price volatility in gas.

Greenhouse gas emissions

84. As detailed above, burning natural gas produces less than 50% of the carbon dioxide emissions of burning coal for the same energy output. However, Professor Robert Howarth, a biologist at Cornell University, argues that the gas industry generates as much or more greenhouse gas as the coal industry, though only in the short term. This is because methane is a more potent greenhouse gas than carbon dioxide and methane leaks during fracking and 59 production . 85. This conclusion requires unrealistic assumptions about: the quantity of methane that leaks during fracking, production and transport; the lack of methane leaks from coal mines; the residence time of methane in the atmosphere; and the greenhouse warming potential of 60 methane compared with carbon dioxide . For example, Howarth assumes that methane has 105 times the global-warming potential of carbon dioxide over 20 years; even the Intergovernmental Panel on Climate Change only uses a factor of 72 over 20 years, but prefers 25 over 100 years, which is the normal period of comparison. And Howarth gets his numbers on high gas leakage from shale gas wells from unreliable sources, his numbers on gas leakage from pipelines from long Russian pipelines, and assumes that `lost and 61 unaccounted for gas is actual leakage rather than partly an accounting measure . He also fails to take into account the greater generating efficiency of gas than coal. As one critic puts it of Howarths latest paper: Practically every paragraph includes an assumption, simplification or choice by the authors that tends to increase the calculated environmental impact of natural gas. Whether thats the result of bias or merely a series of judgment calls, it undermines confidence in the final conclusions at the same time it amplifies them. -- Geoffrey 62 Styles, The Energy Collective, 15 April 2011 . 86. Absent these unrealistic assumptions, gas is clearly a lower-emission fuel. It is also worth noting that the growth rate of methane concentration in the atmosphere `slowed in the 1990s, 63 and it has had a near-zero growth rate for the last few years according to NOAA . This is hardly the signature of a growing problem.
58 59 60 61 62

http://www.energytribune.com/articles.cfm/6941/One-Countrys-Disaster-Anothers-Boon http://www.eeb.cornell.edu/howarth/GHG%20update%20for%20web%20--%20Jan%202011%20%282%29.pdf http://epa.gov/climatechange/emissions/downloads10/US-GHG-Inventory-2010_Chapter3-Energy.pdf http://www.energyindepth.org/2011/04/five-things-to-know-about-the-cornell-shale-study/ http://theenergycollective.com/geoffrey-styles/55663/still-not-worse-coal

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Conclusion: gas and decarbonisation

87. The dominant fuel in the world fuel mix has gradually shifted from wood to coal to oil over the past 150 years, with gas the latest fuel to grow rapidly. At this rate gas may overtake oil as the dominant fuel by 2020 or 2030. The consequence of this succession is that the carbonhydrogen ratio in the world fuel mix has been falling steadily, because the ratio of carbon to hydrogen atoms is about 10-to-1 in wood, 2-to-1 in coal, 1-to-2 in oil and 1-to-4 in gas. On its current trajectory, the average ratio would reach 90% hydrogen in 2060, having been 90% carbon in 1850. Jesse Ausubel of Rockefeller University describes this phenomenon as follows: When my colleagues Cesare Marchetti, Nebojsa Nakicenovic, Arnulf Grubler and I discovered decarbonisation in the 1980s, we were pleasantly surprised. When we first spoke of decarbonisation, few believed and many ridiculed the word. Everyone knew the opposite to be true. Now prime ministers and presidents speak of decarbonisation. Neither Queen Victoria nor Abraham Lincoln decreed a policy of decarbonisation. Yet, the energy system pursued it. Human societies pursued decarbonisation for 170+ years before anyone noticed. -- Jesse Ausubel, 64 International Journal of Nuclear Governance, Economy and Ecology, 2007 . 88. Consequently, although increased energy use means that carbon dioxide emissions are rising all the time, the world is nonetheless slowly decarbonising. A sudden and forced acceleration of this decarbonisation is what environmentalists and many politicians are demanding in the name of climate change policy. The argument is that the cost of waiting for decarbonisation to happen of its own accord is higher than the cost of replacing existing fuels with low-carbon alternatives. 89. However, few of the low-carbon alternatives are ready to take up the challenge on a scale that can make a difference. Nuclear is too slow and costly to build; wind cannot provide sufficient volume of power or reliability; solar is too expensive; biofuel comes at the expense of hunger and high carbon dioxide emissions. All except nuclear (and to a lesser extent solar) require unacceptably vast land grabs. Diverting 5% of the entire world grain crop into the US 65 ethanol program in 2011 will displace just 0.6% of world oil use ; getting 10% of Denmarks electricity from wind has saved no net carbon emissions (because of the need for inefficient 66 back-up generation) . 90. The world would do well to heed the advice of Voltaire and not make the best the enemy of the good. Rapid decarbonisation using renewables is not just expensive and environmentally damaging, it is impossible. However, switching as much power generation from coal to gas as possible, and as much transport fuel from oil to gas as possible, would produce rapid and dramatic reductions in carbon dioxide emissions.

63 64 65 66

http://www.esrl.noaa.gov/gmd/obop/mlo/programs/esrl/methane/methane.html http://phe.rockefeller.edu/docs/HeresiesFinal.pdf http://www.energytribune.com//articles.cfm/6681/Biofuels-Driving-Up-Food-Prices-As-Iowa-Primary-ApproachesBryce, R. 2010. Power Hungry. Public Affairs.

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The Shale Gas Shock

91. Just as genetically modified crops called the bluff of the organic movement, by demonstrating both better crop protection and better environment protection, so abundant gas is calling the bluff of the renewable energy movement by demonstrating both better economic efficiency and better carbon reduction. Yet Europe turned its back on GM crops when they ran into sudden and coordinated environmental opposition based on the precautionary principle that a new technology might be worse than an existing one. Meanwhile GM soya went on to give South America a competitive advantage in the world market in animal feed and GM maize gave North America a competitive advantage in human food. So, likewise, it is entirely possible that Europe may choose to excuse itself from the shale gas revolution and put itself at a competitive disadvantage in the electricity, transport, chemical and fertiliser industry, as well as finding decarbonisation harder. 92. If Europe and the wider world are bent on cutting carbon emissions, they would be foolish to ignore the claims of shale gas, at least until superior versions of nuclear or solar power are 67 developed later in the century . Fortunately, this strategy is also the most affordable.

Finding: Shale gas promises to bring environmental, economic and political benefits.

Acknowledgements
For interviews and assistance with finding sources of information, I am grateful to Nick Grealy of No Hot Air, Mike Mackin and Matt Pitzarella of Range Resources, Chris Tucker of Financial Dynamics and to Rob Bradley of Master Resource. For helpful comments on a draft of this report I thank Dieter Helm, David Henderson, Nigel Lawson and Benny Peiser.

Disclosure
The author has no direct financial interest in natural gas. He does have some small shareholdings in oil companies, which comprise less than 10% of his share portfolio. In addition he and his family benefit financially from income related to surface coal mining in Northumberland. Since this report concludes that gas threatens to take market share from both coal and oil, he therefore has the opposite of a vested interest in this conclusion. In the course of writing this report one visit was made to the operations sites of Range Resources in Pennsylvania. No payment or hospitality was offered or asked for.

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Bryce, R. 2010. Power Hungry. Public Affairs.

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The Global Warming Policy Foundation is an all-party and non-party think tank and a registered educational charity which, while open-minded on the contested science of global warming, is deeply concerned about the costs and other implications of many of the policies currently being advocated. Our main focus is to analyse global warming policies and their economic and other implications. Our aim is to provide the most robust and reliable economic analysis and advice. Above all we seek to inform the media, politicians and the public, in a newsworthy way, on the subject in general and on the misinformation to which they are all too frequently being subjected at the present time. The key to the success of the GWPF is the trust and credibility that we have earned in the eyes of a growing number of policy makers, journalists and the interested public. The GWPF is funded entirely by voluntary donations from a number of private individuals and charitable trusts. In order to make clear its complete independence, it does not accept gifts from either energy companies or anyone with a significant interest in an energy company. Views expressed in the publications of the Global Warming Policy Foundation are those of these authors, not those of the GWPF, its Trustees, its Academic Advisory Council members or its Directors.
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THE UNCONVENTIONAL HYDROCARBON RESOURCES OF BRITAINS ONSHORE BASINS - SHALE GAS

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THE UNCONVENTIONAL HYDROCARBON RESOURCES OF BRITAINS ONSHORE BASINS - SHALE GAS

DISCLAIMER
This report is for information only. It does not constitute legal, technical or professional advice. The Department of Energy and Climate Change does not accept any liability for any direct, indirect or consequential loss or damage of any nature, however caused, which may be sustained as a result of reliance upon the information contained in this report. All material is copyright. It may be produced in whole or in part subject to the inclusion of an acknowledgement of the source, but should not be included in any commercial usage or sale. Reproduction for purposes other than those indicated above requires the written permission of the Department of Energy and Climate Change.

Requests and enquiries should be addressed to: Toni Harvey Senior Geoscientist DECC Email: toni.harvey@decc.gsi.gov.uk or Joy Gray Senior Geoscientist DECC Email: joy.gray@decc.gsi.gov.uk

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Foreword
This report has been produced under contract by the British Geological Survey (BGS). It is based on recent analysis, together with published data and interpretations. Additional information is available at the Department of Energy and Climate Change (DECC) website. https://www.og.decc.gov.uk/information/onshore.htm. This includes licensing regulations, maps, monthly production figures, basic well data and where to view and purchase released well and seismic data. Onshore seismic data and stratigraphic tops for wells are available at www.ukogl.org.uk DECC has now published the technical reports etc acquired or produced for Landward licences following the expiration of the confidentiality period provided for by the licence together with the "Appendix B" licence application documents submitted for the 1st to 8th Landward licensing rounds. Also now available are Field Development Plans and Annual Field Reports for fields where the confidentiality period provided for by the relevant licence has expired. The 9th to 11th Landward licensing round data should be included by the end of 2010. This information can be purchased from Mosaic Information Solutions on behalf of the DECC. If you require more information please contact: Ian Picton, Mosaic Information Solutions (email: ian@mosaicis.com). Relinquishment reports for some Landward licences can be found on the DECC website for download free of charge at https://www.og.decc.gov.uk/upstream/licensing/relinqlics/index.htm

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Contents
Foreword ........................................................................................................................................ iii Figures .............................................................................................................................................v 1. Shale Gas Overview..................................................................................................................1 Licensing and activity 2 2. Shale gas prospectivity introduction......................................................................................4 American analogue 9 Analogies Used to Estimate Shale Gas Potential Reserves 10 Exploration criteria 10 Discussion of these criteria 11 UK Source Rocks 12 UK Gas content 12 3. Shale gas prospectivity UK pre-Carboniferous shale formations........................................13 Precambrian formations 14 Cambrian formations 14 Ordovician formations 14 Ordovician to Silurian formations 15 Silurian formations 15 Devonian formations 16 4. Shale gas prospectivity UK Carboniferous to Triassic shale formations ............................18 Lower Carboniferous shale formations 18 Bowland Shale Group (Namurian) 19 Carboniferous of Pennine Basin Northumberland and Stainmore Troughs 23 Carboniferous Culm of SW England 24 5. Shale gas prospectivity UK Jurassic shale formations ........................................................25 Lias 25 Fullers Earth 26 Oxford Clay 26 Kimmeridge Clay 27 Purbeck 28 6. Environmental concerns .........................................................................................................29 7. Shale oil ..................................................................................................................................29 8. Conclusions.............................................................................................................................30 9. References...............................................................................................................................31

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Figures
Fig. 1 Ranges of Total Organic Carbon in typical tight gas sand, shale gas, and coal bed methane prospects Fig. 2 Current UK Petroleum Exploration and Development Licences, conventional Oil and Gas Fields, locations of conventional well drilled, and the areas under consultation currently which may be offered in the 14th onshore Oil and Gas Licensing Round Fig. 3 Cross section illustrating key shale gas provinces and overlap with Coalbed Methane (CBM) and conventional oil and gas developments Fig. 4 Principal UK onshore hydrocarbon provinces Fig. 5 Locations of boreholes referred to in this report and of Figures 10-13 Fig. 6 Main areas of prospective UK shale formations Fig. 7 Shale Gas Plays, US Energy Information Administration www.eia.gov Fig. 8 Gas contents of various non-coal lithologies measured for coal mine safety purposes (Creedy 1989) Fig. 9 Simplified UK onshore lithostratigraphy Fig. 10 Cambrian and Tremadoc outcrop Fig. 11 Silurian hemi-pelagic mudstones in Wales Fig. 12 SW England Devonian formations and groups containing dark grey shales Fig. 13 Bristol-Somerset Basin, wedged between Variscan Front thrust and Worcester Uplift Fig. 14 Variation of TOC contents in the Carboniferous of northern England Fig. 15 Maturity of wells in Pennine Basin Fig. 16 Range of total organic carbon contents and vitrinite reflectance in the BGS Duffield borehole, Widmerpool Gulf Fig. 17 Gross thickness, and thickness of high gamma facies in the Upper Bowland Shale (Namurian part only) Fig. 18 Carboniferous basins of central Britain, adapted from Fraser et al. (1990, fig. 4) Fig. 19 Outcrop and subcrop and thickness in metres of the Lias in eastern Britain Fig. 20 Oxford Clay outcrop and isopachs in metres (from Whittaker 1985) Fig. 21 Kimmeridge Clay outcrop and subcrop Fig. 22 Organic rich rocks and the classification of oil shales (Hutton 1987)

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1. Shale Gas Overview

This document offers a geologic framework to examine the potential for shale gas exploration in the UK. Since the USGS has recognised a large increase in American natural gas reserves from shale resources, there has been a growing interest in European potential for shale gas. UK potential is as yet untested. Shale has not previously been considered a hydrocarbon reservoir rock in the UK, but instead its organic-rich shales have been studied as world-class source rocks in which oil and gas matured before migrating into conventional fields. Gas shows are commonly observed while drilling through shale stratigraphy, but they are rarely flow tested. The UK shale gas industry is in its infancy, and ahead of drilling, fracture stimulation and testing there are no reliable indicators of potential productivity. The analogies presented in this report may ultimately prove to be invalid. However, by analogy with similar producing shale gas plays in America, the UK shale gas reserve potential could be as large as 150 bcm very large compared with 2-6 bcm estimate of undiscovered gas resources for onshore conventional petroleum. The technologies needed to explore for shale gas are only recently available in the UK, and mitigating the environmental impacts of stimulation technology and to large scale development are subject to local authority consent. Unconventional gas Shale gas is part of a continuum (Fig 1) of unconventional gas prospectivity from tight gas sands, gas shales to coalbed methane (CBM) in which horizontal drilling and fracture stimulation technology can enhance the natural fractures and recover gas from rocks with low permeability. Exploration for tight gas, shale gas and CBM is all currently underway in the UK.

Fig 1 Ranges of Total Organic Carbon in typical tight gas sand, shale gas, and coal bed methane prospects Some conventional sandstone wells that failed to flow gas are being re-examined in light of American tight gas successes. A tight-gas reservoir is commonly defined as is a rock with matrix porosity of 10% or less and permeability of 0.1 milliDarcy or less, exclusive of fracture permeability. Gas can be found in the pores and fractures of shales and also bound to the matrix, by a process known as adsorption, where the gas molecules adhere to the surfaces within the shale. During enhanced fracture stimulation drilling technology, fluid is pumped into the ground to make the reservoir more permeable, then the fractures are propped open by small particles, and can enable the released gas to flow at commercial rates. By drilling multi lateral horizontal wells, a greater rock volume can be accessed.

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Licensing and activity

A UK Petroleum Exploration and Development licence (PEDL) allows a company to pursue a range of oil and gas exploration activities, subject to necessary drilling/development consents and planning permission. Alongside conventional onshore oil and gas exploration and development, the licence covers exploration and development of tight gas, CBM, mine vent gas, oil shale, shale gas and gas storage in a previous gas field. A PEDL licence does not allow for underground coal gasification (UGC) or CO2 sequestration. Until 1996, the UK Government issued a sequence of separate licences for each stage of an onshore field's life (Exploration Licences (XL or EXL), Production Licences (PL), Appraisal Licences (AL) and Development Licences (DL) and a number of them, and of even older Mining Licences (ML) are still in force, but have all been converted to the same terms as a PEDL. There are currently 334 Landward licences (Fig. 2). The last Licence Round, the 13th Onshore, was in 2008 with the award of 55 new licences covering more than 7,000 km2.

Fig.2 Current UK Petroleum Exploration and Development Licences, conventional Oil and Gas Fields, locations of conventional well drilled, and the areas under consultation currently which may be offered in the 14th onshore Oil and Gas Licensing Round.

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In July 2010 DECC published a Strategic Environmental Assessment (SEA) for the 14th UK Onshore Licensing Round on its website for a twelve-week consultation period. DECC will then consider the responses received, and plans to issue a Government Response about one month later. Subject to the outcome of the SEA process DECC should then be in a position to open the 14th Round for a 90 day application period starting in or around February 2011. The exact areas to be available in the Round and the timing are subject to the conclusions of the SEA and Ministerial decision.

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2. Shale gas prospectivity introduction

The initial success in America has been in exploring for shale gas, but in a number of US basins oil is now being targeted also. Four different categories of shale exploration are possible: i) ii) iii) iv) Gas-window source rock maturity areas Biogenic gas in source rocks immature for oil Biogenic gas in older source rocks which have been rejuvenated by bacteria-laden freshwater flushes Oil window source rock maturity areas

The lowest risk shale gas exploration is where shale gas prospects are associated with conventional hydrocarbon fields. In the UK onshore, the best shale gas potential thus includes the Upper Bowland Shale of the Pennine Basin (Fig. 3), the Kimmeridge Clay of the Weald Basin, and possibly the Lias of the Weald Basin. Deeper Dinantian shales should also be tested in the Pennine Basin and possibly in the Oil-Shale Group of the Midland Valley of Scotland. Another higher risk target might be the Upper Cambrian source rocks on the Midland Microcraton although it hasnt been severely tectonised, the Upper Cambrian has not sourced conventional fields. The risk attached to black shales within the Caledonian and Variscan fold belts is likely to be unacceptably high. These fold belts have high organic carbon, but are strongly tectonised (affected by thrusts, cut by igneous intrusions and converted to slates), and they have no overlying fields. The overlapping hydrocarbon prospectivity is demonstrated on Figure 3 where a geoseismic cross section has been constructed following an extraction from the UKOGL seismic database, which could be improved with seismic reprocessing. The line runs from through the three main structural feature of England; the Caledonide Fold Belt on the north side, through the Midland Microcraton and into the Variscan Fold belt. In the West Lancashire basin in the north, the Formby oil seeps were used since the 17th century, and lead to the discovery of the very shallow Formby Oilfield in 1939 which has produced 71,560 barrels of oil. And coal mining has dominated the centre of the line, including the Daw Hill Colliery, the largest UK coal producer. In 2008 Daw Hill excavated a record 3.25 million tons of coal, and it holds a Methane Drainage Licence for mine safety. The south coast is bounded by the Wytch Farm giant field which has produced over 450 mmbbls oil (mostly from the Triassic Sherwood Sandstone) and has horizontal wells that extend 11km offshore.

Unconventional gas is now found in these same basins. A few Operators are actively developing CMM vent gas, using modular generators for electricity generation. There is ongoing drilling of exploration and appraisal boreholes for CBM in the Carboniferous coals away from mine workings. There is production testing of the deviated wells drilled at the Potteries CBM Field (at Keele Park), and the Doe Green CMB field has installed on-site electricity generation. Drilling is underway in the Namurian Bowland Shale with planned fracture stimulation and testing of the shale gas potential.
While the onshore UK basins have had over 2000 conventional wells (Fig. 2), drilling was not targeted at shale reservoirs. Only recently has drilling begun on Cuadrillas 13th Round licences in the West Lancashire Basin and in the Weald Basin (Fig. 4), where the targets are Early Namurian (Late Mississippian) and Kimmeridgian (Late Jurassic) in age respectively (Cuadrilla 2009, 2010). Under licence terms, the results of those wells will be held confidential for four years from the well completion date. Shale gas wells will need to be drilled, fracture stimulated and tested both in areas that have been explored for conventional hydrocarbons (e.g. the Wessex Basin which contains the Wytch Farm field with over 170 wells), and in areas with little conventional drilling (e.g. the Midlands Microcraton).

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UKOGL seismic

The UK Onshore Geophysical Library (UKOGL) is in the process of preparing a number of composite regional cross sections over areas of interest in the United Kingdom, using post-stack reprocessing to balance phase, amplitudes and frequencies of the various surveys. This cross section is a preliminary product generated for the Promote CD that has not undergone such reprocessing and has been produced by simply cutting and pasting existing processed data. Some of the lines incorporated into the section were processed up to 40 years ago: recent experience has shown that these can be expected to show significant improvement if reprocessed from field tapes held by UKOGL (click here for larger seismic image).

42 N GAP KM

WESSEX BASIN
Daw Hill Colliery Methane drainage vent
H

GEOSEISMIC CROSS SECTION

STAFFORD BASIN
CMM vent gas CBM Potteries Field Collieries

CHESHIRE BASIN
CMM vent gas CBM Doe Green Field S Lancashire Coalfield Formby Oilfield

S
WESTPHALIAN DEVONIAN SILURIAN CAMBROORDOVICIAN DEVONIAN WESTPHALIAN WESTPHALIAN

Wytch Farm Oilfield

Goodworth Oilfield

Namurian Bowland Shale gas well drilling

N
PERMOTRIAS

TERTIARY

CRETACEOUS

JURASSIC

PERMOTRIAS

DINANTIAN

NAMURIAN N NTIA DINA

N LIA HA N TP A ES URI AN M TI NA NAN DI

DEVONIAN

MIDLAND MICROCRATON CALEDONIDE FOLD BELT

Cretaceous - including Chalk + Wealden Jurassic - Kimmeridge, Corallian, Gr Oolite, Bridport + Lias Triassic + Permian - Mercia, Helsby, Sherwood and Collyhurst Westphalian - Warwickshire + Coal Measures Namurian - Bowland Shale Dinantian - Carboniferous Limestone Devonian Silurian Metamorphics
Thanks to Malcolm Butler, Chris Pullen, Nigel Clark and John Michaels for seismic interpretation

METAMORPHICS

VARISCAN FOLD BELT

Figure 3 Regional geoseismic cross section from Wytch Farm to the W Lancashire Basin (location of cross section on Fig 5.)

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Fig. 4

Principal UK onshore hydrocarbon provinces

There are 3 main age-constrained UK shale groupings that are of interest (Smith et al. in press): (i) Early Namurian (Late Mississippian) shales are the principal source rocks for conventional hydrocarbon fields in the East Midlands, Formby and in the offshore fields of the East Irish Sea Basin. These shales also occur widely in the Carboniferous Pennine Basin of northern England. Three Jurassic shale intervals in the Weald and Wessex basins of southern England have sourced hydrocarbons in numerous shows and small fields along the northern and southern margins of the Weald

(ii)

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Basin and at Wytch Farm (Fig. 4). Only the Lower Jurassic Lias shales lie within the oil window over a wide area. The remaining Jurassic shales are largely immature. (iii) A riskier UK play comprises the Upper Cambrian shales that are thought to occur widely in the subsurface between the Caledonides and Variscan fold belts on the Midland Microcraton (Fig. 4). Thick overlying Ordovician, Tremadoc shales are geochemically lean but may have reservoir attributes. No conventional hydrocarbon fields sourced from Lower Palaeozoic shales have been found in the UK, unlike on most of the other cratons of the world. Conventional UK hydrocarbon exploration wells on this play include at Cooles Farm, Collington, Usk and Fownhope (Fig. 5).

Fig. 5 Locations of boreholes referred to in this report and of Figures 3 and 10-13

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Other possible UK plays comprise Lower Palaeozoic black shales within the Caledonides fold belt and Devonian to Carboniferous black shales within the Variscides fold belt. Similarly tectonised black shales are now being considered to be possible shale gas producers within their equivalent fold belts in North America.

Fig. 6 Main areas of prospective UK shale formations. US shale gas exploration started in 1821, near to a burning spring (seep), with a 27-foot deep well which produced gas from Dunkirk Shales (Devonian) near Fredonia, New York State. The major American breakthrough came with the Barnett Shale in the Fort Worth Basin, where from 1981 Mitchell Energy persistently modified completion techniques over a 20 year period, gradually improving well completion, with horizontal drilling being successfully applied to the problem after Devon took over operations. By 2008, over 28,000 gas shale wells were producing nearly 380 bcf of gas yearly from five U.S. basins

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It is clear that the US exploration, led by small and medium-sized companies, is at least 30 years ahead of the rest of the world (Smith et al. in press). The U.S. now benefits from a 12% shale gas contribution to their gas production total. Most of new worldwide shale gas exploration has turned to the USA to understand the new exploration techniques required and to attempt to shortcut the learning curve based on US experience. Because onshore gas is meeting customer demand in the USA, there has not been any exploration for offshore shale gas resources there as yet, but this should not prevent the economics of such ventures being considered for the future. Much larger areas are prospective offshore for shale gas, and some of these might be accessible by extended reach drilling from onshore in the early stages of offshore exploration.

Fig. 7 Shale Gas Plays, US Energy Information Administration www.eia.gov

American analogue
The Middle Cambrian Conasauga Shale of Alabama play has probably the greatest relevance to areas in the UK that have not previously been associated with hydrocarbon production. Its Big Canoe Creek gasfield discovered by Dominion in 2006 within the Appalachian thrust belt is unique for three reasons: (i) Its shales are the oldest to support production in the US. (ii) Its shale thickness is enhanced by thrust fault duplication. (iii) No conventional fields appear to be associated with the Conasauga Shale. Wells in the Conasauga Shale play produce 80-100 mcfd, and are hence not as prolific as in the Barnett or younger shales in the USA. Nevertheless, the success here opens up the possibility that:

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(i)

Commercial shale gas production can be obtained from black shales within the external parts of other fold belts, including perhaps in the UK. (ii) Lower Palaeozoic shales can still retain gas, even within fold belts. (iii) There is no requirement for shale gas source rocks to have associated conventional fields. It is, however, possible that the Conasauga Shale has in the past sourced conventional fields that have been eroded or breached during Appalachian folding and uplift.

Analogies Used to Estimate Shale Gas Potential Reserves

The UK shale gas industry is in its infancy, and ahead of drilling there are no reliable indicators of potential productivity of its most prospective Jurassic, Carboniferous and Cambrian shale gas plays. For that reason, resource estimates can only be made by analogy with producing shale gas plays in America, although again ahead of drilling these analogies may ultimately prove to be invalid. The Barnett Shale play in America has an estimated resource base of 10 tcf shale gas, of which 2.5 tcf comprised proven reserves in 2002 (Bowker 2002). Comprising a thermally mature source rock, the Barnett Shale is probably not a good analogue for the UK Jurassic plays of the Weald and Wessex basins, but it may provide an indicator of the possible productivity of the UK Carboniferous shale gas play. The Antrim Shale of the Michigan Basin produces gas of biogenic origin, and is a more realistic analogue for the Weald and Wessex basins. No resource estimates are available yet for the Middle Cambrian Conasauga Shale of Alabama, which is the most likely analogue for the UK Cambrian shale gas play on the Midland Microcraton.

UK Jurassic shale gas play

The Antrim Shale in Michigan produces 47 mmcf/km2 shale gas (Faraj et al. 2004). If similarly productive, the Weald Basin petroleum system occupies an area of approximately 4,500 km2, and could thus contain 200 bcf recoverable shale gas. The onshore component of the Wessex Basin petroleum system covers approximately 700 km2 and could perhaps yield up to 30 bcf shale gas.

UK Carboniferous (Upper Bowland Shale) shale gas play

The Barnett Shale of the Forth Worth Basin produces 268 mmcf/ km2 shale gas (Faraj et al. 2004, but using a larger basin area than stated in their table 2). It seems unlikely that all of the UKs Pennine Basin petroleum system could be similarly productive, but if so its 17,500 km2, comprising a mosaic of separate sub-basins (Fig. 18) could potentially yield up to 4,700 bcf shale gas. Even if its productivity could match the Antrim Shale, its ultimate yield could be up to 2,100 bcf shale gas.

UK Cambrian shale gas play (Midland Microcraton)

The Cambrian Basin on the Midland Microcraton occupies approximately 18,000 km2. Assuming a more conservative productivity of 20 mmcf/ km2, the higher risk Cambrian play could potentially yield up to 300 bcf shale gas.

Exploration criteria
Exploration for shale gas is initially simpler than conventional hydrocarbon exploration, because problems of migration into non-source rock lithologies and the conventional reservoir characteristics are of no importance. Completion of wells in low permeability shales is likely to be a key hurdle in the UK, unless US experience is directly transferable to the UK. Exploration needs to concentrate on identifying good hydrocarbon source rocks, their generative kitchens, areas of high total organic carbon (TOC), and areas of gas window maturity. Much of this work was carried out in the UK for the onshore conventional hydrocarbons mini-boom of the 1980s. The main criteria identified for successful shale gas plays in the USA are: (i) Shales containing more than 2% TOC, rock-eval, Tmax and HI values for maturity (ii) Shales having a thickness exceeding about 40 metres. (iii) Depths from surface to the shale ranging from about 1,000 to 3,500 metres.

(iv) Overpressured zones 10

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A limit of vitrinite reflectance (VR) of 3.0% and equivalent other indices (e.g. TAI): Maturity of shale must be limited to within the gas window. (vi) Petrography: high % of non-clay minerals is required (Barnett Shale has only 27% clay minerals). (vii) An area of more than 100 km2 and avoiding towns (in the US, however, the Newark East gasfield partly underlies the city of Fort Worth) (viii) Shales unaffected by orogeny, that is, in areas restricted to forelands or cratons rather than within fold belts (however the productive Conasauga Shale in Alabama lies within the outer zones of the Appalachian thrust belt) (ix) Offshore areas are excluded (so far) (x) Other key elements include palaeogeography and structural setting. (xi) Legacy wells having geophysical logs including Gamma Ray, Density (Sonic) and Resistivity to identify shale beds and indicate porosity or high organic content. To these we should also add: (i) (ii) The presence of conventional gas fields (particularly those shown to be not sourced from Coal Measures). In the US there are so many gas fields this advice has not been needed. The presence of gas shows in shales. It is unlikely, given the poroperm characteristics of shales that gas has migrated into shales from elsewhere the gas found within shales is likely to have been generated from these shale intervals.

(v)

Discussion of these criteria

Probably most of the (above) factors require caveats, and these caveats are being tested thoroughly in some plays. US productive shales have variable characteristics, for example including the high gas-content Barnett Shale, which contains mostly free gas and the average gas-content Antrim Shale, which contains mostly adsorbed gas. An obvious effect of this difference is a varying well production decline curve (Drake 2007). The geochemistry of the shales is a key factor, as at least initially shale gas exploration will target high TOC shales. The maturity of the shales is perhaps more flexible, because recent biogenic shales can be expected to have lower vitrinite reflectance (VR<0.65%) than in the oil window. Older shales where recent groundwaters have introduced bacteria may have any level of maturity. However the presence of oil in the shales lowers gas permeability significantly. Even the oil window shales are now being tested in America by some companies to produce shale oil rather than gas. Any cut-off by virtue of the thickness of shales is probably dependant on whether other stacked shale formations could be considered prospective, either above or below, and the poroperm characteristics of these shale formations. In America, the higher production in the Late Jurassic Haynesville Shale compared to the Barnett Shale is attributed to a better seal and an absence of overlying reservoirs. In the UK we have not reached this level of exploration sophistication, and the presence of overlying or nearby (small) conventional reservoirs is considered to be an initially important consideration. The age of the shale, affecting permeability, might also be a factor. Jurassic shales in the UK have not been so adversely affected by the Alpine Orogeny as Carboniferous and Lower Palaeozoic rocks affected by the Variscan and/or Caledonian orogenies. These deformation fronts form a triangle (Midland Microcraton) in south and central England and Wales that is comparatively unaffected by folding and intrusion of igneous rocks.(Smith 1987). There is no evidence of overpressure in UK basins, so it is unlikely that well production rates will be as high in the UK as in America. In America, the Haynesville Shale (Upper Jurassic) overlies the Ouachita (Variscan) fold belt but is younger than the age of orogenic deformation. In the UK the Jurassic shales of the Weald Basin have a similar geographic juxtaposition to the Haynesville Shale, relative to the concealed UK Variscan fold belt. The petrography of all potential gas shales is generally related to the Barnett Shale standard. However, the Barnett Shales low clay content is not typical for many other shale gas plays in the USA, and may hence be not applicable to UK gas plays either.

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UK Source Rocks
All source rocks can be defined by known petroleum systems. In the UK there are (oil) petroleum systems in the Weald, Wessex, Pennine, West Lancashire and Midland Valley basins. Minor (gas) petroleum systems are present in all these basins and in the Cleveland Basin (an onshore extension of the Southern Permian Basin petroleum system). Source rocks in other UK basins have not provided hydrocarbons to conventional fields, but may have some potential for retaining some proportion of hydrocarbons generated. Few of these have been sampled for TOC content or drilled into. Only limited details are provided for the areas with the highest risk, that is, within fold belts.

UK Gas content
There are no known studies focused on the gas content of UK shales. For safety aspects associated with coal mining, Creedy (1988, 1989) collected and analysed the gas contents of non-coal lithologies in coal mining areas. There is no published information on how these data were collected and how quickly they were analysed, but Creedys analyses suggest that carbonaceous mudstones and marine bands are likely to contain about four times as much gas as other lithologies. For comparison, coals are likely to contain at least 200 cubic feet of gas per ton. Jurassic mudstones analysed by Creedy have very low values but there is no published information on where his samples were obtained or on the exact stratigraphic interval sampled.
cubic feet per ton 0 0 Stratigraphic order 100 200 300 400 500 600 700 800 900 2 4 6 8 10 12 14 16 18 20 22 24

Jurassic mudstones Jurassic limestones ETM Coal Measures sst Coal Measures sltst Coal Measures mdst CM carbonaceous mdst Dinantian lmst Marine band

Fig. 8 Gas contents of various non-coal lithologies measured for coal mine safety purposes (Creedy 1989). These are grouped stratigraphically and the vertical scale does not represent not true depths.

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3. Shale gas prospectivity UK pre-Carboniferous shale formations

All of the UK formations in the following section display a relatively small selection only of the exploration criteria listed in Section 2 as characterising successful shale gas plays in the USA. They are largely distinguished from less prospective UK shales by their description as being black, highlighting potential prospectivity. Only limited details are provided for shale intervals with the highest risk, that is, within fold belts. Lake District and Southern Uplands shale formations and metamorphosed shales are not considered prospective, and are excluded from this report.

Fig. 9 Simplified UK onshore lithostratigraphy

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Precambrian formations
Precambrian non-metamorphosed rocks occur in the English Midlands, but they are largely dominated by red beds or volcaniclastics and are considered unprospective here. These volcaniclastics are fossiliferous at outcrop at Charnwood, so it is not impossible that less oxidised sections with lower amounts of volcaniclastics occur at depth elsewhere in the UK.

Cambrian formations
Dark grey and black Cambrian shales in North Wales include the Menevian Shales (100 m thick), the Penrhos Member slates (350 m thick), and the Black Band within the Dolgelley Beds (Smith & George 1961). At outcrop in the Welsh Borderland there is evidence for high organic content in Upper Cambrian shales (Smith et al. 2010), although they are probably overmature for conventional hydrocarbons here and where concealed to the east and south. The Early Cambrian acritarch alteration index is 4-5 (wet gas) in the Withycombe Farm borehole (Fig, 5, S Molyneux, pers. comm.).

Fig. 10 Cambrian and Tremadoc outcrop. Many very small outcrops are not shown.

Ordovician formations
In addition to the Tremadoc and Caradoc shales discussed below Leggett (1980) recorded black shales within Arenig- to Llandeilo-age Welsh sequences in the Carmarthen-Pembroke area.

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Tremadoc
Tremadoc shales are widespread and thick on the Midland Microcraton (Smith & Rushton 1993), but are lean where analysed and without high gamma values where drilled (Smith et al. in press). Tappin & Downie (1978) recorded dark grey, thinly laminated, cleaved Tremadoc shales in core offshore of Tenby, south Wales, so parts of the Midland Microcraton and outer Variscides may contain a relatively organic-rich facies. At outcrop near Merevale in central England and in well samples at Shrewton in the Wessex Basin (Fig. 5), Tremadoc shales have a maturity of 1.3-2.6 VR% equivalent (Smith 1993). Equivalent shales are also present in the outer Variscan zones under the Weald and Wessex basins (Smith 1985). In the Shrewton well between 1,743 and 2,073 m depth, these shales have poor TOC values (0.20-0.38 %). Underlying Cambrian shales may be a potential target at the southern end of the Palaeozoic Worcester Graben.

Tremadoc gas shows

Calvert well in Buckinghamshire (Fig. 5) discovered gas in 1911 over a 13.3 m interval in probable Tremadoc-age non-black strata. Although the well was deepened and another well drilled farther east, there were no further signs of gas. The gas composition was reported to be high in nitrogen and in ethane, though this may be incorrect. Another sub-economic gasfield was found by BP to the north at Twyford (Fig. 5) in porous Late Triassic, Penarth Group strata directly overlying Tremadoc shales. This gas also had high nitrogen content, but no ethane. Brunstrom (1966) and Oswald (1996) noted the presence of helium in this gas. The most likely source for the gas may be Westphalian strata in Oxfordshire to the west, rather than from Tremadoc shales. Helium and nitrogen do not rule out a coal source, although high ethane values are relatively unusual for a coal source.

Caradoc
The Caradoc-age Nod Glas Formation and underlying beds of N Wales are up to 400 m thick and contain jet-black shales (Smith & George 1961). Equivalent Caradoc black shales lie unconformably on Precambrian strata in Shropshire, indicating a transgression which penetrated at least the NW margin of the Midland Microcraton. This is the only post-Tremadoc-age Ordovician interval to be present on the Midland Microcraton (Smith 1987).

Ordovician to Silurian formations

The lead mine at Van in mid Wales (Fig. 11) encountered methane, water and hydrogen sulphide in Ashgill- and Llandovery-age mudstones, beginning about the year 1865 and culminating in an explosion in 1908 (Hughes 1991).

Silurian formations
Silurian shales appear to be lean on the Midland Microcraton, based on their geophysical log character. Surface or subsurface geochemical sampling is needed here. Silurian samples on the margin of the Weald Basin gave low TOC, P1 and P2 yields. Graptolite reflectance and conodont alteration indices suggest oil window maturity in the Welsh Borderland and higher maturity in the Welsh Basin. Velocity data (used as a proxy for maturity) suggest a similar pattern for Silurian shales in the East Anglian Caledonides. Leggett (1980, Fig. 11) illustrated the distribution of hemi-pelagic black Llandovery-age (Early Silurian) shales in central Wales. The graptolitic basin facies of the Ludlow (Late Silurian) in the Clun Forest area may have some shale gas potential (Earp & Hains 1971, fig. 35) most of this sequence is described as grey in colour, with slumped and turbiditic beds. None of the Silurian basin facies rocks have been drilled or logged except at Glan Fred (Fig. 5).

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10 km

Fig. 11 Silurian hemi-pelagic mudstones in Wales. NB Abrupt terminations reveal areas where not mapped in detail. Red dot signifies gas shows at the Van lead mine, black squares indicate springs with hydrogen sulphide.

Devonian formations Orcadian Basin

Lower and Middle Devonian clastic sediments unconformably overlie metamorphic basement in the Orcadian Basin (northern Scotland) of Caithness, Orkney and Shetland islands. The Middle Devonian sediments include 180 m of rich, mature lacustrine source rocks (Eday Marls), which accumulated in Lake Orcadie. These have been thoroughly studied because various geochemical data suggest their source rocks have contributed to fill of the Beatrice Oilfield (Bailey et al. 1990). In Orkney the average TOC of the Devonian is 1.4% (Marshall et al. 1985). Within this succession the Lower Stromness Flagstones have TOC values over 6%, whereas the Sandwick Fish Bed (20 m thick) and Upper Stromness Flagstones have an average TOC of 2.3%. A Permanent Lake facies occurs in cycles about 1.5 m thick, repeated 108 times. The potential source rock is therefore dispersed between less promising sediment within a total thickness of over 800 m. The organic matter is Type II, derived from cellulose of land plants. However, the Devonian strata here are only marginally mature for oil generation in Orkney (Hillier & Marshall 1992) and are hence unprospective for shale gas. Towards the centre of the Orcadian Basin, the Devonian sequence exceeds 4,000 m in thickness. Based on offshore data, this sequence may locally include significant thicknesses of Lower Devonian lacustrine shales, with possible shale gas potential.

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Devonian rocks of SW England Variscides

Sequences of basinal shales occur at various intervals within the Devonian strata of south-west England. Their TOC values are unknown, but their maturity is suspected to be probably within the dry gas window. Nevertheless, their involvement in the Variscan orogeny renders these Devonian strata unattractive as primary shale gas targets.
Bude Formation

Permian and younger Upper Carboniferous Staddon Grit (Devonian) Grey/dark shales abundant in Devonian/Carboniferous Grey/dark shales less significant in Devonian/Carboniferous Granite 10 km

Fig. 12 SW England Devonian and Carboniferous formations. The Devonian black shales dip north beneath the Carboniferous Culm, north of the granites. Though not been proved in any boreholes there, they are also likely to be present at depth beneath the Wessex Basin, east of this map.

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4. Shale gas prospectivity UK Carboniferous to Triassic shale formations

Lower Carboniferous shale formations Early Carboniferous Strathclyde Group: former Oil-Shale Group of Scottish Midland Valley (West Lothian)
Several oil-shale intervals in a 670 m sequence within the Strathclyde Group were extensively worked for hydrocarbons between the years 1850-1962 (e.g. Carruthers et al. 1927). These source rocks are immature for oil at crop in the oil-shale fields, but they display free oil adjacent to sill intrusions that have increased their maturity. An interval termed Houston Marls tested 330 mcfd gas in BP Salsburgh 1A well (Fig. 5) at about 850 m downhole. Unfortunately the well was not logged to TD so the identification of oil-shales in the well was derived only from cuttings.

Tournaisian Lower Limestone Shale (now Avon Group)

Occupying the South Wales Variscan foreland basin, the earliest Carboniferous Lower Limestone Shale may have some shale gas potential. It is generally black in South Wales, but at Cannington Park borehole south of Bristol Channel (Fig. 13) it comprises dark grey mudstones interbedded with thin limestones. In this borehole it is tectonised, with steep dips, overturned, much fractured and veined and is hence probably non-prospective. Total organic carbon data is needed for the less tectonised South Wales sequence, but the vitrinite reflectance is high (over 3.5%). The same formation evidently extends eastwards beneath the Weald Basin, but detailed sampling has only been made at Warlingham borehole (Fig. 5), where the formation is 34 m thick and consists of dolomitic siltstone and dark grey shelly mudstones (Worssam & Ivimey-Cook 1971).

Topmost Dinantian Upper Limestone Shales (Oystermouth Formation) to Early Namurian Marros Group (lower part)
Together equivalent to the Lower and Upper Bowland Shales of the Pennine Basin, these formations of the South Wales-Bristol Basin offer high gamma shales, but are interbedded with thick sandstones and underlain by limestones in Maesteg borehole (Fig. 5). In Ashton Park borehole (Fig. 5) thin high gamma ray shales, with pyrite, phosphates, fish debris, cherts and a marine fauna are present, interbedded with sandstones. If these shales thicken to the south, which is likely, and maintain their high gamma ray characteristic they could provide a realistic shale gas target. Although perhaps having no relevance to shale gas prospectivity, the tectonic morphology of the South WalesBristol Basin (Fig. 13) is remarkably similar to, but much smaller than the Fort Worth Basin (USA) containing the Barnett Shale. Both are foreland basins, with aulacogens intervening perpendicular to an adjacent fold belt (Smith et al. in press). However, the UKs Lower Carboniferous shales rest conformably on Upper Devonian strata, whereas the Barnett Shale lies unconformably on Lower Palaeozoic rocks. The South Wales-Bristol Basin thickens toward the fold belt, whereas the Barnett Shale thickens towards the aulacogen.

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Bristol Somerset Bath Basin

Upper Westphalian Namurian to Lower Westphalian Lower Carboniferous (limestone) Upper Devonian Lower Devonian Devonian undifferentiated Silurian Silurian volcanics Tremadoc and Cambrian Precambrian 10 km

Fig 13 Bristol-Somerset Basin, wedged between Variscan Front thrust (to south) and Worcester Uplift. The Variscan Front bisects the Bristol Coalfield near Bath and affects the southern end of the Worcester Uplift.

Carboniferous of Pennine Basin Lower Bowland Shale (Widmerpool Formation, Worston Shale, Arundian Shale etc of Dinantian age)
Dinantian shales are often present on upstanding structural blocks in northern England (e.g. Rossendale) as thin developments within a largely limestone sequence, but they expand considerably into adjacent half graben subbasins of the Pennine Basin (Kirby et al. 2000, Smith et al. 2005). These shales do not have the high gamma signature of, and are hence less prospective than, the overlying Upper Bowland Shale.

Carboniferous of Pennine Basin Bowland Shale Group of early Namurian age

The Early Namurian shale units (local names Bowland, Edale, Holywell shales, top part of Craven Group) of the Pennine Basin offer the best potential for shale gas exploration in the UK because they have sourced hydrocarbons, and have high TOCs (Armstrong et al. 1997). These shales are more widespread than the Dinantianaged shales, because they were deposited as the extensional half graben subsidence was transforming to a more regional thermal subsidence.

Bowland Shale Group (Namurian) Bowland Shale Group Total Organic Carbon (TOC)
Namurian marine shales have generally higher TOC values (over 4%) compared to non-marine shales (Spears & Amin 1981), which have an average value of around 2% (Fig. 14).

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F ig. 14 Variation of TOC contents in Carboniferous boreholes from northern England. Gleaston borehole is in south Cumbria; Ferneyrigg, Stonehaugh and Marshall Meadows are in the Northumberland Trough, Roddymoor is on the Alston Block, Beckermonds is on the Askrigg Block, and all other boreholes are in the Pennine Basin. Maynard et al. (1991) found that two thin Namurian black shale marine bands had a TOC content of between 1013%, whereas values within interbedded strata ranged between 2 and 3%. The Namurian Holywell Shale, source rock for the southern East Irish Sea gas and oil fields and Formby oil field, has TOC values ranging from 0.7-5%, with an average of 2.1% (Armstrong et al. 1997). The lower part of this formation has an average of 3% TOC with pyrolsate yields of 7 kg/tonne 1. These values are comparable with producing US gas shales.

Bowland Shale Group Thermal Maturity

There is no agreement on the lower limit of maturity for gas generation, which has variously been put at 2% Ro (Landes 1967), 3% Ro (Dow 1977), 3.2% Ro (Dow & Connor 1982) and 5% Ro (Hood et al 1975). In this study a value of 1.1% Ro has been used to differentiate maturity levels above and below the gas window (Fig. 15), because this value defines the maturity limit for the Barnett Shale in the American Newark East gasfield (Pollastro et al. 2004). A number of papers now put the floor for shale gas prospectivity at Ro 3.5%, and it will be interesting to see if this theoretical limit is tested in any of the developing plays worldwide. Vitrinite reflectance (%Ro) measurements at outcrop and in boreholes provide a widely accepted proxy for thermal maturity and hydrocarbon generation. These are shown for the nearest value analysed to the basal Namurian (Fig. 15). The orange and red symbols show boreholes drilled in sub-basins where the gas window is present (Cheshire Basin SE of Milton Green, Gainsborough 2 in Gainsborough Trough. A vast area with no data probably also lies in the gas window, for example between Trumfleet and Weeton (Fig. 5) and in the subsurface of the Craven Basin and its adjacent West Lancashire Basin. The Widmerpool Gulf is defined by the white area SW of Duffield (Fig. 15), where there is no drilling. Duffield borehole (Fig. 5) lies within the oil window but lies north of the basin depocentre. Most of the Cleveland Basin is within the gas window, with the southern line of gas fields (e.g. Kirby Misperton) at a lower level of maturity on the crests of structures. The large area to the south of these fields has thick, subcropping Coal Measures (Smith 1985), with no deep wells, but is probably also within the gas window.

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Fig. 15 Maturity of wells in Pennine Basin (see text for details)

Duffield borehole
Total organic carbon 0 0 200 Depth (m) 400 600 800 1000 1200
Namurian Dinantian VR %

Fig. 16 Range of total organic carbon contents and vitrinite reflectance in the BGS Duffield borehole, Widmerpool Gulf (Fig. 5). The high VR% near the base of the borehole is caused by proximity to igneous sills these may lead to gas window maturity near or below terminal depth.

Bowland Shale Group Porosity, Permeability and Fracture Porosity

There is no porosity data available for Pennine Basin Namurian shales. From BGS boreholes in the southern Midlands, porosities of 5-10% appear to survive to depths of over 900 m in Upper Palaeozoic shales (Poole 1977,

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1978). Upper Carboniferous Coal Measures mudstones, seat-earths and siltstones have measured permeability values in the range 4.34 x 10-6 to 7.1 x 10-3 mD (Oldroyd et al. 1971). Joints, developed in the limestone platforms of Derbyshire and the Askrigg Block (Moseley & Ahmed 1967), are predominantly sub-vertical and perpendicular to bedding. Joint development preceded the main phase of movement on the main fault zones and they are frequently mineralized. Well-bedded marine shales between these limestones tend to have a high joint density, in contrast to mudstones and sand-rich shale units. Minor joints are more difficult to distinguish in argillaceous rocks, but master joints persist strongly with a high fracture density (0.6-3 m spacing). The predominant NW trend of the main Carboniferous joint sets is coincident with the present day maximum horizontal stress direction (145/325o, Evans & Brereton 1990). Rogers (2003) predicted that the stress-induced fracture permeability is likely to be highest along this trend in the current UK stress field.

Bowland Shale Group Mineralogy

The Al2O3 content of UK Carboniferous mudstones ranges between 12-38%, with an average of around 25% (Ramsbottom et al. 1981). Marine and non-marine shales in the Tansley borehole (Fig. 5) have average Al2O3 contents of 20.6% and 17.9% respectively, with clay minerals making up 59% and 56% of the shale matrix (Spears & Amin 1981). The Barnett Shale has a relatively low clay content (c. 27%, Jarvie et al. 2004) compared to other gas shales. The presence of significant amounts of quartz (45%) and carbonate (10%) in the shale matrix, imparts brittleness to the rock, facilitating artificial fracturing.

Bowland Shale Group Associated Gas Fields and Discoveries

The presence of conventional gas fields in UK Carboniferous basins (Fig. 4) demonstrates that gas has been generated. In a few cases there is unambiguous evidence of the source being Namurian shales (e.g. the Elswick Gasfield in the West Lancashire Basin, Fig. 3), because Coal Measures are absent in the subcrop (Smith 1985). In some gas fields migration could have occurred from either a Coal Measures source or from Namurian strata uplifted in an inverted basin (e.g. Nooks Farm, Fig. 5). Along the southern margin of the Cleveland Basin (Marishes to Malton gas fields, Fig. 4) migration along E-W faults from the Southern North Sea, is also a possibility. Gas wetness (percentage of non-methane gas) values (Smith et al. in press, fig. 10) are high when gas is associated with oil in the source rock, and lower (<5%) when the gas has been exclusively derived from coal-rich strata or is biogenic or overmature. Jarvie et al. (2004) typified two gas samples in the Barnett Shale as overmature dry gas, with gas wetness values of around 5%; in contrast oil associated gas had values over 12%. In the Carboniferous of the UK, high gas wetness values measured at Welbeck Colliery are associated with oil shows, but at nearby Thoresby Colliery (also associated with oil) the gas is rich in methane and was probably sourced from the Coal Measures (Challinor 1990). In most UK gas fields there are insufficient gas composition and carbon isotope data available to resolve the migration directions. Carbon and hydrogen isotope data from methane samples accompanying water flows within Wyresdale Tunnel (Fig. 15, the methane caused the Abbeystead explosion in 1985) in Namurian strata (Smith et al. in press, fig. 7) suggest that the gas either had a modern biogenic origin or formed through CO2 reduction. The US Antrim Shale and New Albany Shale (Smith et al. in press, fig. 7, Illinois Quaternary-hosted gas) have late generation biogenic gas systems related to glacial meltwater ingress via fractures (Schurr & Ridgley 2002). US exploration has used stable isotopes to confirm source, maturity and hydrocarbon generation zone. In the UK we need to apply these methods to resolve the source of already discovered fields and shows. Wherever present, the Upper Bowland Shale is an attractive prospect because high gamma shales are present together with other shale-dominated facies. The gross thickness of the formation ranges from 0-300 m (Fig. 17). The organic rich, net thickness is defined by gamma values greater than 180 API and ranges between 0-110 m thickness. Other shales need to be mapped in the same way, in the overlying Namurian and underlying Dinantian successions. The Dinantian half graben basins (Fraser et al. 1990, Fig. 18) indicate the areas where basin-centred prospects exist.

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Fig. 17 Gross thickness, and thickness of high gamma facies in the Upper Bowland Shale (Namurian part only). Black circles show gross thickness (metres) and coloured circles show thickness of high gamma shales in metres.

On their website, Island Gas (http://www.islandgas.com/uploads/090120doegreenfdp.pdf) report that they have assessed their shale gas prospects at deeper levels than their current coal-bed methane exploration as potentially containing 3,823 bcf shale gas within 1,195 km2 of their Point of Ayr licence. This prognosed shale gas is contained within Holywell Shales (Upper Bowland Shale equivalent) with an average thickness of 250 m, and with an average TOC of 2.1%.

Carboniferous of Pennine Basin Northumberland and Stainmore Troughs

The Northumberland and Stainmore Trough basins may have some shale gas potential, because their TOC contents are high in a largely gas-prone facies. Shale units within the late Dinantian to early Namurian Yoredale and earlier formations in these basins tend to be thin. A possible tight gas play was indicated by the Errington well and it is likely that thicker, perhaps shalier sequences occur off-structure, e.g. against the Stublick Fault.

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EY ALL ND V ID LA M

TWEED BASIN

N ER TH U SO

DS AN PL U

Granite Basement High Platform Basin

NORTHUMBERLAND TROUGH
VALE OF EDEN

PE E IN NN

AY LW SO

SIN BA

ALSTON BLOCK

T UL FA

STAINMORE TROUGH
D EN T F .

AVEN HIT EH X - W GE MAN RID

ASKRIGG BLOCK

CLEVELAND BASIN

CRAVEN BASIN MANX - FURNESS BASIN

P EN NI NE

LE

S ED

SI BA

MARKET WEIGHTON BLOCK

AS

H IG

EDALE SUB-BASIN

KE RN H I SPI GA GH T A IN S L SU BO B- B RO AS U G H IN EM ID LA N DS SH EL F

HUMBER BASIN

IDM

ER PO

OL SU B-

BA SI N

WELSH MASSIF
0 20

LONDON - BRABANT MASSIF

40

60

80

100 km

Fig. 18 Carboniferous basins of central Britain, adapted from Fraser et al. (1990, fig. 4)

Carboniferous Culm of SW England

The early Westphalian Bude Formation includes dark mudstones with graded sandstones, interpreted to have filled a large equatorial lake, but it is strongly tectonised. Organic carbon contents vary from 0.5-2.9% and there are thin marine bands (Higgs 1991).

Permian formations Kupferschiefer/Marl Slate

Although very thin, this basal Upper Permian unit has a very high organic content and high metal content. Marl Slate samples in Durham (Hirst & Dunham 1963) show that organic matter and molybdenum, copper and nickel are positively correlated.

Triassic formations
Almost all UK Triassic formations are strongly oxidised. The Westbury Formation in the uppermost Triassic Penarth Group is a black shale that might have some potential if it werent immature for oil, even in the Bristol Channel margins (Macquaker et al. 1986).

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5. Shale gas prospectivity UK Jurassic shale formations

Lias
The Lower Jurassic Lias (Toarcian) of the Yorkshire coast consists of a shale facies containing 40% illite, 30% kaolinite, 25% mixed layer clays and 5% chlorite (Morris 1979). Hallam (1960) distinguished four lithologies within the Blue Lias of Dorset and Glamorgan by their differing carbon contents its bituminous shales contain from 3.9-7% carbon, its laminated marls 8% carbon, and its other marls and limestone less than 1.9% carbon. Lias oil-shale is present at Kilve on the southern side of the Bristol Channel (Shatwell et al. 1924). Both shores of the Channel are immature for oil (Cornford 1986). Though probably lying in the oil window offshore, the Lias is immature for shale gas in all of these areas.
Outcrop of Lias Subrop of Lias Lias thickness (metres) Eastern limit of Lias

50 km

Fig. 19 Outcrop and subcrop and thickness in metres of the Lias in eastern Britain The Lias is the source rock for the Weald Basin petroleum system and for the Wessex Basin (Ebukanson & Kinghorn 1986), with migration into 3 different reservoirs in Wytch Farm oil field. Colter & Havard (1981)

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deduced that the Lias in the Arreton 2 well (Fig. 5) does not show a high gamma profile, and the sampled TOCs are low. The well lies about 50 km east of the probable source of oil at Wytch Farm. Maturity is low on the former tilt-block highs on the footwall to the syn-sedimentary faults in the Weald and Wessex Basins. In the Cleveland Basin the Lias is within the oil window and there are extensive oil shows but no gas in its iron-ore mines. In Godley Bridge 1 well (Fig. 5) the Lias downhole gas readings are fairly low, whereas the overlying Fullers Earth had higher values.

Fullers Earth
TOC values are good (up to 3.48%) within the Fullers Earth in the Weald Basin, but it has only reached oil window maturity in the basins depocentre.

Oxford Clay
Overlying the Great Oolite Group oil reservoir in the Weald Basin, the Oxford Clay is affected by late Cimmerian erosion (Fig. 20) on the tilt block highs, but thickens towards syn-sedimentary faults controlling the half graben within the basins. The Oxford Clay is immature for hydrocarbon generation in the English Midlands, but it is significantly organic-rich to be self-firing in the Fletton brick-making process (Gallois 1979). In the Weald Basin its TOC reaches 7.83% and it lies within the oil window at the basins depocentre. In southern England and central England there is often a bituminous horizon near the base, but this is absent in Yorkshire (Duff 1975). TOCs average below 2% in the non-bituminous sections but are over 4% in most of the bituminous sections of central England (Duff 1975), where they are immature for oil.
Outcrop of Oxford Clay Oxford Clay thickness (metres) Eastern limit of Oxford Clay

50 km

Fig. 20 Oxford Clay outcrop and isopachs in metres (from Whittaker 1985)

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Shelly horizons within the Oxford Clay contain free oil in the Wytch Farm Oilfield (Colter & Havard 1981), but this might represent migrated oil.

Kimmeridge Clay
The Kimmeridge Clay Formation of onshore eastern and southern England (Fig. 21) is a potentially prospective shale (for oil and probably biogenic gas) because it contains ubiquitous oil-shale beds (Gallois 1979). Its background shale has TOC up to about 10%, its bituminous shale has TOC values up to 30% and its oil-shales have TOCs reaching 70% (e.g. the Blackstone Bed, Stocks & Lawrence 1990). Five basins show thickening of the formation in response to syn-sedimentary faulting (Weald, Wessex, English Channel, Cleveland and LincolnshireNorfolk).
Outcrop of Kimmeridge Clay Thickness of Kimmeridge Clay (metres) 0 - 200 200 - 400 400 - 600 > 600 Normal fault

50 km

Fig. 21 Kimmeridge Clay outcrop and subcrop. The Kimmeridge Clay is immature in south-east England. Nevertheless it is associated with oil and gas shows, indicating a probable biogenic gas play. Oil-shales have been worked and assessed in Dorset and Norfolk-Lincolnshire. The isopachs are from Whittaker (1985). The Kimmeridge Clay Formation is immature for thermogenic gas generation onshore (Scotchman 1991) and it is only marginally mature for oil generation in the Weald Basin depocentre. Its carbonate content varies from 12% (oil-shales) to 94% (limestones, Farrimond et al. 1984). Scotchman (1991) showed that high TOCs and sedimentation rate result in high phytane/TOC values. The low maturity is confirmed by TMAX 403-437 C on pyrolysis. Samples confirmed kerogen of Type II or mixed Type II-III on the Van Krevelen diagram (Tissot et al 1974). Exploration for oil-shale deposits was conducted in Dorset at Corton after World War 1 (Strahan 1920). Similarly, English Oilfields Ltd and the Norfolk Oil Shale Syndicate drilled about 50 wells in an attempt to develop a mining operation on an immature source rock in Norfolk at West Winch and Setch (Fig. 5), with over-optimistic shareholder information becoming confused with scientific statements (Forbes-Leslie 1917a, 1920).

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Key stratigraphic boreholes (Swanworth and Metherhills, Fig. 5) were drilled in the Wessex Basin for research purposes (Taylor et al. 2001). The sediments encountered are immature for oil generation, with VR values < 0.4%. After the first OPEC oil price increase of 1973, twelve additional wells were drilled along the Kimmeridge Clay outcrop of eastern-southern England to assess the thickness, extent and composition of the oil-shales. These wells showed a very condensed section near to the London-Brabant Massif from NE of Swindon to Cambridge (Fig. 21) where the oil-shales are replaced by mudstones and the remaining beds are very thin. Near Swindon a sandy facies is present (Gallois 1979). Exploitation of these Kimmeridge Clay oil-shale beds was uneconomic because of the thinness of the beds and high sulphur content. This may be overcome by horizontal drilling, and future exploration could be a combination of coal bed methane-type exploration (in relatively thin oil-shale beds), and shale gas exploration in the formation as a whole. The English Channel Basin, particularly south of Purbeck and on the southern Isle of Wight, contains more mature source rocks at all levels than in the area near Wytch Farm oil field (Colter & Havard 1981), because of Alpine inversion.. There are already precedents for deviating wells from the onshore to the offshore (Amocos Down Barn (Fig. 5) and the Wytch Farm development wells in Dorset) to access the main part of the basin for shale gas.

Kimmeridge Clay gas shows

Shows of oil and gas were detected in several Weald Basin wells, including Sub-Wealden 1 & 2 (Fig. 5, Pearson 1904). The gas has migrated into reservoir beds (Corallian, Portland, Purbeck and Wealden), but its source is probably Kimmeridge Clay or Purbeck Shales. The gas in the Heathfield wells (Fig. 5) is at various horizons, some sandy but others in thin limestones and shale. As the deeper Lias shales are probably within the oil window at depth here the gas, although relatively wet, is probably biogenic. It is probably not of post-Pleistocene age related to bacteria-carrying meltwater, as in the Antrim Shale of USA, but it has begun migrating since the Alpine anticlines were formed in Miocene times. Southard Quarry well (Fig. 5) discovered gas in an inversion anticline, near to an offshore gas seep at Anvil Point and in well 98/11-2.

Kimmeridge Clay gas fields

Small gas fields and gas discoveries occur in a line along the northern Weald Basin (Albury, Bletchingley, Lingfield and Cowden), with Godley Bridge, Baxters Copse and Heathfield fields in the centre and south of the basin (Fig. 5). The Heathfield gas has been used to light its railway station since 1899, producing about 20 mmcf.

Kimmeridge Clay gas composition

Conventional gas exploration has distinguished between gas associated (with oil) and non-associated gas, the latter deriving mostly from coal-bearing formations. Non-associated gas is characterised as a dry gas (low gas wetness) according to Gadon (1987), but the gas wetness variability (e.g. Southern North Sea Hewett Field gas, assumed to be derived from coals) seems to overlap with associated gas wetness values. Some obvious coal-derived gases do show low gas wetness and it may be that a significant component of Southern North Sea gas is not derived from coal (Lokhurst 1998). This leaves a problem attributing the source to some of the onshore gases discovered. They might have potential for shale gas prospects if it could be shown that they were not derived from coal, but the gas compositional evidence is ambiguous. Many fields and discoveries lie between a coal source on one side and an inverted shale basin on the other side (e. g. Nooks Farm, Ryedale fields of southern Cleveland Basin and Cousland in East Lothian). The Weald Basin wet gases confirm a non-coal source but do not discriminate between other types of source (biogenic or thermogenic). From the work of Scotchman (1991) and others the Kimmeridge Clay is shown to be immature for oil onshore. Therefore the many gas shows within the Kimmeridge Clay or probably derived from it must be biogenic (e.g. Heathfield). Unfortunately there are no stable carbon isotopic analyses available in the public domain to confirm this.

Purbeck
There is also a Purbeck oil-shale (Pearson 1904), at outcrop in the Purbeck Inlier on the Wealden Anticline in Sussex.

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6. Environmental concerns
Environmental problems are a likely concern in the UK for shale gas fracturing completions. Whereas with coal bed methane all the (saline) water needs to be disposed of, in shale gas well completions up to a million gallons of water, treated in various ways and containing (ceramic) proppants and resin-coated sands and other chemicals will probably be required initially to fracture the shale and hold the fractures open. Re-fracturing might be expected to be repeated every 4-5 years in successful wells. About a third of the water is returned to the surface. It might be possible to re-use produced water by a recycling process, or to reduce the potential environmental impact by changing the chemicals added, but at the moment freshwater is needed for the fracturing. Drilling close to urban areas may also pose problems. Similar problems on a smaller scale in the UK were found and solved by BP at Gainsborough Oilfield in 1959, where the field underlies the nearby village, and at Wareham, Dorset where the oilfield underlies the town. The main problem in the UK is that, in contrast to the US, there are fewer or no local people with any vested interest in the success of these projects.

7. Shale oil
Oil-shales are immature source rocks, which have been mined and retorted to release oil, for example in the Midland Valley of Scotland. Oil-shales which lie in the oil window, that is, down-dip of the near surface mines could have potential for production of shale oil. The shale oil could be accessed by the sort of completion techniques used to produce shale gas. Cannel coals (from most of the UKs coalfields) have been used as sources of oil and gas in industrial plants (Strahan 1920). Conventional source rocks at oil window maturity could be targeted for shale oil. These source rocks could include those lying close to the established oilfields in the East Midlands and Wessex-Weald basins (half-graben basins controlled by syn-sedimentary faults). Part of the Kimmeridge Bay Oilfield production was said to be derived from fractured Oxford Clay (Evans et al. 1998). Kimmeridge 2 well produced a few barrels on DST from sandstones within the Oxford Clay, so this oil is unlikely to be indigenous to the Oxford Clay.

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8. Conclusions
Shale gas exploration plays have been described as basin-centred. This term neatly reflects the difference in drilling philosophy between conventional and unconventional plays. Conventional plays drill structural highs near to mature source rocks but unconventional plays need to drill the basin depocentres. For this reason, conventional hydrocarbon wells are not always useful for shale gas exploration because, having been drilled on highs, source rocks in the wells are often thin or absent entirely. New wells specifically targeting shale gas will be needed to delineate the potential. Shale gas is currently produced in significant volumes only in the US, but that success has raised interest in the UK potential. The untested shale rock volume in the UK is very large, however, prior to drilling, fracture stimulating and testing, it is not clear that UK shales have the right rock properties to exploit for shale gas. Even if one assumes that the American shale gas producing analogies are valid, many of the operating conditions are different in the UK. In the UK, land owners do not own mineral rights, so there is little incentive to support development, and local authorities must grant planning consent. The US has relatively permissive environmental regulations, low population densities, tax incentives, existing infrastructure, well developed supply chains and access to technology. Cumulatively, these factors mean that it is far from certain that the conditions that underpin shale gas production in North America will be replicable in the UK.

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9. References
ARMSTRONG, J.P., SMITH, J., DELIA, V.A. A. & TRUEBLOOD, S.P. 1997. The occurrence and correlation of oils and Namurian source rocks in the Liverpool Bay-North Wales area. In: Meadows, N.S., Trueblood, S.P., Hardman, M. & Cowan, G. (eds) Petroleum geology of the Irish Sea and adjacent areas. Geological Society Special Publication 124, 195-211 BAILEY, N.J.L., BURWOOD, R. & HARRIMAN, G.E. 1990. Application of pyrolysate carbon isotope and biomarker technology to organofacies definition and oil correlation problems in the North Sea basins. Organic Geochemistry 16, 1157-1172. BOWKER, K. 2002, Recent developments of the Barnett Shale play, Fort Worth Basin, in Law, B.E. and Wilson, M. (eds) Innovative Gas Exploration Concepts Symposium: Rocky Mountain Association of Geologists and Petroleum Technology Transfer Council, October, 2002. Denver, CO, 16 pp. BRUNSTROM, R.G.W. 1966. Indigenous petroleum and natural gas in Britain. Institute of Petroleum, 20, 5-27. CARRUTHERS, R G., CALDWELL, W., BAILEY, E.M. & CONACHER, H.R.J. 1927. Oil-shales of the Lothians. Memoirs of the Geological Survey, Scotland. 3rd Edition. CHALLINOR, P.J. 1990. Oil ingress into mine workings. The Mining Engineer, August 1990, 68-74. COLTER, V.S. & HAVARD, D.J. 1981. The Wytch Farm Oilfield. In: Petroleum Geology of the Continental shelf of North-West Europe, 494-503. CORNFORD, C. 1986. The Bristol Channel graben: organic geochemical limits on subsidence and speculation on the origin of inversion. Proceedings of the Ussher Society, 6, 360-367. CREEDY, D.P. 1988. Geological controls on the formation and distribution of gas in British coal measure strata. International Journal of Coal Geology, 10, 1-31 CREEDY, D.P. 1989. Geological sources of methane in relation to surface and underground hazards. Paper 1.4 Methane- facing the problems. Symposium Nottingham 26-28th September. CUADRILLA RESOURCES LIMITED. 2009. Preese Hall hydrocarbon exploration site: Section 2 Supporting statement with respect to Planning application to Lancashire County Council. CUADRILLA RESOURCES LIMITED. 2010. Seismic interpretation. Appendix B to submission for Planning Permission to West Sussex County Council. DOW, W.G. 1977. Kerogen studies and geological interpretations. Journal of Geochemical Exploration, 7, 77-79. DOW, W.G. & O'CONNOR, D.E. 1982. Kerogen maturity and type by reflected light microscopy applied to petroleum exploration. In: Staplin, F.L., Dow, W.G., Milner, C.W.D., O'Connor, D.I., Pocock, S.A., Van Gijzel, J.P., Welte, D.H. & Yukler, M.A. (eds), How to Assess Maturation and Paleotemperatures Short Course No. 7. Society of Economic Paleontologists and Mineralogists, 133157. DRAKE, S. 2007. Unconventional gas plays. SPEE 6th Dec. 2007. DUFF, K.L. 1975. Palaeoecology of a bituminous shale- the Lower Oxford Clay of central England. Paleontology, 18, 443-482. EARP, J.R. & HAINS, B.A. 1971. The Welsh Borderland. British Regional Geology Memoir of the British Geological Survey. EBUKANSON, E.J. & KINGHORN, R.R.F. 1986. Oil and gas accumulations and their possible source rocks in southern England. Journal of Petroleum Geology, 9, 4, 413-428. EVANS, C.J. & BRERETON, N.R., 1990. In situ crustal stress in the United Kingdom from borehole breakouts. In: Hurst, A., Lovell, M.A., and Morton, A.C.,( eds)., Geological applications of wireline logs: Geological Society of London Special Publication, 48, 327-338. EVANS, J., JENKINS, D, & GLUYAS, J. 1998. The Kimmeridge Bay Oilfield: an enigma demystified. Geological Society Special Publication, 133, 407-413. FARAJ, B., WILLIAMS, H., ADDISON, G. & MCKINSTRY, B. 2004. Gas potential of selected shale formations in the Western Canadian Sedimentary Basin. GasTIPS, Winter 2004, 21-25. FARRIMOND, P., COMET, P., EGLINTON, G., EVERSHED, R.P., HALL, M.A., PARK, D.W. & WARDROPER, A.M.K. 1984. Organic geochemical study of the upper Kimmeridge Clay of the Dorset type area. Marine and Petroleum Geology, 1, 340-354. FORBES-LESLIE, W. 1917a. The Norfolk oil-shales. Journal of the Institute of Petroleum Technology, 3, 3-35. FORBES-LESLIE, W. 1920. English Oilfields Ltd. The Mining Journal, January 3rd, 16-17. FRASER, A.J., NASH, A.J., STEELE, R.P. & EBDON, C.C. 1990. A regional assessment of the intra-Carboniferous play of northern England. In: J. Brooks (ed.) Classic Petroleum Provinces. Special Publication No. 50, 417-440. GADON, J. L. 1987.Test of distribution of natural gas reserves by composition. Revue Institute France Petrole, 42, 685-693. GALLOIS, R.W. 1979. Oil shale resources in Great Britain. Institute of Geological Sciences. 158pp. (appendix by Williams, P.F.V. 1979).

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HALLAM, A. 1960. A sedimentary and faunal study of the Blue Lias of Dorset and Glamorgan. Philosophical Transactions of the Royal Society, 243B, 1-30. HIGGS, R. 1991. The Bude Formation (Lower Westphalian), SW England: siliclastic shelf sedimentation in a large equatorial lake. Sedimentology, 38, 445-469. HILLIER, S. & MARSHALL, J.E.A. 1992.Organic maturation, thermal history and hydrocarbon generation in the Orcadian Basin, Scotland. Journal of the Geological Society, London, 149, 491-502. HIRST, D.M. & DUNHAM. K.C. 1963. Chemistry and petrography of the Marl Slate of S. E. Durham, England. Economic Geology, 58, 912-940. HOOD, A, GUTJAHR, C.C.M. & HEACOCK, R.L. 1975. Organic metamorphism and the generation of petroleum. American Association of Petroleum Geologists, 59, 6, 986-996. HUGHES, S. J. S. 1991. The Van Mine, Llanidloes, Powys, Wales. UK Journal of Mines & Minerals, 9, 16-23. HUTTON, A.C. 1987. Petrographic analysis of oil shales. International Journal of Coal Geology, 8, 203-231. JARVIE, D., POLLASTRO, R., HILL, R., BOWKER, K., CLAXTON, B. & BURGESS, J. 2004. Evaluation of hydrocarbon generation and storage in the Barnett Shale, Fort Worth Basin, Texas. http://blumtexas.tripod.com/sitebuildercontent/ sitebuilderfiles/humblebarnettshaleprespttc.pdf .KIRBY, G.A., BAILY, H.E., CHADWICK, R.A., EVANS, D.J., HOLLIDAY, D.W., HOLLOWAY, S., HULBERT, A.G., PHARAOH, T.C., SMITH, N J.P., AITKENHEAD, N. & BIRCH, B. 2000. The structure and evolution of the Craven Basin and adjacent areas. Subsurface Memoir of the British Geological Survey.130pp. LANDES, K.K. 1967. Eometamorphism, and oil and gas in time and space. Bulletin of the American Association of Petroleum Geologists, 51, 828-841. LEGGETT, J.K 1980. British Lower Palaeozoic black shales and their palaeo-oceanographic significance. Journal of the Geological Society, 137, 139-156. LOKHURST, A. (ed) 1998. The Northwest European Gas Atlas. - Composition and Isotope Ratios of Natural Gases in Northwest European Gasfields. NITG-TNO, Haarlem. (CD ROM). MACQUAKER, J.H.S., FARRIMOND, P. & BRASSELL, S.C. 1986. Biological markers in the Rhaetian black shales of southwest Britain. Organic Geochemistry, 10, 93-100. MARSHALL, J.E.A., BROWN, J.F., & HINDMARSH, S. 1985. Hydrocarbon source rock potential of the Devonian rocks of the Orcadian Basin. Scottish Journal of Geology, 21, 301-320. MAYNARD, J.R., WIGNALL, P.B. & VARKER, W.G. 1991. A hot new shale facies from the Upper Carboniferous of Northern England. Journal of the Geological Society, 148, 805-808. MORRIS 1979 MOSELEY, F. & AHMED, S.M. 1967. Carboniferous joints in the north of England and their relation to earlier and later structures. Proceedings of the Yorkshire Geological Society, 36, 61-90. OLDROYD, G.C., MCPHERSON, M.J. & MORRIS, L.H. 1971. Investigations into sudden abnormal emissions of firedamp from the floor strata of the Silkstone Seam at Cortonwood Colliery. The Mining Engineer, 130, 577-593. OSWALD, D.H. 1996. Islip axis gas could support Central England power generation. Oil and Gas Journal, Aug. 5th, 55-57. PEARSON, R. 1904. The discovery of natural gas in Sussex: Heathfield district. Transactions of the Institution of Mining Engineers, 26, 494-507. POLLASTRO, R.M., HILL, R.J., AHLBRANDT, T.A., CHARPENTIER, R.R., COOK, T.A., KLETT, T., HENRY, R.M.E. & SCHENK, C.J. 2004. Assessment of undiscovered oil and gas resources of the Bend Arch-Fort Worth Basin Province of North-Central Texas and Southwestern Oklahoma, 2003: U.S. Geological Survey Fact Sheet 2004-3022, available online at: http://pubs.usgs.gov/fs/2004/3022/ POOLE, E.G. 1977. Stratigraphy of the Steeple Aston Borehole, Oxfordshire. Bulletin of the British Geological Survey, 57. POOLE, E.G. 1978. Stratigraphy of the Withycombe Farm Borehole, near Banbury, Oxfordshire. Bulletin of the British Geological Survey, 68. RAMSBOTTOM, W.H.C., SABINE, P.A., DANGERFIELD, J. & SABINE, P.W. 1981. Mudrocks in the Carboniferous of Britain. Quarterly Journal of Engineering Geology, 14, 257-262. ROGERS, S.F. 2003. Critical stress-related permeability in fractured rocks. In: Ameen, M (ed.) Fracture and In-situ Stress Characterization of Hydrocarbon Reservoirs. Geological Society, London Special Publication, 209, 7-16. SCHURR, G.W. & RIDGLEY, J.L. 2002. Unconventional shallow biogenic gas systems. Bulletin of the American Association of Petroleum Geologists, 86, 1939-1969. SCOTCHMAN, I.C. 1991. Kerogen facies and maturity of the Kimmeridge Clay Formation in southern and eastern England. Marine and Petroleum Geology, 8, 278-295.

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SHATWELL, H.G., NASH, A.W. & GRAHAM, J.I. 1924. Somerset oil-shales. Journal of the Institute of Petroleum Technology, 10, 872883. SMITH, B. & GEORGE, T.N. 1961. North Wales. Geological Survey British Regional Geology. 97pp. SMITH, N.J.P. (Compiler) 1985. Map 1: Pre-Permian Geology of the United Kingdom (South). 1:1,000,000 scale. British Geological Survey. SMITH, N.J.P. 1987. The deep geology of central England: prospectivity of the Palaeozoic rocks. In: J Brooks & K.W. Glennie (eds.) Petroleum Geology of North West Europe. Graham & Trotman. 217-224. SMITH, N.J.P. 1993. The case for exploration of deep plays in the Variscan fold belt and its foreland. In: Parker, J.R. (ed.) Petroleum geology of Northwest Europe: Proceedings of the 4th Conference. Geological Society, London, 667-675. SMITH, N.J.P. & RUSHTON, A.W.A. 1993. Cambrian and Ordovician stratigraphy related to structure and seismic profiles in the western part of the English Midlands. Geological Magazine, 130, 665-671. SMITH, N.J.P., KIRBY, G.A. & PHARAOH, T.C. 2005. Structure and evolution of the south-west Pennine Basin and adjacent area. Subsurface Memoir of the British Geological Survey SMITH, N, TURNER, P. & WILLIAMS, G. in press UK data and analysis for shale gas prospectivity. In: Vining, B. & Dore, A. (eds) Petroleum Geology of NW Europe 7th Petroleum Conference. SPEARS, D.A. & AMIN, M.A. 1981. Geochemistry and mineralogy of marine and non-marine Namurian black shales from the Tansley borehole. Sedimentology, 28, 407-417. STOCKS, A.E. & LAWRENCE, S.R. 1990. Identification of source rocks from wireline logs. In: Hurst, A., Lovell, M.A. & Morton, A.C. (eds). Geological applications of wireline logs. Geological Society Special Publication, 48, 241-252. STRAHAN. A. 1920. Mineral Oil, Kimmeridge Oil-Shale, Lignites, Jets, Cannel Coals etc. 2nd Edition, 7. Memoir of the Geological Survey. TAPPIN, D.R. & DOWNIE, C. 1978. New Tremadoc strata at outcrop in the Bristol Channel. Journal of the Geological Society, 135, 321. TAYLOR, S.P., SELLWOOD, B., GALLOIS, R. & CHAMBERS, M. 2001. A sequence stratigraphy of the Kimmeridgean and Bolonian stages (late Jurassic): Wessex-Weald basins, southern England. Journal of the Geological Society, 158, 179-192. TISSOT, B., DURAND, B., ESPITALIE, J. & COMBAZ, A. 1974. Influence of the nature and diagenesis of organic matter in formation of petroleum. American Association of Petroleum Geologists Bulletin, 58, 499-506. WHITTAKER, A. (ed.). 1985. Atlas of onshore sedimentary basins in England and Wales. Blackie & Son WORSSAM, B.C. & IVIMEY-COOK, H.C. 1971. The stratigraphy of the Geological Survey borehole at Warlingham, Surrey. Bulletin of the Geological Survey of Great Britain, 36, 1-146.

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World Shale Gas Resources: An Initial Assessment of 14 Regions Outside the United States
APRIL 2011

www.eia.gov

U.S. Department of Energy Washington, DC 20585

The information presented in this overview is based on the report World Shale Gas Resources: An Initial Assessment, which was prepared by Advanced Resources International (ARI) for the U.S. Energy Information Administration (EIA), the statistical and analytical agency within the U.S. Department of Energy. The full report is attached. By law, EIAs data, analyses, and forecasts are independent of approval by any other officer or employee of the United States Government. The views in this report therefore should not be construed as representing those of the Department of Energy or other Federal agencies.

Background
The use of horizontal drilling in conjunction with hydraulic fracturing has greatly expanded the ability of producers to profitably produce natural gas from low permeability geologic formations, particularly shale formations. Application of fracturing techniques to stimulate oil and gas production began to grow rapidly in the 1950s, although experimentation dates back to the 19th century. Starting in the mid1970s, a partnership of private operators, the U.S. Department of Energy (DOE) and the Gas Research Institute (GRI) endeavored to develop technologies for the commercial production of natural gas from the relatively shallow Devonian (Huron) shale in the Eastern United States. This partnership helped foster technologies that eventually became crucial to producing natural gas from shale rock, including horizontal wells, multi-stage fracturing, and slick-water fracturing. 1 Practical application of horizontal drilling to oil production began in the early 1980s, by which time the advent of improved downhole drilling motors and the invention of other necessary supporting equipment, materials, and technologies, particularly downhole telemetry equipment, had brought some applications within the realm of commercial viability. 2 The advent of large-scale shale gas production did not occur until Mitchell Energy and Development Corporation experimented during the 1980s and 1990s to make deep shale gas production a commercial reality in the Barnett Shale in North-Central Texas. As the success of Mitchell Energy and Development became apparent, other companies aggressively entered this play so that by 2005, the Barnett Shale alone was producing almost half a trillion cubic feet per year of natural gas. As natural gas producers gained confidence in the ability to profitably produce natural gas in the Barnett Shale and confirmation of this ability was provided by the results from the Fayetteville Shale in North Arkansas, they began pursuing other shale formations, including the Haynesville, Marcellus, Woodford, Eagle Ford and other shales. The development of shale gas plays has become a game changer for the U.S. natural gas market. The proliferation of activity into new shale plays has increased shale gas production in the United States from 0.39 trillion cubic feet in 2000 to 4.87 trillion cubic feet in 2010, or 23 percent of U.S. dry gas production. Shale gas reserves have increased to about 60.6 trillion cubic feet by year-end 2009, when they comprised about 21 percent of overall U.S. natural gas reserves, now at the highest level since 1971. 3 The growing importance of U.S. shale gas resources is also reflected in EIAs Annual Energy Outlook 2011 (AEO2011) energy projections, with technically recoverable U.S. shale gas resources now estimated at 862 trillion cubic feet. Given a total natural gas resource base of 2,543 trillion cubic feet in the AEO2011 Reference case, shale gas resources constitute 34 percent of the domestic natural gas resource base represented in the AEO2011 projections and 50 percent of lower 48 onshore resources. As a result, shale gas is the largest contributor to the projected growth in production, and by 2035 shale gas production accounts for 46 percent of U.S. natural gas production.

G.E. King, Apache Corporation, Thirty Years of Gas Shale Fracturing: What Have We Learned?, prepared for the SPE Annual Technical Conference and Exhibition (SPE 133456), Florence, Italy, (September 2010); and U.S. Department of Energy, DOE's Early Investment in Shale Gas Technology Producing Results Today, (February 2011), web site http://www.netl.doe.gov/publications/press/2011/11008DOE_Shale_Gas_Research_Producing_R.html 2 See: U.S. Energy Information Administration, Drilling Sideways: A Review of Horizontal Well Technology and Its Domestic Application, DOE/EIA-TR-0565 (April 1993). 3 http://www.eia.doe.gov/oil_gas/natural_gas/data_publications/crude_oil_natural_gas_reserves/cr.html

U.S. Energy Information Administration | World Shale Gas Resources: An Initial Assessment

The successful investment of capital and diffusion of shale gas technologies has continued into Canadian shales as well. In response, several other countries have expressed interest in developing their own nascent shale gas resource base, which has lead to questions regarding the broader implications of shale gas for international natural gas markets. The U.S. Energy Information Administration (EIA) has received and responded to numerous requests over the past three years for information and analysis regarding domestic and international shale gas. EIAs previous work on the topic has begun to identify the importance of shale gas on the outlook for natural gas. 4 It appears evident from the significant investments in preliminary leasing activity in many parts of the world that there is significant international potential for shale gas that could play an increasingly important role in global natural gas markets. To gain a better understanding of the potential of international shale gas resources, EIA commissioned an external consultant, Advanced Resources International, Inc. (ARI), to develop an initial set of shale gas resource assessments. This paper briefly describes key results, the report scope and methodology and discusses the key assumptions that underlie the results. The full consultant report prepared for EIA is in Attachment A. EIA anticipates using this work to inform other analysis and projections, and to provide a starting point for additional work on this and related topics.

Scope and Results

In total, the report assessed 48 shale gas basins in 32 countries, containing almost 70 shale gas formations. These assessments cover the most prospective shale gas resources in a select group of countries that demonstrate some level of relatively near-term promise and for basins that have a sufficient amount of geologic data for resource analysis. Figure 1 shows the location of these basins and the regions analyzed. The map legend indicates four different colors on the world map that correspond to the geographic scope of this initial assessment: Red colored areas represent the location of assessed shale gas basins for which estimates of the risked gas-in-place and technically recoverable resources were provided. Yellow colored area represents the location of shale gas basins that were reviewed, but for which estimates were not provided, mainly due to the lack of data necessary to conduct the assessment. White colored countries are those for which at least one shale gas basin was considered for this report. Gray colored countries are those for which no shale gas basins were considered for this report.
Although the shale gas resource estimates will likely change over time as additional information becomes available, the report shows that the international shale gas resource base is vast. The initial estimate of technically recoverable shale gas resources in the 32 countries examined is 5,760 trillion

Examples of EIA work that has spurred or resulted from interest in this topic includes: U.S. Energy Information Administration, AEO2011 Early Release Overview (Dec 2010); R. Newell, U.S. Energy Information Administration, Shale Gas, A Game Changer for U.S. and Global Gas Markets?, presented at the Flame European Gas Conference, Amsterdam, Netherlands (March 2, 2010); H. Gruenspecht, U.S. Energy Information Administration, International Energy Outlook 2010 With Projections to 2035, presented at Center for Strategic and International Studies, Washington, D.C. (May 25, 2010); and R. Newell, U.S. Energy Information Administration, The Long-term Outlook for Natural Gas, presented to the Saudi Arabia - United States Energy Consultations, Washington, D.C. (February 2, 2011).
2 U.S. Energy Information Administration | World Shale Gas Resources: An Initial Assessment

Figure 1. Map of 48 major shale gas basins in 32 countries

cubic feet, as shown in Table 1. Adding the U.S. estimate of the shale gas technically recoverable resources of 862 trillion cubic feet results in a total shale resource base estimate of 6,622 trillion cubic feet for the United States and the other 32 countries assessed. To put this shale gas resource estimate in some perspective, world proven reserves 5 of natural gas as of January 1, 2010 are about 6,609 trillion cubic feet, 6 and world technically recoverable gas resources are roughly 16,000 trillion cubic feet, 7 largely excluding shale gas. Thus, adding the identified shale gas resources to other gas resources increases total world technically recoverable gas resources by over 40 percent to 22,600 trillion cubic feet. The estimates of technically recoverable shale gas resources for the 32 countries outside of the United States represents a moderately conservative risked resource for the basins reviewed. These estimates are uncertain given the relatively sparse data that currently exist and the approach the consultant has employed would likely result in a higher estimate once better information is available. The methodology is outlined below and described in more detail within the attached report, and is not directly comparable to more detailed resource assessments that result in a probabilistic range of the technically

Reserves refer to gas that is known to exist and is readily producible, which is a subset of the technically recoverable resource base estimate for that source of supply. Those estimates encompass both reserves and that natural gas which is inferred to exist, as well as undiscovered, and can technically be produced using existing technology. For example, EIAs estimate of all forms of technically recoverable natural gas resources in the U.S. for the Annual Energy Outlook 2011 is 2,552 trillion cubic feet, of which 827 trillion cubic feet consists of unproved shale gas resources and 245 trillion cubic feet are proved reserves which consist of all forms of readily producible natural gas including 34 trillion cubic feet of shale gas. 6 Total reserves, production climb on mixed results, Oil and Gas Journal (December 6, 2010), pp. 46-49. 7 Includes 6,609 trillion cubic feet of world proven gas reserves (Oil and Gas Journal 2010); 3,305 trillion cubic feet of world mean estimates of inferred gas reserves, excluding the Unites States (USGS, World Petroleum Assessment 2000); 4,669 trillion cubic feet of world mean estimates of undiscovered natural gas, excluding the United States (USGS, World Petroleum Assessment 2000); and U.S. inferred reserves and undiscovered gas resources of 2,307 trillion cubic feet in the United States, including 827 trillion cubic feet of unproved shale gas (EIA, AEO2011).
U.S. Energy Information Administration | World Shale Gas Resources: An Initial Assessment 3

Table 1. Estimated shale gas technically recoverable resources for select basins in 32 countries, compared to existing reported reserves, production and consumption during 2009
2009 Natural Gas Market(1) (trillion cubic feet, dry basis) Consumption Imports (Exports) Proved Natural Gas Reserves(2) (trillion cubic feet) Technically Recoverable Shale Gas Resources (trillion cubic feet)

Production

Europe France Germany Netherlands Norway U.K. Denmark Sweden Poland Turkey Ukraine Lithuania Others(3) North America United States(4) Canada Mexico Asia China India Pakistan Australia Africa South Africa Libya Tunisia Algeria Morocco Western Sahara Mauritania South America Venezuela Colombia Argentina Brazil Chile Uruguay Paraguay Bolivia Total of above areas Total world

0.03 0.51 2.79 3.65 2.09 0.30 0.21 0.03 0.72 0.48

1.73 3.27 1.72 0.16 3.11 0.16 0.04 0.58 1.24 1.56 0.10 0.95

98% 84% (62%) (2,156%) 33% (91%) 100% 64% 98% 54% 100% 50%

0.2 6.2 49.0 72.0 9.0 2.1 5.8 0.2 39.0 2.71

180 8 17 83 20 23 41 187 15 42 4 19

20.6 5.63 1.77

22.8 3.01 2.15

10% (87%) 18%

272.5 62.0 12.0

862 388 681

2.93 1.43 1.36 1.67

3.08 1.87 1.36 1.09

5% 24% (52%)

107.0 37.9 29.7 110.0

1,275 63 51 396

0.07 0.56 0.13 2.88 0.00 -

0.19 0.21 0.17 1.02 0.02 -

63% (165%) 26% (183%) 90%

54.7 2.3 159.0 0.1 1.0

485 290 18 231 11 7 0

0.65 0.37 1.46 0.36 0.05 0.45 53.1 106.5

0.71 0.31 1.52 0.66 0.10 0.00 0.10 55.0 106.7

9% (21%) 4% 45% 52% 100% (346%) (3%) 0%

178.9 4.0 13.4 12.9 3.5

26.5 1,001 6,609

11 19 774 226 64 21 62 48 6,622

Sources: 1 Dry production and consumption: EIA, International Energy Statistics, as of March 8, 2011. 2 Proved gas reserves: Oil and Gas Journal, Dec., 6, 2010, P. 46-49. 3 Romania, Hungary, Bulgaria. 4 U.S. data are from various EIA sources.

U.S. Energy Information Administration | World Shale Gas Resources: An Initial Assessment

recoverable resource. At the current time, there are efforts underway to develop more detailed shale gas resource assessments by the countries themselves, with many of these assessments being assisted by a number of U.S. federal agencies under the auspices of the Global Shale Gas Initiative (GSGI) which was launched in April 2010. 8 Delving deeper into the results at a country level, there are two country groupings that emerge where shale gas development may appear most attractive. The first group consists of countries that are currently highly dependent upon natural gas imports, have at least some gas production infrastructure, and their estimated shale gas resources are substantial relative to their current gas consumption. For these countries, shale gas development could significantly alter their future gas balance, which may motivate development. Examples of countries in this group include France, Poland, Turkey, Ukraine, South Africa, Morocco, and Chile. In addition, South Africas shale gas resource endowment is interesting as it may be attractive for use of that natural gas as a feedstock to their existing gas-toliquids (GTL) and coal-to-liquids (CTL) plants. The second group consists of those countries where the shale gas resource estimate is large (e.g., above 200 trillion cubic feet) and there already exists a significant natural gas production infrastructure for internal use or for export. In addition to the United States, notable examples of this group include Canada, Mexico, China, Australia, Libya, Algeria, Argentina, and Brazil. Existing infrastructure would aide in the timely conversion of the resource into production, but could also lead to competition with other natural gas supply sources. For an individual country the situation could be more complex.

Methodology
This report represents EIAs initial effort to produce a systematic assessment of the international shale gas resource base and contains chapters on the 14 priority regions identified by EIA for initial study, including 32 countries. These priority regions were selected for a combination of factors that included potential availability of data, country-level natural gas import dependence, observed large shale basins, and observations of activities by companies and governments directed at shale gas development. The 14 regions and 32 countries covered in the report are: Canada Mexico Northern South America (Columbia, Venezuela) Southern South America (Argentina, Chile, Uruguay, Paraguay, Bolivia, Brazil) Central North Africa (Algeria, Tunisia, Libya) Western North Africa (Morocco, Mauritania, Western Sahara) Southern Africa (South Africa) Western Europe (including, France, Germany, Netherlands, Norway, Denmark, Sweden, United Kingdom) Poland Ukraine, Lithuania and other Eastern Europe countries

8 The Department of State is the lead agency for the GSGI, and the other U.S. government agencies that also participate include: the U.S. Agency for International Development (USAID); the Department of Interiors U.S. Geological Survey (USGS); Department of Interiors Bureau of Ocean Energy Management, Regulation, and Enforcement (BOEMRE); the Department of Commerces Commercial Law Development Program (CLDP); the Environmental Protection Agency (EPA), and the Department of Energys Office of Fossil Energy (DOE/FE). See http://www.state.gov/s/ciea/gsgi/index.htm for more information.

U.S. Energy Information Administration | World Shale Gas Resources: An Initial Assessment

China India and Pakistan Turkey Australia

Russia and Central Asia, Middle East, South East Asia, and Central Africa were not addressed by the current report. This was primarily because there was either significant quantities of conventional natural gas reserves noted to be in place (i.e., Russia and the Middle East), or because of a general lack of information to carry out even an initial assessment. In addition, certain limitations in scope reflected funding constraints. The consultants approach relied upon publically available data from technical literature and studies on each of the selected international shale gas basins to first provide an estimate of the risked gas inplace, and then to estimate the technically recoverable resource for that region. This methodology is intended to make the best use of sometimes scant data in order to perform initial assessments of this type. Risked Gas In-Place The risked gas in-place estimate is derived by first estimating the amount of gas in-place resource for a prospective area within the basin, and then de-rating that gas in-place by factors that, in the consultants expert judgment, account for the current level of knowledge of the resource and the capability of the technology to eventually tap into the resource. The resulting estimate is referred to as the risked gas in-place. Determining the risked gas in-place consists of the following specific steps: 1. Conduct a preliminary review of the basin and select the shale gas formations to be assessed. 2. Determine the areal extent of the shale gas formations within the basin and estimate its overall thickness, in addition to other parameters. 3. Determine the prospective area deemed likely to be suitable for development based on a number of criteria and application of expert judgment. 4. Estimate the gas in-place as a combination of free gas 9 and adsorbed gas 10 that is contained within the prospective area. 5. Establish and apply a composite success factor made up of two parts. The first part is a play success probability factor which takes into account the results from current shale gas activity as an indicator of how much is known or unknown about the shale formation. The second part is a prospective area success factor, which takes into account a set of factors (e.g., geologic complexity and lack of access) that could limit portions of the prospective area from development. Technically Recoverable Resource The estimated technically recoverable resource base is one of the basic metrics for quantifying the total resource base that analysts would use to estimate future natural gas production. The technically

9 Free gas is gas that is trapped in the pore spaces of the shale. Free gas can be the dominant source of natural gas for the deeper shales. 10 Adsorbed gas is gas that adheres to the surface of the shale, primarily the organic matter of the shale, due to the forces of the chemical bonds in both the substrate and the gas that cause them to attract. Adsorbed gas can be the dominant source of natural gas for the shallower and higher organically rich shales.

U.S. Energy Information Administration | World Shale Gas Resources: An Initial Assessment

recoverable resource estimate for shale gas in this report is established by multiplying the risked gas-inplace by a shale gas recovery factor, which incorporates a number of geological inputs and analogs that are appropriate to each shale gas basin and formation. The basic recovery factors used in this report generally ranged from 20 percent to 30 percent, with some outliers of 15 percent and 35 percent being applied in exceptional cases. The consultant selected the recovery factor based on prior experience in how production occurs, on average, given a range of factors including mineralogy, geologic complexity, and a number of other factors that affect the response of the geologic formation to the application of best practice shale gas recovery technology.

Key Exclusions
The information contained within this report represents an initial assessment of the shale gas resource base in 14 regions outside the United States. As such, there are a number of additional factors outside of the scope of this report that must be considered when attempting to incorporate the information into a forecast of future shale gas production. In addition, several other exclusions were made for this report to simplify how the assessments were made and to keep the work to a level consistent with the available resources. Some of the key exclusions for this report include the following: Assessed basins without a resource estimate, which resulted when data were judged to be inadequate to provide a useful estimate. Including additional basins would, on average, likely result in an increase in the estimated resource base. Countries outside the scope of the report, the inclusion of which would also likely add to the estimated resource base particularly since it is acknowledged that potentially productive shales exist in Russia and most of the countries in the Middle East. While expanding the scope would likely result in an increase in the estimated shale gas technically recoverable resources, this initial assessment did not focus on those regions due to their substantial conventional gas resources. In other cases, the infrastructure or markets that would be a necessary precondition for gas production may not be built within a meaningful time frame. Offshore portions of assessed shale gas basins were excluded, as well as shale gas basins that exist entirely offshore. Coalbed methane, tight gas and other natural gas resources that may exist within these countries were also excluded from the assessment. Shale oil was excluded from the assessment, although the contractor noted for several basins that the limits of the assessed shale gas area were defined by the transition from higher maturity gas prone areas to the lower maturity oil window. Production costs were not estimated for any of the basins. The costs of production could be greatly impacted by a number of factors including the availability of existing infrastructure, availability and cost of adequately trained labor, availability and cost of equipment such as rigs and pumping equipment, the geologic features of the fields within the play such as depth and thickness, and a number of other factors that affect the direct costs of production. Estimated production costs for each of the basins would also need to be considered in order to estimate the potential future production of shale gas given a future price. Above ground issues were not considered, such as access to the resource, can greatly affect production costs and the timing of production.
U.S. Energy Information Administration | World Shale Gas Resources: An Initial Assessment 7

Attachment A

WORLD SHALE GAS RESOURCES: AN INITIAL ASSESSMENT

Prepared for:

U.S. Energy Information Administration At the U.S. Department of Energy Washington, DC

Prepared by:

Mr. Vello Kuuskraa Mr. Scott Stevens Mr. Tyler Van Leeuwen Mr. Keith Moodhe ADVANCED RESOURCES INTERNATIONAL, INC. Arlington, VA USA

February 17, 2011

World Shale Gas Resources: An Initial Assessment

Ta b le o f Co n te n ts
Executive Summary and Study Results .................................... 1 Methodology. .......................................................................................................................2 Canada. ............ I Mexico ........... ..II Northern South America (Columbia, Venezuela) ....................................................................... III Southern South America (Argentina, Chile, Uruguay, Paraguay, Bolivia, Brazil ........................ IV Poland ....................................................................................................................................... V Eastern Europe (Ukraine, Lithuania, and other Eastern Europe countries)... .VI Western Europe (including France, Germany, Netherlands, Norway, Denmark, Sweden, and United Kingdom. ...VII Central North Africa (Algeria, Tunisia, Libya) ... .VIII Western North Africa (Morocco, Mauritania, Western Sahara) IX Southern Africa (South Africa) ................................. ...X China....................................................................................................................... XI India and Pakistan ................. ...XII Turkey ...XIII Australia. ..XIV Appendix A - Shale Gas Resources by Basin/Formation............................................................ A Appendix B - Success Factors by Country/Basin ....................................................................... B

World Shale Gas Resources: An Initial Assessment

Fig u re s
Figure 1-1 Figure 2-1 Figure 2-2 Figure 2-3 Figure 2-4 Figure 2-5 Figure 2-6 Figure 2.7 Figure 2.8 Figure 2-9 Figure 2-10 Figure 2-11 Figure 2-12 Figure 2-13 Figure I-1 Figure I-2 Figure I-3 Figure I-4 Figure I-5 Figure I-6 Figure I-7 Figure I-8 Figure I-9 Figure I-10 Figure I-11 Figure I-12 Figure I-13 Figure I-16 Map of 48 Major Shale Basins in 32 Countries..................................................1-7 Southern Tunisia, Ghadames Basin Stratigraphic Column .................... 2-3 Ghadames Basin Structure Depth Map and Cross Section...................... ..2-4 Ternary Diagram of Shale Mineralogy (Marcellus Shale) ............... .2-5 Relationship of Shale Mineralogy (Q, C and Cly) and Thermal Maturity to Gas Flow.............................. .............................................................................2-6 Relationship of Gamma Ray and Total Organic Carbon .................. 2-7 Thermal Maturation Scale. ................... 2-8 Thermal Maturity and Gas Storage Capacity ............... .2-8 Barnett Shale Resource and Play Areas .............. ..2-9 Marcellus Shale Adsorbed Gas Content ........... ...2-13 Combining Free and Adsorbed Gas for Total Gas In-Place .......... ....2-13 Lower Damage, More Effective Well Completions Provide Higher Reserves Per Well .....2-16 The Properties of the Reservoir Rock Greatly Influence the Effectiveness of Hydraulic Stimulations. ........... 2-18 3D Seismic Helps Design Extended vs. Limited Length Lateral Wells .............2-19 Shale Gas Basins of Western Canada.. .............................................................I-2 Horn River (Muskwa/Otter Park Shale) Basin and Prospective Area .............. I-4 NE British Columbia, Devonian and Mississippian Stratigraphy.. ............ I-5 Horn River LNG Export Pipeline and Infrastructure ............. ..I-7 Cordova Embayment (Muskwa/Otter Park Shale) Outline and Prospective Area............................................................................................... I-9 Cordova Embayment Stratigraphic Colum ................................................. I-9 Liard Basin Location, Cross Section and Prospective Area ....................... ...I-10 Liard Basin Stratigraphic Cross Section ...........................................................I-11 Liard Basin and Prospective Area (Lower Besa River Shale) ...........................I-12 Deep Basin, Montney Resource Play, Base Map. .... .I-15 Montney and Doig Resource Plays, Stratigraphy.................. ..I-15 Deep Basin, Montney Shale Prospective Area ......... .I-16 Cutback Ridge Montney Type Log ........ ..I-16 Colorado Group, Prospective Area... .......I-20
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World Shale Gas Resources: An Initial Assessment

Figure I-17 Figure I-18 Figure I-19 Figure I-20 Figure I-21 Figure I-22 Figure II-1 Figure II-2 Figure II-3 Figure II-4 Figure II-5 Figure II-6 Figure II-7 Figure II-8

Utica Shale Outline and Prospective Area ............. I-22 Utica Shale Stratigraphy ......... ..I-23 Horton and Frederick Brook Shale (Horton Group) Stratigraphy ........I-25 Preliminary Outline and Prospective Area for Horton Bluff Shale (Nova Scotia). ..................................................................................................I-26 Location of the Moncton Sub-Basin..I-27 Structural Controls for Moncton Sub-Basin (New Brunswick) Canada .. I-28 Onshore Shale Gas Basins of Eastern Mexicos Gulf of Mexico Basin ...................................................................... ....II-2 Stratigraphy of Jurassic and Cretaceous rocks in the Gulf of Mexico Basin, Mexico and USA .....................II-5 Stratigraphic Cross-Section Along the Western Margin of the Burgos Basin ................ .II-7 Burgos Basin Outline and Shale Gas Prospective Area. ........... ..II-8 Sabinas Basin Outline and Shale Gas Prospective Area .......... .II-10 Geologic Map of the La Popa Sub-Basin, Southeastern Portion of the Sabinas Basin ...................................... ..II-12 Potentially Prospective Pimienta Formation (Tithonian) Shale, Tampico Basin ................................................................................................II-14 Detailed Cross-Section of the Tuxpan Platform in East-Central Mexico Showing Thick Lower Cretaceous and Upper Jurassic Source Rocks Dipping into the Gulf of Mexico Basin.........................II-16

Figure II-9 Figure II-10 Figure III-1 Figure III-2 Figure III-3 Figure III-4 Figure III-5 Figure III-6 Figure III-7 Figure III-8 Figure III-9 Figure III-10

Potentially Prospective Shale Gas Area of the Tuxpan Platform .............. II-17 Veracruz Basin Outline and Shale Gas Prospective Area............................II-19 Gas Shale Basins of Northern South America..................................................III-2 Regional Outline of the Maracaibo Basin .........................................................III-4 Seismic Profiles, Maracaibo Basin ...................................................................III-5 Seismic Profiles, Maracaibo Basin ...................................................................III-6 Maracaibo Basin Stratigraphy ..........................................................................III-7 La Luna Fm Isopach, Maracaibo Basin ............................................................III-8 Maracaibo Basin Depth to Basement .............................................................III-10 Maracaibo Basin Cross Section .....................................................................III-10 Maracaibo Basin, La Luna Shale Prospective Area........................................III-11 Catatumbo Sub-basin Cross-Section .............................................................III-12

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World Shale Gas Resources: An Initial Assessment

Figure III-11 Figure III-12 Figure III-13 Figure III-14 Figure IV-1 Figure IV-2 Figure IV-3 Figure IV-4 Figure IV-5 Figure IV-6 Figure IV-7 Figure IV-8 Figure IV-9 Figure IV-10 Figure IV-11 Figure IV-12 Figure V-1 Figure V-2 Figure V-3 Figure V-4 Figure V-5 Figure V-6 Figure V-7 Figure V-8 Figure V-8 Figure VI-1 Figure VI-2 Figure VI-3 Figure VI-4

La Luna Fm Basemap and Geologic Properties, Catatumbo Sub-basin .........III-13 Calculated TOC (wt/%) Well Log from Cerrito 1 Well, South-Central Catatumbo Sub-basin ....................................................................................III-15 Capacho Fm Basemap and Geologic Properties, Catatumbo Sub-basin .......III-16 Source-Rating Chart Plotting Original HI and TOC Among Formations in the Catatumbo Sub-basin ...........................................................................III-18 Shale Gas Basins of Southern South America ................................................ IV-1 Neuquen Basin Shale Gas Prospective Area and Basemap ........................... IV-3 Neuquen Basin Stratigraphy ........................................................................... IV-4 Neuquen Basin SW-NE Cross Section............................................................ IV-5 Vaca Muerta Fm, TOC, Thermal Maturity, and Prospective Area, Neuquen Basin ............................................................................................... IV-7 San Jorge Basin ............................................................................................. IV-9 San Jorge Basin Stratigraphy ....................................................................... IV-10 Aguada Bandera Fm, TOC, Thermal Maturity, and Prospective Area, San Jorge Basin ........................................................................................... IV-12 Stratigraphy of the Austral-Magallanes Basin, Argentina and Chile ............... IV-15 Inoceramus Shale, Depth,TOC, and Thermal Maturity, Austral / Magallanes Basin, Argentina and Chile ........................................... IV-16 Stratigraphy, Parana-Chaco Basin ................................................................ IV-18 Parana-Chaco Basin ..................................................................................... IV-19 Major Shale Gas Basins Of Poland .................................................................. V-1 Onshore Baltic Basin, Lower Silurian Llandovery Shale Depth and Structure .......................................................................................................... V-4 Baltic Basin Strategraphic Column ................................................................... V-5 Baltic Basin Depth and Structure Cross Section .............................................. V-5 Poland Shale Gas Leasing Activity .................................................................. V-7 Lublin Basin Shale gas Prospective Area ......................................................... V-9 Lublin Basin Strategraphic Column ................................................................ V-10 Lublin Basin Fault Map and Cross Section ..................................................... V-10 Podlasie Basin Depth to Base of Llandovery Shale........................................ V-13 Shale Gas Basins of Eastern Europe .............................................................. VI-1 Baltic Basin Structure Map .............................................................................. VI-4 Baltic Basin Stratigraphic Column ................................................................... VI-5 Baltic Basin Cross Section .............................................................................. VI-5
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World Shale Gas Resources: An Initial Assessment

Figure VI-5 Figure VI-6 Figure VI-7 Figure VI-8 Figure VI-9 Figure VI-10 Figure VI-11 Figure VI-12 Figure VI-13 Figure VI-14 Figure VI-15 Figure VI-16 Figure VI-17 Figure VII-1 Figure VII-2 Figure VII-3 Figure VII-4 Figure VII-5 Figure VII-6 Figure VII-7 Figure VII-8 Figure VII-9

Dnieper-Donets Shale Gas Prospective Area ................................................ VI-9 Dnieper-Donets Basin Stratigraphic Column ................................................. VI-10 Central Dneiper-Donets Basin Stratigraphic Column ..................................... VI-10 Lublin Basin Shale Gas Prospective Area .................................................... VI-13 Lubin Basin Stratigraphic Column ................................................................ VI-14 Lublin Basin Geology and Cross Section ..................................................... VI-15 Pannonian-Translyvanian Basin................................................................... VI-18 Pannonian-Transylvanian Basin Stratigraphic Column .................................. VI-19 Generalized Pannonian-Transylvanian Depth and Structure Cross Section .. VI-19 Carpathian-Balkanian Basin Map .................................................................. VI-21 Carpathian-Balkanian Stratigraphic Column.................................................. VI-22 Carpathian-Balknian Basin Component Map................................................. VI-23 Carpathian-Balknian Basin Cross Section ..................................................... VI-23 Shale Gas Basins of Western Europe ............................................................ VII-1 Prospective Area and Gross Isopach of Permian Carboniferous Shales, Paris Basin..................................................................................................... VII-4 East Paris Basin Stratigraphic Column........................................................... VII-5 Paris Basin Cross Section.............................................................................. VII-5 Moselle Permit, Paris Basin ........................................................................... VII-6 Southeast Basin Prospective Area and Upper Jurassic Shale Isopach .......... VII-8 Southeast Basin Stratigraphic Column ........................................................... VII-9 Generalized Southeast Basin Cross Section .................................................. VII-9 Southeast Basin Leasing Map (Selected) .................................................... VII-11

Figure VII-10 North Sea-German Basin Prospective Shale Formations ............................. VII-14 Figure VII-11 North Sea-German Basin Stratigraphic Column ........................................... VII-15 Figure VII-12 North Sea-German Basin Cross Section ...................................................... VII-15 Figure VII-13 North Sea-German Basin Leasing Activity ................................................... VII-17 Figure VII-14 Alum Shale Geographic Extent .................................................................... VII-19 Figure VII-15 Central Sweden Stratigraphic Column ......................................................... VII-20 Figure VII-16 Shells Alum Shale Acreage in Southern Sweden ........................................ VII-21 Figure VII-17 UK Northern Petroleum Province, Basins, and Shale Gas Prospective Areas ........................................................................................ VII-23 Figure VII-18 Northern Petroleum System Stratigraphic Column ....................................... VII-24 Figure VII-19 Cleveland Basin Cross-Section, U.K. Northern Petroleum System ............. VII-24 Figure VII-20 Operators Exploring Shale Gas in the U.K. Northern Petroleum System ...... VII-26
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World Shale Gas Resources: An Initial Assessment

Figure VII-21 U.K. Southern Petroleum System and Shale Gas Prospective Area ............ VII-28 Figure VII-22 Southern Petroleum System Stratigraphic Column ...................................... VII-29 Figure VII-23 Weald Basin Cross-Section, U.K. Southern Petroleum System.................... VII-29 Figure VII-24 Operators Exploring Shale Gas in the U.K. Southern Petroleum System .... VII-31 Figure VII-25 Vienna Basin Regional Setting ..................................................................... VII-32 Figure VII-26 Geologic Setting of the Vienna Basin ........................................................... VII-33 Figure VII-27 Selected Vienna Basin Cross Sections ........................................................ VII-34 Figure VIII-1 Figure VIII-2 Figure VIII-3 Figure VIII-4 Figure VIII-5 Figure VIII-6 Figure VIII-7 Figure VIII-8 Figure IX-1 Figure IX-2 Figure IX-3 Figure IX-4 Figure IX-5 Figure IX-6 Figure IX-7 Figure IX-8 Figure IX-9 Figure X-1 Figure X-2 Figure X-3 Figure X-4 Figure X-5 Figure X-6 Figure X-7 Shale Gas Basins and Pipeline System of Central North Africa .................... VIII-1 Ghadames Basin Stratigraphic Column ........................................................ VIII-4 Ghadames Basin Structure Depth Map and Cross Section ........................... VIII-4 Silurian Tannezuft Vitrinite Reflectance......................................................... VIII-5 Devonian Frasnian Vitirinite Reflectance ....................................................... VIII-5 Structure and Cross Section of Northern Sirt Basin....................................... VIII-8 Sirt Basin Stratigraphic Column .................................................................... VIII-9 Net Shale Isopach of Sirt and Rachmat Formations ...................................... VIII-9 Shale Gas Basins of Morocco ......................................................................... IX-1 Simplified History of Moroccos Depositional Environment, Ordovician-Devonian ...................................................................................... IX-3 Tindouf Shale Prospective Area, SE Anatolian Basin, Morocco ...................... IX-4 Tindouf Basin Stratigraphic Column ................................................................ IX-6 Tindouf Basin Cross Section ........................................................................... IX-6 Tindouf Basin Exploration Acreage ................................................................. IX-7 Talda Basin Prospective Area, Morocco ......................................................... IX-9 Tadla Basin Stratigraphic Column ................................................................ IX-10 Tadla Basin Cross Sections .......................................................................... IX-10 Outline of Karoo Basin and Prospective Shale Gas Area of South Africa ...................................................................................................... X-I Stratigraphic Column of the Karoo Basin of South Africa ................................. X-4 Schematic Cross-Section of Southern Karoo Basin and Ecca Group Shales .......................................................................................... X-5 Volcanic Intrusions in the Karoo Basin, South Africa ........................................ X-5 Lower Ecca Group Structure Map, Karoo Basin, South Africa .......................... X-6 Total Organic Content of Prince Albert and Whitehill Formations ..................... X-7 Carbon Loss in Lower Ecca Group Metamorphic Shale ................................... X-8

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World Shale Gas Resources: An Initial Assessment

Figure X-8 Figure X-9 Figure X-10 Figure XI-1 Figure XI-2 Figure XI-3 Figure XI-4 Figure XI-5 Figure XI-6 Figure XI-7 Figure XI-8 Figure XI-9 Figure XI-10 Figure XI-11 Figure XI-12 Figure XI-13

Preliminary Isopach Map of the Whitehill Formation......................................... X-9 Map Showing Operator Permits in the Karoo Basin, South Africa .................. X-12 Natural Gas Pipeline System Map of South Africa ......................................... X-13 Major Shale Gas Basins and Pipeline System of China .................................. XI-1 Prospective Lower Silurian Shale Gas Areas, Sichuan Basin, Sichuan Province ............................................................................................ XI-4 Prospective Lower Cambrian Shales Gas Area, Sichuan Basin, Sichuan Province ............................................................................................ XI-4 Stratigraphic Column for Cambrian- and Silurian-Age Shales, Sichuan Basin ................................................................................................. XI-5 Tarim Basins Organic-rich Ordovician Shales. (Note location of cross sections A-B-C- and D-E.) ................................................................... XI-10 Tarim Basins Cambrian Shales. (Note location of cross sections A-B-C- and D-E.)........................................................................................... XI-10 Tarim Basin West-To-East Cross-Section A-C for Ordovician- and Cambrian-Age Shales ................................................................................... XI-11 Tarim Basin South-To-North Cross-Section D-E for Ordovicianand Cambrian-Age Shales ............................................................................ XI-11 Tarim Basin Stratigraphy Showing Organic-Rich Upper Ordovician and Lower Cambrian Shales ....................................................... XI-12 Chinas Other Shale Gas Basins ................................................................... XI-15 Ordos Basins Overthrusted Western Margin and Simple Central Deep Shangbei Slope ................................................................................... XI-16 Ordos Basin (Permian Shanxi Fm) Non-Marine, Mainly Lacustrine Shales ... XI-16 Cross-Section of Paleozoic Formations in the Ordos Basin, Showing Organic-Rich Source Rocks in the Carboniferous Taiyuan and Permian Shanxi Formations .......................................................................... XI-17

Figure XI-14 Figure XI-15 Figure XI-16 Figure XI-17 Figure XI-18

The Junggar Basins Organic-Rich Jurassic and Permian Source Rocks ...... XI-18 Junggar Basin Structural Elements showing Wulungu, Central, and North Tianshan Foreland Depressions (Note location of cross-section line A-A.) ... XI-19 Junggar Basin Source-Rock Shales in the Jurassic and Permian ................. XI-19 Cross-Section of the North China Basin with Active Normal and Strike-Slip Faults ........................................................................................... XI-20 The Turpan-Hami Basin Source Rocks Include Upper Permian And Middle Jurassic Mudstones with High TOC ................................................... XI-21
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World Shale Gas Resources: An Initial Assessment

Figure XI-19 Figure XI-20 Figure XI-21 Figure XII-1 Figure XII-2 Figure XII-3 Figure XII-4 Figure XII-5 Figure XII-6 Figure XII-7 Figure XII-8 Figure XII-9

Turpan-Hami Basin Stratigraphic Column ..................................................... XI-22 The Songliao, Hailar, and Erlian Rift Basins in Northeast China.................... XI-23 The Songliao Basins Numerous Small Pull-Apart Grabens .......................... XI-24 Shale Gas Basins and Natural Gas Pipelines of India/Pakistan ..................... XII-1 Cambay Basin Study Area ............................................................................. XII-4 Generalized Stratigraphic Column of the Cambay Basin ................................ XII-4 Organic Content of Cambay Black Shale, Cambay Basin ............................ XII-5 Cross Section of Cambay Black Shale System ............................................ XII-5 N-S Geological Cross-Section Across Cambay Basin .................................... XII-5 Depth and Thermal Maturity of Cambay Black Shale, Cambay Basin .......... XII-8 Gross Isopac of Cambay Black Shale, Cambay Basin ................................... XII-8 Prospective Areas of the Cambay Black Shale, Cambay Shale Basin ......... XII-9

Figure XII-10 Krishna Godavari Basins Horsts and Grabens ............................................ XII-10 Figure XII-11 Stratigraphic Column, Mandapeta Area, Krishna Godavari Basin ................ XII-11 Figure XII-12 Cross Section for the Krishna Godavari Basin ............................................. XII-12 Figure XII-13 Prospective Areas for Shale Gas in the Krishna Godavari Basin.................. XII-14 Figure XII-14 Cauvery Basin Horsts and Grabens ............................................................. XII-15 Figure XII-15 Generalized Straigraphy of the Cauvery Basin ............................................. XII-17 Figure XII-16 Generalized Straigraphy of the Cauvery Basin ............................................. XII-17 Figure XII-17 Shale Isopach and Presence of Organics, Cauvery Basin ........................... XII-18 Figure XII-18 Prospective Areas for Shale Gas, Cauvery Basin ........................................ XII-18 Figure XII-19 Thanjavur Sub-Basin and Geological Section Across Cauvery Basin........... XII-19 Figure XII-20 Damodar Valley Basin and Prospectivity for Shale Gas ............................... XII-20 Figure XII-21 Regional Stratigraphic Column of the Damodar Valley Basin, India ............. XII-21 Figure XII-22 Generalized Stratigraphic Column of the Gondwana Basin .......................... XII-22 Figure XII-23 Raniganj Sub-Basin Cross Section .............................................................. XII-23 Figure XII-24 Basin Outline and Karachi Trough, Southern Indus Basin ............................ XII-26 Figure XII-25 Isopach of Sembar Shale, Southern Indus Basin, Pakistan.......................... XII-28 Figure XII-26 Isopachs and Facies of Paleocene Ranikot Formation , Southern Indus Basin, Pakistan .................................................................................. XII-28 Figure XIII-1 Figure XIII-2 Figure XIII-3 Figure XIII-4 Figure XIII-5 Shale Gas Basins of Turkey.......................................................................... XIII-1 Dadas Shale Prospective Area, SE Anatolian Basin, Turkey ........................ XIII-4 SW Anatolia Basin Stratigraphic Column ...................................................... XIII-5 SW Anatolian Basin Cross-Section ............................................................... XIII-5 Exploration Leases for Dadas Shale, SE Anatolian Basin, Turkey ................ XIII-8
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World Shale Gas Resources: An Initial Assessment

Figure XIII-6 Figure XIII-7 Figure XIII-8 Figure XIII-9

Prospective Shale Formations of the Thrace Basin, NW Turkey ................. XIII-11 Thrace Basin Stratigraphic Column ............................................................. XIII-12 Thrace Basin Cross Section ........................................................................ XIII-12 Shale Gas Exploratory Leases, Thrace Basin, Turkey ................................ XIII-14 and LNG Infrastructure.................................................................................. XIV-2

Figure XIV-1 Australias Prospective Gas Shale Basins, Gas Pipelines, Figure XIV-2 Major Structural Elements of the Cooper Basin ............................................. XIV-4 Figure XIV-3 Seismic Reflection Line Showing Permian REM Sequence In The Cooper Basin And Location Of Beach Energys Planned Holdfast-1 Test Well, Scheduled For January 2011 ...................................... XIV-5 Figure XIV-4 Stratigraphy of the Cooper Basin, Showing Permian-Age Shale Targets (Roseneath, Epsilon, Murteree) ............................................. XIV-6 Figure XIV-5 Stratigraphic Cross-Section In The Cooper Basin Showing The Laterally Continuous REM Section ......................................................... XIV-7 Figure XIV-6 Western Portion Of The Cooper Basin Showing Approximate ...................... XIV-9 Prospective Shale Gas Area Figure XIV-7 Location And Shale-Prospective Area Map For Maryborough Formation, Maryborough Basin ................................................................... XIV-11 Figure XIV-8 Stratigraphy Of The Maryborough Basin Showing Marine Organic-Rich Shale In The Maryborough Formation ................................... XIV-12 Figure XIV-9 Cross-Section Of The Maryborough Basin Showing The Cherwell And Goodwood Mudstone Members Of The Cretaceous Maryborough Formation .............................................................................. XIV-13 Figure XIV-10 Location And Shale-Prospective Area Map Of The Perth Basin .................. XIV-14 Figure XIV-11 Perth Basin Operator AWEs Woodada Deep 1 Well Cored the Organic-Rich Carynginia Shale ................................................................... XIV-15 Figure XIV-12 Stratigraphy of the Perth Basin Showing the Prospective Lower Triassic Kockatea and Permian Carynginia Shales .......................... XIV-17 Figure XIV-13 Structural Cross-Section of the Perth Basin Showing 700-m Thick Kockatea and 250-m Thick Carynginia Shales at Prospective 1500-2800 m Depth .................................................................................... XIV-18 Figure XIV-14 Structural Elements of the Canning Basin in Northwestern Australia........... XIV-21 Figure XIV-15 Stratigraphy Of The Canning Basin Showing Carboniferous Goldwyer And Laurel Fm Shales ................................................................................ XIV-22 Figure XIV-16 Regional Cross-Section Showing Middle Ordovician Goldwyer
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World Shale Gas Resources: An Initial Assessment

Shale Is Excessively Deep (>5 Km) In the Central Kidson Sub-Basin, But At Prospective Depth On Its Flanks As Well As Throughout The Southern Fitzroy Trough ...................................................................... XIV-23 Figure XIV-17 Detailed Cross-Section Showing Carboniferous Laurel Shale, The Canning Basins Main Source Rock, Is About 500 M Thick And 1700 M Deep In The Southern Fitzroy Trough Jones Arch Region........... XIV-23 Figure XIV-18 TOC In The Goldwyer Fm, Canning Basin Generally Ranges From About 1% To 5% (Mean 3%), With Some Values Over 10% ....................... XIV-24

World Shale Gas Resources: An Initial Assessment

Ta b le s
Table 1-1 Table 1-2 Table 1-3 Table 1-4 Table 2-1 Table I-1 Table I-2 Table II-1 Table III-1 Table IV-1 Table V-1 Table VI-1 Table VII-1 Table VIII-1 Table IX-1 Table X-1 Table XI-1 Table XII-1 Table XII-2 Table XII-3 Table XIII-1 Table XIV-1 The Scope of the International Shale Gas Assessment ......... 1-2 Risked Gas In-Place and Technically Recoverable Shale Gas Resources: Six Continents .......................................................................... ..1-3 Risked Gas In-Place and Technically Recoverable Shale Gas Resources: 2 Countries. ........ ..1-5 Comparison of Rogners and This Study Estimates of Shale Gas Resources In-Place ........................................................................................................ 1-6 Reservoir Properties and Resources of Central North Africa ........2-20 Shale Gas Reservoir Properties and Resources of Western Canada .... .I-3 Gas Shale Reservoir Properties and Resources of Eastern Canada . I-21 Shale Gas Reservoir Properties and Resources of Mexico ..... .II-3 Gas Shale Reservoir Properties and Resources of Northern South America ...III-3 Reservoir Properties and Resources of Southern South America ................... IV-2 Shale Gas Reservoir Properties and Resources of Poland ............................. V-2 Reservoir Properties and Resources of Eastern Europe ................................. VI-2 Shale Gas Reservoir Properties and Resources of Western Europe .............. VII-2 Reservoir Properties and Resources of Central North Africa ......................... VIII-2 Reservoir Properties and Resources of Morocco ............................................ IX-2 Shale Gas Reservoir Properties and Resources of the Karoo Basin ................ X-2 Shale Gas Reservoir Properties and Resources - - Sichuan and Tarim Basins, China........................................................................................ XI-2 Shale Gas Reservoir Properties and Resources of India/Pakistan ................. XII-2 Prospective Areas For Black Shale of Cambay Basin .................................. XII-7 Analysis of Ten Rock Samples, Kommugudem Shale .................................. XII-12 Shale Gas Reservoir Properties and Resources of Turkey ........................... XIII-2 Shale Gas Reservoir Properties and Resources of Australia ........................ XIV-2

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1. EXECUTIVE S UMMARY AND S TUDY RES ULTS

INTRODUCTORY REMARKS
The World Shale Gas Resources: An Initial Assessment, conducted by Advanced Resources International, Inc. (ARI) for the U.S. DOEs Energy Information Administration (EIA), evaluates the shale gas resource in 14 regions containing 32 countries, Table 1-1. The information provided in the 14 regional reports (selected for assessment by EIA) should be viewed as initial steps toward future, more comprehensive assessments of shale gas resources. The study investigators would have, if allowed, devoted the entire study budget to just one of the 14 regions and would have judged this more in-depth time and budget investment well spent. Alas, that was not possible. As such, this shale gas resource

assessment captures our first-order view of the gas in-place and technically recoverable resource for the 48 shale gas basins and 69 shale gas formations addressed by the study. As additional exploration data are gathered, evaluated and incorporated, the assessment of shale gas resources will become more rigorous.

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World Shale Gas Resources: An Initial Assessment

Table 1-1. The Scope of the World Shale Gas Resources: An Initial Assessment
Continent North America South America Region/Country
I. Canada II. Mexico Subtotal III. Northern South America IV. Southern South America Subtotal V. Poland VI. Eastern Europe VII. Western Europe Subtotal VIII. Central North Africa IX. Morocco X. South Africa Subtotal XI. China XII. India/Pakistan XIII. Turkey Subtotal XIV. Australia

Number of Countries
1 1 2 2 6 8 1 3 7 11 3 3 1 7 1 2 1 4 1

Number of Basins
7 5 12 2 4 6 3 3 6 12 2 2 1 5 2 5 2 9 4

Number of Gas Shale Formations

9 8 17 3 7 10 3 3 9 15 4 2 3 9 4 6 3 13 5

Europe

Africa

Asia

Australia

Total

32

48

69

Two points are important to keep in mind when viewing the individual shale gas basinand formation-level shale gas resource assessments: First, the resource assessments provided in the individual regional reports are only for the higher quality, prospective areas of each shale gas basin and formation. The lower quality and less defined shale gas resource areas in these basins, that may hold additional shale gas resources, are not included in the quantitatively assessed and reported values. Second, the in-place and recoverable resource values for each shale gas basin and formation have been risked to incorporate: (1) the probability that the shale gas formation will (or will not) have sufficiently attractive gas flow rates to become developed; and (2) an expectation of how much of the prospective area set forth for each shale gas basin and formation will be developed in the foreseeable future.
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World Shale Gas Resources: An Initial Assessment

No doubt, future exploration drilling will lead to adjustments in these two risk factors and thus the ultimate size of the developable international shale gas resource. We would urge the U.S. Energy Information Administration, who commissioned this valuable, cutting edge shale gas resource assessment, to capture and incorporate the significant volume of shale gas exploration and resource information that will become available during the next several years, helping keep this shale gas resource assessment evergreen.

S UMMARY OF S TUDY FINDINGS

Although the exact resource numbers will change with time, our work shows that the international shale gas resource is vast. Overall, we have identified and assessed a shale gas resource equal to 22,016 Tcf of risked gas in-place, not including U.S. shale gas resources. Applying appropriate recovery factors, we estimate a technically recoverable shale gas resource of 5,760 Tcf. Importantly, much of this shale gas resource exists in countries with limited conventional gas supplies or where the conventional gas resource has largely been depleted, such as in China, South Africa and Europe. The regional level tabulations of the risked in-place and technically recoverable shale gas resource are provided in Table 1-2.

Table 1-2. Risked Gas In-Place and Technically Recoverable Shale Gas Resources: Six Continents
Continent North America South America Europe Africa Asia Australia Total Risked Gas In-Place (Tcf) 3,856 4,569 2,587 3,962 5,661 1,381 22,016 Risked Technically Recoverable (Tcf) 1,069 1,225 624 1,042 1,404 396 5,760

A more detailed tabulation of shale gas resources (risked gas in-place and risked
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World Shale Gas Resources: An Initial Assessment

technically recoverable), at the country-level, is provided in Table 1-3. Additional information on the size of the shale gas resource, at a detailed basin- and formation-level, is provided in Appendix A. Significant additional shale gas resources exist in the Middle East, in Russia, in Indonesia, and numerous other regions and countries not yet included in our study. Hopefully, future editions of this report will more fully incorporate these other important shale gas areas.

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Table 1-3. Risked Gas In-Place and Technically Recoverable Shale Gas Resources: 32 Countries
Continent North America
III. Northern South America

Region
I. Canada II. Mexico Total

Country

Risked Gas InPlace (Tcf)

1,490 2,366 3,856

Technically Recoverable Resource (Tcf)

388 681 1,069 19 11 30 774 48 226 64 62 21 1,195 1,225 187 4 19 42 252 180 8 17 41 83 23 20 372 624 230 290 18 18 557 485 1,042 1,275 63 51 15 1,404 396

Columbia Venezuela Subtotal Argentina Bolivia Brazil Chile Paraguay Uruguay Subtotal Total Poland Lithuania Kaliningrad Ukraine France

78 42 120 2,732 192 906 287 249 83 4,449 4,569 792 17 76 197 1,082 720 33 66 164 333 92 97 1,505 2,587 812 1,147 61 108 2,128 1,834 3,962 5,101 290 206 64 5,661 1,381

South America

IV. Southern South America

VI. Eastern Europe

Europe
VII. Western Europe

Germany Netherlands Sweden Norway Denmark U.K. Subtotal Total Algeria Libya Tunisia Morroco* Subtotal

VIII. Central North Africa

Africa
X. South Africa Total XI. China

Asia

XII. India/Pakistan XIII. Turkey Total XIV. Australia

India Pakistan

Australia
* Includes Western Sahara & Mauritania

Grand Total

22,016

5,760

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World Shale Gas Resources: An Initial Assessment

COMP ARIS ON OF S TUDY FINDINGS

Prior to this study - - World Shale Gas Resources: An Initial Assessment - - only one other study is publically available that addresses the overall size of the shale gas resource. This is the valuable work by H-H. Rogner. 1 Our detailed basin-by-basin assessments of the shale gas resource, show that the shale gas resource in-place is larger than estimated by Rogner, even accounting for the fact that a number of the large shale gas resource areas (such as Russia and the Middle East) have not yet been included in our study (but are included in Rogners shale gas resource numbers). Overall, our gas study established a risked shale gas in-place of 25,300 Tcf (when we include our shale gas estimate for the U.S. of 3,284 Tcf) compared to Rogners estimate of 13,897 Tcf of shale gas in-place when we exclude the areas of the world not included in this study. (Rogners total shale gas in-place is 16,112 Tcf.) The largest and most notable areas of difference in the shale gas resource assessments are for Europe, Africa and North America, Table 1-4.

Table 1-4. Comparison of Rogners and This Study Estimates of Shale Gas Resources In-Place
Continent 1. North America* 2. South America 3. Europe 4. Africa** 5. Asia 6. Australia 7. Other*** Total H-H Rogner (Tcf) 3,842 2,117 549 1,548 3,528 2,313 2,215 16,112 EIA/ARI (Tcf) 7,140 4,569 2,587 3,962 5,661 1,381 n/a 25,300

* Incl udes U.S. s ha l e ga s i n-pl a ce of 3,.824 Tcf, ba s ed on es ti ma ted (ARI) 820 Tcf of techni ca l l y recovera bl e s ha l e ga s res ources a nd a 25% recovery effi ci ency of s ha l e ga s i n-pl a ce. ** Rogner es ti ma te i ncl udes one-ha l f of Mi ddl e Ea s t a nd North Afri ca (1,274) a nd Sub-Sa ha ra n Afri ca (274 Tcf). *** Incl udes FSU (627 Tcf), Other As i a Pa ci fi c (314 Tcf) a nd one-ha l f of Mi ddl e Ea s t/North Afri ca (1,274) Tcf.

Rogner, H-H., An Assessment of World Hydrocarbon Resources, Annu. Rev. Energy Environ. 1997, 22:217-62. 1-6

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Figure 1-1 Map of 48 Major Shale Basins in 32 Countries

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Assessment of International Shale Gas

2. S HALE GAS RES OURCE AS S ES S MENT METHODOLOGY

INTRODUCTION
This Chapter sets forth our methodology for assessing the in-place and recoverable shale gas resources for the 14 regions (encompassing 32 countries) addressed by this study. The methodology relies on extensive geological information and reservoir properties assembled from the technical literature and data from publically available company reports and presentations. This publically available information has been augmented by internal (non-

confidential) prior work on U.S. and international shale gas by Advanced Resources International. The regional reports should be viewed as initial steps toward future, more comprehensive assessments of shale gas resources. As additional exploration data are

gathered, evaluated and incorporated, these regional assessments of shale gas resources will become more rigorous.

RES OURCE AS S ES S MENT METHODOLOGY

The methodology for conducting the basin- and formation-level assessments of shale gas resources includes the following five topics: 1. Conducting preliminary geologic and reservoir characterization of shale basins and formation(s). 2. Establishing the areal extent of the major shale gas formations. 3. Defining the prospective area for each shale gas formation. 4. Estimating the risked shale gas in-place. 5. Calculating the technically recoverable shale gas resource. Each of these five shale gas resource assessment steps is further discussed below. The shale gas resource assessment for Central North Africa and particularly the Ghadames Basin is used to illustrate certain of these resource assessment steps.

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2.1.

Co n d u c tin g P re lim in a ry Ge o lo g ic a n d Re s e rvo ir Ch a ra c te riza tio n o f S h a le Ba s in s a n d Fo rm a tio n (s ).

The resource assessment begins with the compilation of data from multiple public and

private sources to define the shale gas basins and to select the major shale gas formations to be assessed. The stratigraphic columns and well logs, showing the geologic age, the source

rocks and other data, are used to select the major shale formations for further study, as illustrated in Figure 2.1 for the Ghadames Basin of southern Tunisia. Preliminary geological and reservoir data are assembled for each major shale formation, including the following key items: Depositional environnent of shale (marine vs non-marine) Depth (to top and base of shale interval) Structure, including major faults Gross shale interval Organically-rich gross and net shale thickness Total organic content (TOC, by wt.) Thermal maturity (Ro)

These geologic and reservoir properties are used to provide a first order overview of the geologic characteristics of the major shale gas formations and to help select the shale gas formations deemed worthy of more intensive assessment.

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Figure 2-1: Southern Tunisia, Ghadames Basin Stratigraphic Column i (The two major shale gas formations, the Silurian Tannezuft and the Devonian Frasnian, are highlighted.)

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2.2.

Es ta b lis h in g th e Are a l Exte n t o f Ma jo r S h a le Ga s Fo rm a tio n s .

Having identified the major shale gas formations, the next step is to undertake more

intensive study to define the areal extent for each of these formations. For this, the study team searches the technical literature for regional as well as detailed, local cross-sections identifying the shale gas formations of interest, as illustrated by Figure 2.2 for the Silurian and Devonian shale gas formations in the Ghadames Basin. In addition, the study team draws on internal cross-sections previously prepared by Advanced Resources and, where necessary, assembles well data to construct new cross-sections. The regional cross-sections are used to define the lateral extent of the shale formation in the basin and/or to identify the regional depth and gross interval of the shale formation. Figure 2.2 : Ghadames Basin Structure Depth Map and Cross Section i (The geological ages containing the two major shale gas formations, the Devonian and the Silurian, are highlighted.)

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3.

De fin in g th e P ro s p e c tive Are a fo r Ea c h S h a le Ga s Fo rm a tio n .

An important and challenging resource assessment step is to establish the portions of

the basin that, in our view, are deemed to be prospective for development of shale gas. The criteria used for establishing the prospective area include: Depositional Environment. An important criterion is the depositional environment of the shale, particularly whether it is marine or non-marine. Marine-deposited shales tend to have lower clay content and tend to be high in brittle minerals such as quartz, feldspar and carbonates. Brittle shales respond favorably to hydraulic stimulation. Shales deposited in non-marine settings (lacustrine, fluvial) tend to be higher in clay, more ductile and less responsive to hydraulic stimulation. Figure 2.3 provides a ternary diagram useful for classifying the mineral content of the shale for the Marcellus Shale in Lincoln Co., West Virginia. Figure 2.4 illustrates the relationship between shale formation mineralogy, shale brittleness and shale response to hydraulic fracturing. Figure 2.3. Ternary Diagram of Shale Mineralogy (Marcellus Shale).
Quartz (Q)

Calcite (C)
Source: Modified from AAPG Bull. 4/2007, p. 494 & 495
JAF028263.PPT

Clay (Cly)

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Figure 2.4. Relationship of Shale Mineralogy (Q, C and Cly) and Thermal Maturity to Gas Flow

Source: Modified from AAPG Bull. 4/2007, p. 494 & 495

JAF028263.PPT

Depth. The depth criterion for the prospective area is greater than 1,000 meters, but less than 5,000 meters (3,300 feet to 16,500 feet). Areas shallower than 1,000 meters have lower pressure and a lower gas concentration. In addition, shallow shale gas formations have risks of higher water content in their natural fracture systems. Areas deeper than 5,000 m have risks of reduced permeability and much higher drilling and development costs.

Total Organic Content (TOC). In general, the TOC of prospective area needs to be equal to or greater than 2%. Figure 2.5 provides an example of using a gamma ray log to identify the TOC content for the Marcellus Shale in the New York (Chenango Co.) portion of the Appalachian Basin. Organic materials such as microorganism fossils and plant matter provide the requisite carbon, oxygen and hydrogen atoms needed to create natural gas and oil. As such TOC is an important measure of the gas generation potential of a shale formation.

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Figure 2.5. Relationship of Gamma Ray and Total Organic Carbon

Thermal Maturity. Thermal maturity measures the degree to which a formation has been exposed to high heat needed to break down organic matter into hydrocarbons. The reflectance of certain types of minerals (Ro%) is used as an indication of Thermal Maturity, Figure 2.6. The thermal maturity of the prospective area needs to have a Ro greater than 1.0%, with a second higher quality prospective area defined as having a Ro greater than 1.3%. Higher thermal maturity settings also lead to the presence of nanopores which contribute to additional porosity in the shale matrix. Figure 2.7 provides an

illustration of the relationship between thermal maturity and the development of nanopores in the shale matrix. Geographic Location. The prospective area is limited to the onshore portion of the shale gas basin.

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Figure 2-6. Thermal Maturation Scale

Figure 2-7. Thermal Maturity and Gas Storage Capacity

Nanopores in Maturing Kerogen

Source: Reed et al. Texas BEG

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The prospective area contains the higher quality portion of the shale gas resource and, in general, covers less than half of the overall basin area. The prospective area will contain a series of shale gas quality areas, typically including a geologically favorable, high resource concentration core area and a series of lower quality and lower resource concentration extension areas. However, the further delineation of the prospective area was beyond the scope of this initial resource assessment study. The U.S. Barnett Shale illustrates the presence of a high quality core area, two extension areas (called Extension Area #I and Extension Area #2) and a lower thermally less mature (combination of oil, condensate and natural gas) play along the northern edge of the basin, Figure 2.8. Figure 2-8. Barnett Shale Resource and Play Areas
Fort Worth Basin All Barnett Wells

Core Area

The total Barnett Shale gas play covers 8,000 mi2, with about 4,000 mi2 of the area prospective for natural gas. Core Area (1,548 mi2). High resource concentration area with EUR per well of 2.5 Bcf.

Extension Area #1

Extension Area #1 (2,254 mi2). Area of emerging drilling and production with EUR per well of 1.5 Bcf. Extension Area #2 (4,122 mi2). Area of lower productivity with EUR per well of 0.8 Bcf .

Extension Area #2

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A more detailed resource assessment, including in-depth appraisal of newly drilled exploration wells, with modern logs and rigorous core analyses, will be required to define these next levels of resource quality and concentration for the major international shale gas plays.

4.

Es tim a tin g th e Ris ke d Ga s In -P la c e (GIP ).

2-9

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Detailed geologic and reservoir data are assembled to establish the free as well as the adsorbed gas in-place (GIP) for the prospective area. Adsorbed gas can be the dominant inplace resource for shallow and highly organically rich shales. Free gas becomes the dominant in-place resource for deeper, higher clastic content shales. a. Free Gas In-Place. The calculation of free gas in-place for a given areal extent (acre, square mile) is governed, to a large extent, by four characteristics of the shale formation - - pressure, temperature, gas-filled porosity and net organically-rich shale thickness. Pressure. The study methodology places particular emphasis on identifying areas with overpressure, which enables a higher concentration of gas to be contained within a fixed reservoir volume. A normal hydrostatic gradient of 0.433 psi per foot of depth is used when actual pressure data is unavailable. Temperature. The study assembles data on the temperature of the shale formation, giving particular emphasis on identifying areas with higher than average temperature gradients and surface temperatures. A normal temperature gradient of 1o F per foot of depth plus a surface temperature of 60o F are used when actual temperature data is unavailable. Gas-Filled Porosity. The study assembles the porosity data from core or log

analyses available in the public literature. When porosity data are not available, emphasis is placed on identifying the mineralogy of the shale and its maturity for estimating porosity values from analogous U.S shale basins. Unless other evidence is available, the study assumes the pores are filled with gas and residual water. Net Organically-Rich Shale Thickness. The overall shale interval is obtained from prior stratigraphic studies of the formations in the basin being appraised. The

organically-rich thickness of the shale interval is established from log data and cross sections, where available. A net to gross ratio is used to estimate the net thickness of the shale from the gross organically-rich shale interval. The above data are combined using established PVT reservoir engineering equations and conversion factors to calculate free GIP per square mile. The calculation of free GIP uses the following standard reservoir engineering equation:

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GIP =

43,560 * A h (1 - Sw) Bg
Where: Bg

0.02829zT P

is area, in acres (with the conversion factors of 43,560 square feet per acre and 640 acres per square mile). is net shale thickness, in feet (a minimum TOC criterion of 2% (by wt.) is used to define the net organically-rich pay from the larger shale interval and the gross organically-rich shale thickness.) is porosity, a dimensionless fraction (the values for porosity are obtained from log or core information published in the technical literature or assigned by analogy from U.S. shale gas basins; the thermal maturity of the shale and its depth of burial can influence the porosity value used for the shale).

(1-SW) is the fraction of the porosity filled by gas (Sg) instead of water (SW), a dimensionless fraction (the established value for porosity () is multiplied by the term (1-SW) to establish gas-filled porosity; the value Sw defines the fraction of the pore space that is filled with water, often the residual or irreducible reservoir water saturation in the natural fracture and matrix porosity of the shale; liquids-rich shales may also contain condensate and/or oil (So) in the pore space, further reducing gas-filled porosity. P is pressure, in psi (pressure data is obtained from well test information published in the literature, inferred from mud weights used to drill through the shale sequence, or assigned by analog from U.S. shale gas basins; basins with normal reservoir pressure are assigned a gradient of 0.433 psi per foot of depth; basins with indicated overpressure are assigned pressure gradients of 0.5 to 0.6 psi per foot of depth; basins with indicated underpressure are assigned pressure gradients of 0.3 to 0.4 psi per foot of depth). is temperature, in degrees Rankin (temperature data is obtained from well test information published in the literature or from regional temperature versus depth gradients; the factor 460 oF is added to the reservoir temperature (in oF) to provide the input value for the gas volume factor (Bg) equation). is the gas volume factor, in cubic feet per standard cubic feet and includes the gas deviation factor (z), a dimensionless fraction. (The gas deviation factor (z) adjusts the ideal compressibility (PVT) factor to account for nonideal PVT behavior of the gas; gas deviation factors, complex functions of pressure, temperature and gas composition, are published in standard reservoir engineering text.)

Bg

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Assessment of International Shale Gas

b.

Adsorbed Gas In-Place. In addition to free gas, shales can hold significant

quantities of gas adsorbed on the surface of the organics (and clays) in the shale formation. A Langmuir isotherm is established for the prospective area of the basin using available data on TOC and on thermal maturity to establish the Langmuir volume (V L ) and the Langmuir pressure (P L ). Adsorbed gas in-place is then calculated using the formula below (where P is original reservoir pressure).

GC = (VL * P) / (PL + P)
The above gas content (G C ) (typically measured as cubic feet of gas per ton of net shale) is converted to gas concentration (adsorbed GIP per square mile) using actual or typical values for shale density. (Density values for shale are typically in the range of 2.65 to 2.8 gm/cc and depend on the mineralogy and organic content of the shale.) The estimates of the Langmuir value (V L ) and pressure (P L ) for adsorbed gas in-place calculations are based on either publically available data in the technical literature or internal (proprietary) data developed by Advanced Resources from prior work on various U.S. and international shale basins. In general, the Langmuir volume (V L ) is a function of the organic richness and thermal maturity of the shale, as illustrated in Figure 2.9. The Langmuir pressure (P L ) is a function of how readily the adsorbed gas on the organics in the shale matrix is released as a function of a finite decrease in pressure. The free gas in-place (GIP) and adsorbed GIP are combined to estimate the resource concentration (Bcf/mi2) for the prospective area of the shale gas basin. Figure 2.10 illustrates the relative contributions of free (porosity) gas and adsorbed (sorbed) gas to total gas in-place, as a function of pressure.

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Figure 2-9. Marcellus Shale Adsorbed Gas Content

Adsorbed Gas Content: Lower TOC (Gas Content in scf/ton vs pressure)

Adsorbed Gas Content: Higher TOC (Gas Content in scf/ton vs pressure)

JAF028263.PPT

Figure 2-10. Combining Free and Adsorbed Gas for Total Gas In-Place

Adsorption Isotherm (Gas Content vs. Pressure) Shallow Gas Shales

Total Porosity Sorbed

Deep Gas Shales

JAF028263.PPT

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Assessment of International Shale Gas

c. Establishing the Success/Risk Factors. Two specific judgmentally established success/risk factors are used to estimate risked GIP within the prospective area of the shale gas formation. These two factors, are as follows: Play Success Probability Factor. The shale gas play success probability factor

captures the likelihood that at least some significant portion of the shale gas formation will provide gas at attractive flow rates and become developed. Certain shale gas formations, such as the Muskwa Shale/Otter Park in the Horn River Basin are already under development and thus would have a play probability factor of 100%. More speculative shale gas formations with limited geologic and reservoir data, may only have a play success probability factor of 30% to 40%. As exploration wells are drilled, tested and produced and information on the viability of the shale gas play is established, the play success probability factor will change. Prospective Area Success (Risk) Factor: The prospective area success (risk) factor combines a series of concerns that could relegate a portion of the prospective area to be unsuccessful or unproductive for gas production. These concerns include

areas with high structural complexity (e.g., deep faults, upthrust fault blocks); areas with lower thermal maturity (Ro between 1.0 and 1.2); the outer edge areas of the prospective area with lower net organic thickness; and other information appropriate to include in the success (risk) factor. The prospective area success (risk) factor also captures the amount of available geologic/reservoir data and the extent of exploration that has occurred in the prospective area of the basin to determine what portion of the prospective area has been sufficiently de-risked. As exploration and delineation proceed, providing a more rigorous definition of the prospective area, the prospective area success (risk) factor will change. These two success/risk factors are combined to derive a single composite success factor with which to risk the GIP for the prospective area. Appendix B provides a tabulation of the play success probability and prospective area success factors assigned to each of the major shale gas basins included in this resource assessment.

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As introduced above, the history of shale gas exploration has shown that the success/risk factors, particularly the prospective area success/risk factor, change over time. As exploration wells are drilled and the favorable shale gas reservoir settings and prospective areas are more fully established, it is likely that larger assessments of the gas in-place will emerge.

6.

Es tim a tin g th e Te c h n ic a lly Re c o ve ra b le Re s o u rc e .

The technically recoverable resource is established by multiplying the risked GIP by a

shale gas recovery factor, which incorporates a number of geological inputs and analogs appropriate to each shale gas basin and formation. The recovery factor uses information on the mineralogy of the shale to determine its favorability for applying hydraulic fracturing to shatter the shale matrix. The recovery factor also considers other information that would impact gas well productivity, such as: presence of favorable micro-scale natural fractures; the absence of unfavorable deep cutting faults; the state of stress (compressibility) for the shale formations in the prospective area; the relative volumes of free and adsorbed gas concentrations; and the reservoir pressure in the prospective area. Three basic gas recovery factors, incorporating shale mineralogy, reservoir properties and geologic complexity, are used in the resource assessment. Favorable Gas Recovery. A 30% recovery factor of the gas in-place is used for shale gas basins and formations that have low clay content, low to moderate geologic complexity and favorable reservoir properties such as an overpressured shale formation and high gas-filled porosity. Average Gas Recovery. A 25% recovery factor of the gas in-place is used for shale gas basins and formations that have a medium clay content, moderate geologic complexity and average reservoir pressure and properties. Less Favorable Gas Recovery. A 20% recovery factor of the gas in-place is used for shale gas basins and formations that have medium to high clay content, moderate to high geologic complexity and below average reservoir properties. A recovery factor of 35% is applied in a few exceptional cases with established high rates of well performance. A recovery factor of 15% is applied in exceptional cases of severe under-pressure and reservoir complexity.
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Assessment of International Shale Gas

Finally, shale gas basins and formations that have very high clay content (e.g., nonmarine shales) and/or have very high geologic complexity (e.g., thrusted and high stress) are categorized as non-prospective and excluded from this shale gas resource assessment. Subsequent, more intensive and smaller-scale (rather than regional-scale) resource assessments may identify the more favorable areas of a basin, enabling portions of the basin currently deemed non-prospective to be added to the shale gas resource assessment. Similarly, advances in well completion practices may enable more of the very high clay content shale formations to be efficiently stimulated, also enabling these basins and formations to be added to the resource assessment. a. Two Key Gas Recovery Technologies. Because the native permeability of the shale gas reservoir is extremely low, on the order of a few hundred nano-darcies (0.0001 md to 0.001 md), efficient recovery of the gas held in the shale matrix requires two key well drilling and completion techniques, as illustrate by Figure 2.11: Figure 2-11. Lower Damage, More Effective Horizontal Well Completions Provide Higher Reserves Per Well

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Assessment of International Shale Gas

Long Horizontal Wells. Long horizontal wells (laterals) are designed to place the gas production well in contact with as much of the shale matrix as technically and economically feasible.

Intensive Well Stimulation.

Large volume hydraulic stimulations, conducted in

multiple, closely spaced stages (up to 20), are used to shatter the shale matrix and create a permeable reservoir. This intensive set of induced and propped hydraulic fractures provided the critical flow paths from the shale matrix to the horizontal well. Existing, small scale natural fractures (micro-fractures) will, if open, contribute additional flow paths from the shale matrix to the wellbore. The efficiency of the hydraulic well stimulation depends greatly on the mineralogy of the shale, as further discussed below. b. Importance of Mineralogy on Recoverable Resources. The mineralogy of the shale, particularly its relative quartz, carbonate and clay content, significantly determines how efficiently the induced hydraulic fracture stimulates the shale, as illustrated by Figure 2.12: Shales with a high percentage of quartz and carbonate tend to be brittle and will shatter, leading to a vast array of small-scale induced fractures providing numerous flow paths from the matrix to the wellbore, when hydraulic pressure and energy are injected into the shale matrix, Figure 2.12A. Shales with a high clay content tend to be ductile and to deform instead of shattering, leading to relatively few induced fractures (providing only limited flow paths from the matrix to the well) when hydraulic pressure and energy are injected into the shale matrix, Figure 2.12B.

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Figure 2-12. The Properties of the Reservoir Rock Greatly Influence the Effectiveness of Hydraulic Stimulations.
High clastic content shales are brittle and shatter, providing multiple dentrict fracture swarms. High clay content shales are plastic and absorb energy, providing single-planar fracs. 12A. Quartz-Rich (Brittle) 12B. Clay-Rich (Ductile)

Barnett Shale
JAF028263.PPT

Cretaceous Shale
Source: CSUG, 2008

c. Significance of Geologic Complexity. A variety of complex geologic features can reduce the gas recovery efficiency from a shale gas basin and formation: Extensive Fault Systems. Areas with extensive faults can hinder gas recovery by limiting the productive length of the horizontal well, as illustrated by Figure 2.13. Deep Seated Fault System. Vertically extensive faults that cut through organically rich shale intervals can introduce water into the shale matrix, reducing relative permeability and gas flow capacity. Thrust Faults and Other High Stress Geological Features. Compressional tectonic features, such as thrust faults and up thrusted fault blocks, are an indication of basin areas with high lateral reservoir stress, reducing the permeability of the shale matrix and its gas flow capacity.

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Figure 2-13. 3D Seismic Helps Design Extended vs. Limited Length Lateral Wells
N Well #1 Extended Lateral
U D 160

640 Acre Section

Well #1
D U

Well #2

Lateral

80

lt Fau

Lateral

1 Mile

60

ult Fa

Well #2 Standard Lateral

80 F ault

U 1 Mile 160 Source: Newfield Exploration Company

JAF028263.PPT

S UMMARY
The step-by-step application of the above discussed shale gas resource assessment methodology leads to three key assessment values for each major shale gas formation: Gas In-place Concentration, reported in terms of Bcf per square mile. This key resource assessment value defines the richness of the shale gas resource and its relative attractiveness compared to other gas development options. Risked Gas In-Place, reported in Tcf for each major shale gas formation. Risked Recoverable Gas, reported in Tcf for each major shale gas formation.

The risked gas in-place and recoverable gas provide the two bottom line values that help the reader understand how large is the prospective shale gas resource and what impact this resource may have on the energy, particularly the natural gas supply, options available in each region and country.

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Assessment of International Shale Gas

Table 2-1, constructed for two major shale gas basins and four shale gas formations, provide a concise summary of the resource assessment conducted for Central North Africa. Additional detail is provided in each of the 14 regional shale gas resource assessment reports. These individual reports also allocate the risked shale gas in-place and recoverable shale gas resource to the various countries holding the assessed shale gas basins. For

example, the assessment report for Central North Africa further details the shale gas resource (reported at the basin- and formation-level in Table 2-1) to the three countries holding these resources - - Algeria, Libya and Tunisia.

Table 2-1: Reservoir Properties and Resources of Central North Africa

Basic Data
Basin/Gross Area Shale Formation Geologic Age Ghadames Basin (121,000 mi2) Sirt Basin (177,000 mi2) Tannezuft Frasnian Sirt-Rachmat Etel Silurian Middle Devonian Upper Cretaceous Upper Cretaceous 12,900 200 - 500 197 177 8,200 - 10,500 9,350 Overpressured 4.2% 1.15% Medium 65 251 75 70,800 1,000 - 3,000 2,000 200 9,000 - 11,000 10,000 Normal 2.8% 1.10% Medium/High 61 647 162 70,800 200 - 1,000 600 120 11,000 - 13,000 12,000 Normal 3.6% 1.10% Medium/High 42 443 111

Prospective Area (mi2) 39,700 Interval 1,000 - 1,800 Thickness (ft) Organically Rich 115 Net 104 Interval 9,000 - 16,500 Depth (ft) Average 12,900 Reservoir Pressure Overpressured Average TOC (wt. %) 5.7% Thermal Maturity (%Ro) 1.15% Clay Content Medium GIP Concentration (Bcf/mi ) Risked GIP (Tcf) Risked Recoverable (Tcf)
2

Resource

Reservoir Properties

Physical Extent

44 520 156

REFERENCES
i

Acheche, et al., 2001.

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World Shale Gas Resources: An Initial Assessment

I.

CANADA
The gas-bearing shales of Canada are concentrated in Alberta and British Columbia of

Western Canada and in Quebec, Nova Scotia and New Brunswick of Eastern Canada.

WES TERN CANADA

Western Canada has five large sedimentary basins that contain thick, organic-rich shales - - the Horn River, Cordova Embayment and Liard in northern British Columbia; the Deep Basin/Montney in central Alberta and British Columbia; and the Colorado Group in central and southern Alberta, Figure I-1. Figure I-1. Shale Gas Basins of Western Canada

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World Shale Gas Resources: An Initial Assessment

The five large Western Canada shale gas basins contain a total of 1,326 Tcf of risked gas in-place. (This assessment is consistent with the British Columbia Ministry of Energy, Mines and Petroleum Resources estimates of 500 Tcf of gas in-place for the Horn River Shale, 200 Tcf of gas in-place for the Cordova Embayment Shale and 35 to 250 Tcf of gas in-place for the Montney Resource Play, a combined shale gas and tight gas sand play.) 1 The risked, technically recoverable shale gas resource for these five Western Canada basins is estimated at 355 Tcf, as shown on Table I-1. Table I-1. Shale Gas Reservoir Properties and Resources of Western Canada
Basic Data
Basin/Gross Area Shale Formation Geologic Age Prospective Area (mi ) Interval Thickness (ft) Organically Rich Net Interval Depth (ft) Average Reservoir Pressure Average TOC (wt. %) Thermal Maturity (%Ro) Clay Content GIP Concentration (Bcf/mi2) Risked GIP (Tcf) Risked Recoverable (Tcf)
2

Horn River
(8,100 mi) Muskwa/Otter Park Devonian 3,320 250 - 730 420 380 6,300 - 10,200 8,000 Moderately Overpressured 3.5% 3.80% Low 152 378 132 Evie/Klua Devonian 3,320 110 - 205 160 144 6,800 - 10,700 8,500 Moderately Overpressured 3.5% 3.80% Low 55 110 33

Cordova (4,290 mi) Muskwa/Otter Park Devonian 2,850 150 - 350 230 207 5,500 - 6,200 6,000 Normal 2.0% 2.50% Low 61 83 29

Liard
(4,300 mi) Lower Besa River Devonian 1,940 490 - 1,100 630 441 6,600 - 12,300 9,000 Moderately Overpressured 3.5% 3.80% Low 161 125 31

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Reservoir Properties

Physical Extent

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World Shale Gas Resources: An Initial Assessment

Ho rn Rive r Ba s in
Geologic Characterization. The Horn River Basin covers an area of 8,100 mi2 in

northern British Columbia and the Northwest Territory. Its western border is defined by the regionally significant Bovie Fault, which separates the Horn River Basin from the Liard Basin. Its northern border, in Northwest Territory, is defined by the thinning of the shale section and by lack of data. Its southern border is defined by the shallowing and pinch-out of the shale. Its eastern border is defined by Slave Point/Keg River Uplift and thinning of the shale. The prospective area for Muskwa/Otter Park Shale covers a 3,320 mi2 area along the western portion of the basin, Figure I-2.

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World Shale Gas Resources: An Initial Assessment

Figure I-2. Horn River (Muskwa/Otter Park Shale) Basin and Prospective Area

The Horn River, as well as the other two north British Columbia shale gas basins (Cordova Embayment and Liard Basin), contains a stack of organic shales, with the Middle Devonian-age Muskwa/Otter Park and Evie/Klua most prominent, Figure I-3. These two shale units were mapped in the Horn River Basin to establish the prospective area with sufficient thickness and resource concentration favorable for shale gas development. Other shales in this basin include the high organic content but lower thermal maturity Mississippian Exshaw/Banff Shale and the thick but low organic content Late Devonian Fort Simpson Shale.

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World Shale Gas Resources: An Initial Assessment

Figure I-3. NE British Columbia, Devonian and Mississippian Stratigraphy

Middle

Lower

Source: D. J. K. Ross and R. M. Bustin, AAPG Bulletin, v. 92, no. 1 (January 2008), pp. 87125

JAF21300.AI

Reservoir Properties (Prospective Area) Muskwa/Otter Park (Middle Devonian). The Middle Devonian Muskwa/Otter Park black shale, the upper shale interval within the Horn River Group, is the main shale gas target in the Horn River Basin. Drilling depth to the top of the Muskwa Shale ranges from 6,300 to 10,200 feet, averaging 8,000 feet for the prospective area. The Muskwa/Otter Park shale is moderately over-pressured in the center of the basin. The organically-rich gross thickness of 420 feet covers much of the overall Muskwa/Otter Park interval of 500 feet, with a net thickness of 380 feet. Total organic content (TOC) in the prospective area averages 3.5% (by wt.) for the net shale thickness investigated. Thermal maturity (R o ) is high, averaging about 3.8%, placing this shale gas in the dry gas window. Because of the high thermal maturity (high R o ) in the prospective area, the gas has a CO 2 content of 10%. The Muskwa/Otter Park Shale has a high quartz/low clay content, favorable for hydraulic stimulation. Evie/Klua (Middle Devonian). The Middle Devonian Evie/Klua black shale, the lower
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World Shale Gas Resources: An Initial Assessment

shale interval within the Horn River Group, provides a secondary shale gas target in the Horn River Basin. The top of the Evie/Klua shale is approximately 500 feet below the top of the Muskwa/Otter Park Shale, separated by an organically lean rock interval. The organically-rich Evie/Klua shale thickness, with an average TOC of 3.5%, is about 160 feet (gross) and 144 feet (net). Thermal maturity (R o ) is high, at about 3.8%, placing this shale gas in the dry gas window, with potential for the presence of CO 2 . The Evie/Klua Shale has a low clay content. Other Shales. The Horn River Basin also contains two shallower shales - - the Upper Devonian/Lower Mississippian Exshaw Shale and the Late Devonian Fort Simpson Shale. The Exshaw Shale, while rich in TOC (5%) is relatively thin (10 to 30 feet). The shallower portions of the Exshaw Shale appear to be in the gas condensate window. The massively thick Fort Simpson shale, with an interval of 2,000 to 3,000 feet, is organically lean (TOC <1%). Because of less favorable reservoir properties and limitations of data, these two shale units have not been included in the assessment. Resources. The prospective area for both the Horn River Muskwa/Otter Park and Within this prospective area, the Horn River

Evie/Klua shales is approximately 3,320 mi2.

Muskwa/Otter Park shales have a rich resource concentration of about 152 Bcf/mi2. As such, the risked gas in-place is 378 Tcf. Based on favorable reservoir mineralogy and other

properties, we estimate a risked technically recoverable shale gas resource of 132 Tcf in the Muskwa/Otter Park Shale. The thinner Evie/Klua Shale has a resource concentration of 55 Bcf/mi2, and 110 Tcf of risked gas in-place with 33 Tcf as risked technically recoverable, Table I-1. Activity. The gas processing capacity in the Horn River Basin is being expanded to provide improved market access to shale gas production from this basin. For example, the Cabin Gas Plant, with 800 MMcfd of capacity, is due on stream in Q3 of 2012 and the Fort Nelson Gas Plant is being expanded to 1 Bcfd. Pipeline infrastructure is also being expanded to bring the gas south to the Deep Basin and then to the Kitimat LNG export plant on the Pacific coast of British Columbia, due on line in 2014. A 287-mile Pacific Trail Pipeline would connect the Kitimat LNG export plant with Spectra Energys West Coast Pipeline System, Figure I-4. The Kitimat LNG terminal has an announced send-out capacity of 5 million tons of LNG per year.

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World Shale Gas Resources: An Initial Assessment

Figure I-4. Horn River LNG Export Pipeline and Infrastructure

A number of major and independent companies are active in the Horn River Shale Play. For example, EnCana plans to drill 41 long horizontal wells as part of their 2010 joint program with Apache to achieve a year-end exit rate of 100 MMcfd, net to EnCana. Devon is in the early stages of de-risking its 170,000 net acre lease position, projected to hold nearly 10 Tcfe of net risked resource. The company plans to drill 7 horizontal wells in 2010. EOG has acquired a 157,000 net acre lease position, with potential recoverable resources of 9 Tcf. Its two significant pilot/development areas have booked 850 Bcf of proved reserves, as of the end of 2009. Quicksilver has a 130,000 net acre lease position with a projected recoverable resource potential of over 10 Tcf. Nexen has drilled 18 horizontal wells, establishing production capacity of 100 MMcfd.

Co rd o va Em b a ym e n t
Geologic Characterization. The Cordova Embayment covers an area of 4,290 mi2 in the extreme northeastern corner of British Columbia, extending into the Northwest Territory. It
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World Shale Gas Resources: An Initial Assessment

is separated from the Horn River Basin on the west by the Slave Point Platform. Its northern and southern boundaries are defined by a thinning of the shale. Its eastern boundary is a facies change along the British Columbia and Alberta borders. The dominant shale gas formation, the Muskwa/Otter Park Shale was mapped to establish the 2,850 mi2 prospective area with minimum thickness for favorable shale gas development, Figure I-5. Reservoir Properties (Prospective Area) Muskwa/Otter Park. The Middle Devonian Muskwa/Otter Park Shale is the main shale gas target in the Cordova Embayment. The drilling depth to the top of the Muskwa Shale in this basin ranges from 5,500 to 6,200 feet, averaging 6,000 feet in the prospective area. The reservoir pressure is normal. The organically-rich gross thickness is 230 feet, with a net

thickness of 207 feet. Total organic content (TOC) in the prospective area is 2.5% for the net shale thickness investigated. Thermal maturity averages 2.0% R o , placing the shale in the dry gas window. The Muskwa/Otter Park Shale has a moderately high quartz content, favorable for hydraulic stimulation. Other Shales. The deeper, relatively thin Evie/Klua Shale is separated from the

overlying Muskwa/Otter Park by the Slave Point and Sulfur Point Formations, Figure I-6. The overlying Exshaw and Fort Simpson shales are shallower, thin or low in organics. These shales have not been included in the assessment. Resources. The prospective area of the Cordova Embayment Muskwa/Otter Park

Shale is approximately 2,850 mi2. Within this prospective area, the shale has a moderate resource concentration of 61 Bcf/mi2. As such, the shale gas in-place is 83 Tcf risked. Based on favorable reservoir mineralogy and other properties, we estimate a risked technically recoverable shale gas resource of 29 Tcf for the Cordova Embayment, Table I-1. Activity. Nexen has acquired a 38,000-acre lease position in the Cordova Embayment and has drilled one new exploration well. Penn West Energy Trust and Mitsubishi have formed a joint venture to develop the estimated 5 to 7 Tcf of recoverable shale gas resources on their 120,000-acre (gross) lease area, planning to drill 5 wells in 2010.

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World Shale Gas Resources: An Initial Assessment

Figure I-5. Cordova Embayment (Muskwa/Otter Park Shale) Outline and Prospective Area

Figure I-6. Cordova Embayment Stratigraphic Column

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World Shale Gas Resources: An Initial Assessment

Lia rd Ba s in
Geologic Characterization. The Liard Basin covers and area of 4,300 mi2 in northern British Columbia. Its eastern border is defined by the Bovie Fault, which separates the Liard Basin from the Horn River Basin, Figure I-7. Its northern boundary is currently defined by the British Columbia and the Yukon/Northwest Territories border. boundaries are defined by structural folding. Figure I-7. Liard Basin Location, Cross Section and Prospective Area Its western and southern

The dominant shale gas formation in the Liard Basin is the Middle Devonian-age Lower Besa River Shale, equivalent to the Muskwa/Otter Park and Evie/Klua shales in the Horn River Basin. Additional, less organically-rich and less prospective shales exist in the basins Upper Devonian- and Mississippian-age shales, such as the Middle Besa River Shale (Fort Simpson equivalent) and the Upper Besa River Shale (Exshaw/Banff equivalent), see Figures I-3 and I-8. The prospective area for the Lower Besa River Shale covers a 1,940 mi2 area along the eastern portion of the basin, Figure I-9.

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World Shale Gas Resources: An Initial Assessment

Figure I-8. Liard Basin Stratigraphic Cross Section

Source: D. W. Morrow and R. Shinduke, Liard Basin, Northeast British Columbia: An Exploration Frontier, Geological Survey of Canada (Calgary), Natural Resources Canada

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World Shale Gas Resources: An Initial Assessment

Figure I-9. Liard Basin and Prospective Area (Lower Besa River Shale)

Reservoir Properties (Prospective Area) Middle Devonian (Lower Besa River). The Lower Besa River organically-rich shale is the main shale gas target in the Liard Basin. Drilling depths to the top of the formation in the prospective area range from 6,600 to 12,300 feet, averaging about 9,000 feet. The organicallyrich Lower Besa River section has a gross thickness of 630 feet and a net thickness of 441 feet. Total organic content (TOC) in the prospective area can reach as high as 5%, averaging 3.5% for the net shale interval investigated. The thermal maturity of the prospective area is high, with an average R o of 3.8%. The geology of the Besa River Shale is complex, with numerous faults and thrusts. The Lower Besa River Shale is quartz-rich (40% to >80%), with episodic intervals of dolomite and more pervasive intervals of clay. Resources. The Liard Basins Lower Besa River Shale has a high resource

concentration of 161 Bcf/mi2. Given a prospective area of 1,940 mi2, the risked shale gas inplace is approximately 125 Tcf. Based on relatively favorable reservoir mineralogy but

significant structural complexity, we estimate a risked technically recoverable shale gas resource of 31 Tcf for the Liard Basin, Table I-1.
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World Shale Gas Resources: An Initial Assessment

Exploration Activity. Transeuro Energy Corp. and Questerre Energy Corp., two small Canadian operators. have drilled and completed three exploration wells producing from the Besa River and Mattson shale/siltstone intervals at the Beaver River Field. The gas is being sold into the existing gas gathering and pipeline system, initially built for the conventional gas play in this area. In addition, Nexen has recently acquired a large 170,000-acre lease position in this basin.

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World Shale Gas Resources: An Initial Assessment

De e p Ba s in
Geologic Characterization. The Deep Basin of Alberta and British Columbia covers a massive area of over 54,000 mi2 along the border of Alberta and British Columbia, Figure I-10. The basin contains the Montney and Doig Phosphate Resource plays, two large, multidepositional Triassic-age hydrocarbon resource accumulations containing over 1,000 Tcf of gas in-place in conventional gas formations, tight gas sands and shale gas. (Separately, for a

private study, Advanced Resources previously assessed the Montney tight gas sand resource in-place at over 500 Tcf). A critical step for assessing the Montney Resource Play is establishing where to draw the demarcation line between the shale gas and the tight gas resource areas. For this study, we have designated the areas west of the Deformation Front as shale gas dominant and the areas east of the Deformation Front as tight gas dominant, Figure I-11. The Montney Resource Play is overlain by the Middle Triassic-age Doig Formation, incorporating the Diog Phosphate shale gas play, which reaches prospective thickness in the western portion of the Deep Basin. Reservoir Properties (Prospective Area) Montney Shale (Lower Triassic). The Lower Triassic Montney Shale covers a

prospective area of approximately 1,900 mi2 on the northwestern edge of the Deep Basin, Figure I-12. Drilling depth to the top of the Upper Montney Shale ranges from 3,000 to 9,000 feet, averaging 6,000 feet for the prospective area. The interval from the top of the Upper Montney to the base of the Lower Montney encompasses up to 1,000 feet, with an extensive 100- to 500-foot interval separating the two units, Figure I-13. The organically-rich gross

thickness for the Montney Shale averages 400 feet, with a net thickness of 240 feet. The total organic content in the prospective area averages 3% for the net shale thickness. The thermal maturity (R o ) ranges from about 1.3% on the eastern edge of the shale play to 2.0% on the western edge, placing the shale into the dry gas window. The Montney Shale has a favorable quartz to clay ratio, making the formation attractive for hydraulic fracturing.

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World Shale Gas Resources: An Initial Assessment

Figure I -10. Deep Basin, Montney Resource Play, Base Map

Figure I -11. Montney and Doig Resource Plays, Stratigraphy

Advanced Montney Well Completion

W
o Fo lls th i

E
La ke
o ws Da n

an Sw

Halfway Doig Doig Phosphate

Post-Triassic Unconformity

Upper Montney

Montney

Lower Montney

Belloy
JAF020 54.CD

Black Marine Shale

Modified from Tristone Shale Gas Report October 2008

Siltstone, Sands and Shales

Conventional Sands

JAF028245.PPT

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World Shale Gas Resources: An Initial Assessment

Figure I -12. Deep Basin, Montney Shale Prospective Area

0

Figure I-13. Cutback Ridge Montney Type Log

Gr1
( GA PI )

10 5

Pay MD

30 221 0

PhiNls
( %)

0 30 271 0

PhiE
( %)

0 0

Swa
( %)

10 0

RhoB
( K / M3 )

Porosity

GasSaturation

GR
_ __

Neutron Density 2,431m

1 :500 Feet

Porosity

Gas Saturation

Upper Montney

___

____

2500 _____

______

Mid Montney

2600

_______

Lower Montney

________

2700

2,742m
________ _

Depth 2,300 to 3,000m

JAF21312.AI

Source: EnCana Corporation (2009)

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World Shale Gas Resources: An Initial Assessment

Doig Phosphate Shales (Middle Traissic). The Middle Triassic Doig Phophate play has a thick section of organically rich shale along the western edge of the Deep Basin that forms the prospective area, Figure I-14. Drilling depth to the top of the Doig Phosphate Shale averages 9,250 feet. The organic-rich Doig Phosphate ranges from 130 to 200 feet thick with a net thickness of 150 feet in the western prospective area. The thermal maturity (R o 1.1%) places the shale in the wet gas window. The total organic contact is moderate to high, averaging 5% within the Doig Phosphate Shale. X-ray diffraction of cores taken from the Doig Phosphate Formation show significant levels of quartz with minor to moderate illite clay and trace to minor amounts of pyrite and dolomite, making the formation favorable for hydraulic fracturing. Figure I-14. Doig Resource Play, Doig Phosphate Prospective Area

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World Shale Gas Resources: An Initial Assessment

Resources. The prospective area for the Montney Shale is estimated at 1,900 mi2 and the prospective area of the Doig Phosphate Shale is estimated at 3,000 mi2. Within these prospective areas, the shales have moderately-rich resource concentrations of about 100 Bcf/mi2 for the Montney Shale and 67 Bcf mi2 for the Doig Phosphate Shale. As such, the risked shale gas in-place is 141 Tcf for the Montney Shale and 81 Tcf for the Doig Phosphate Shale. Based on favorable mineralogy and a compact package of shale, we estimate a risked technically recoverable shale gas resource of 49 Tcf for the Montney Shale and 20 Tcf for the Doig Phosphate Shale. Exploration Activity. A significant number of wells have been drilled into the Montney and Doig Resource plays. The bulk of the wells have targeted the clastic- and siltstone-rich tight gas intervals sourced by the organically-rich shales. An extensive system of existing gas pipelines link the Deep Basin to Canadian and U.S. natural gas markets.

Co lo ra d o Gro u p
Geologic Characterization. The Colorado Group Shales cover a massive, 124,000 mi2 square mile area in southern Alberta and southeastern Saskatchewan. The western boundary of the Colorado Group is the Canadian Rockies Overthrust. The northern and eastern

boundaries are defined by shallow shale depth and loss of net pay. The southern boundary is the U.S./Canada border. The Colorado Group encompasses a thick, Cretaceous-age sequence of sands, mudstones and shales. Within this sequence are two shale formations of interest for natural gas development - - the Fish Scale Shale Formation in the Lower Colorado Group and the Second White Speckled Shale Formation in the Upper Colorado Group, Figure I-15. We selected the 5,000 to 10,000 foot depth contours for defining the prospective area, to capture the potential for both thermogenic as well as biogenic gas generation, Figure I-16. Reservoir Properties (Prospective Area). In the prospective area, the depth to the Second White Speckled (2WS) and the Fish Scale shales ranges from 5,000 feet near Medicine Hat (on the east) to over 10,000 feet in the west. The Fish Scale Shale is generally about 200 feet deeper than the 2WS. The interval from the top of the 2WS to the base of the Fish Scales Shale ranges from 300 feet in the east to over 1,000 feet in the west, with an organically-rich gross pay of 523 feet. We assume a conservative net to gross ratio of 20%. Much of the Colorado Group Shale appears to be underpressured at about 0.25 to 0.3 psi/ft. The total organic carbon content of the shale ranges from 2% to 3%. In the prospective area, the thermal
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World Shale Gas Resources: An Initial Assessment

maturity of the shale is low (R o of 0.4% to 0.8%). However, the presence of biogenic gas plus some low-temperature cracking of kerogen appear to have provided adequate volumes of gas generation in the deeper portions of the basin. The rock mineralogy appears to be low to moderate in clay (ductile clays and other materials of 31%) and thus favorable for hydraulic fracturing. Resources. The potentially prospective area of the Colorado Group shale is 48,750 mi2, covering much of southwestern Alberta. Within this prospective area, the shale has a relatively low gas concentration of 21 Bcf/mi2. The shale gas in-place is 408 Tcf risked. Based on

potentially favorable shale mineralogy, but other less favorable reservoir properties such as lower pressure and an uncertain gas charge, we estimate a risked technically recoverable shale gas resource of 61 Tcf for the Colorado Group, Table I-1. Exploration Activity. To date, the Colorado Group Shales have seen only limited

exploration and development, primarily in the shallower eastern portion of the play area.

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World Shale Gas Resources: An Initial Assessment

Figure I-15. Colorado Group Stratigraphic Column

Period Epoch Central Plains
Belly River

Figure I-16. Colorado Group, Prospective Area

Southern Plains
Belly River

White Speckled Shale

Medicine Hat

Upper

Group

Upper

Cretaceous

Second White Speckled Shale

Group
Barons Ss
Viking Joli Fou

Fish Scales Shale

Colorado Colorado Lower

Lower

Basal Colorado

Bow Island Joli Fou

Mannville Group

Mannville Group
JAF02061.CDR

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World Shale Gas Resources: An Initial Assessment

EAS TERN CANADA

Eastern Canada has four potential shale gas plays, namely - - the Utica and Lorraine shales in the St. Lawrence Lowlands of the Appalachian Fold Belt of Quebec, the Horton Bluff Shale in the Windsor Basin of northern Nova Scotia, and the Frederick Brook Shale in the Moncton Sub-Basin of the Maritimes Basin in New Brunswick. These three shale gas basins are in an early exploration stage. Therefore, only preliminary shale gas resource assessments are offered for the Utica and Horton Bluff shales. Insufficient information exists for assessing the Lorraine and Frederick Brook shales. The two assessed Eastern Canada shale gas basins contain 164 Tcf of risked gas inplace. (The Canadian Society for Unconventional Gas (CSUG) cites an OGIP for The risked, technically unconventional gas of 181 Tcf (unrisked) for the Utica Shale. 2)

recoverable resources for these two basins are estimated at 33 Tcf, Table I-2. Table I-2. Gas Shale Reservoir Properties and Resources of Eastern Canada
Basic Data
Basin/Gross Area Shale Formation Geologic Age
2

Appalachian Fold Belt (3,500 mi) Utica Ordovician

Windsor Basin (650 mi) Horton Bluff Mississippian 524 500 - 1,000 500 300 3,000 - 5,000 4,000 Normal 5.0% 2.00% Unknown 82 9 2

2,900 Prospective Area (mi ) Interval 1,000 - 3,000 Thickness (ft) Organically Rich 1,000 Net 400 Interval 4,000 - 11,000 Depth (ft) Average 8,000 Reservoir Pressure Slightly Overpressured Average TOC (wt. %) 2.0% Thermal Maturity (%Ro) 2.00% Clay Content Low GIP Concentration (Bcf/mi2) Risked GIP (Tcf) Risked Recoverable (Tcf) 134 155 31

S t. La wre n c e Lowla nd s Ba s in (Que b e c )/Utic a S ha le

Geologic Characterization. The Utica Shale is located within the St. Lawrence

Lowlands and Gaspe Peninsula of the Appalachian Fold Belt in Quebec, Canada, Figure I-17. The Utica is an Upper Ordovician-age shale, located above the conventional Trenton-Black River Formation, Figure I-18. A second, less defined, thicker but lower TOC Lorraine Shale
February 17, 2011

Resource

Reservoir Properties

Physical Extent

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World Shale Gas Resources: An Initial Assessment

overlies the Utica. Because of limited data, the Lorraine Shale play is not included in this assessment. Figure I-17. Utica Shale Outline and Prospective Area

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World Shale Gas Resources: An Initial Assessment

Figure I-18. Utica Shale Stratigraphy

Source: L. Smith AAPG, AAPG Bulletin, v. 90, no. 11 (November 2006), pp. 16911718
JAF21299.AI

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World Shale Gas Resources: An Initial Assessment

Reservoir Properties (Prospective Area). The Utica Shale in Quebec is structurally much more complex than the Utica Shale in the Appalachian Basin of New York. Three major faults - - Yamaska, Tracy Brook and Logans Line - - form structural boundaries and partitions for the Utica Shale play in Quebec. The extensive faulting and thrusting in the shale introduces considerable exploration and completion risk. The depth to the top of the shale in the

prospective area ranges from 3,000 to over 11,000 feet, shallower along the southwestern and northwestern boundaries and deeper along the eastern boundary. The thickness of the Utica Shale interval ranges from 1,000 feet to over 3,000 feet, with an organically rich gross interval of 1,000 feet. With a net-to-gross ratio of 40%, the net organic-rich shale is estimated at 400 feet. The total organic content (TOC) ranges from 1% to 3%, with the higher TOC values concentrated in the Upper Utica Shale. The thermal maturity is high, ranging from R o of 1.1% to 4% and averaging 2%, placing the shale mostly in the dry gas window. Data on quartz and clay contents are not publicly available. Resources. The prospective area of the Utica Shale in Quebec is estimated at 2,900 mi2. Within this prospective area, the shale has a rich gas concentration of 134 Bcf/mi2. As such, the risked shale gas in-place is 155 Tcf. With moderate clay content, but severe geologic complexity within the prospective area, we estimate a risked technically recoverable shale gas resource of 31 Tcf for the Utica Shale. Exploration Activity. Two significant size operators, Talisman and Forest Oil, plus numerous smaller companies such as Questerre, Junex, Gastem and Molopo, hold leases in the Utica Shales of Quebec. Approximately 25 exploration wells have been drilled with

moderate results. Market access is provided by the Maritimes and Northeastern pipeline as well as the TransCanada Pipeline to markets in Quebec City and Montreal.

Win d s o r b a s in (No va S c o tia )/Ho rto n Blu ff S h a le

Geologic Characterization. The Horton Bluff Shale is located in north-central Nova Scotia. It is an Early Mississippian Shale within the Horton Group, Figure I-19. Because the Horton Bluff Shale rests directly on the pre-Carboniferous, igneous and metamorphic basement, it has experienced high heat flow and has a high thermal maturity (R o of 1.5% to 2.5%) in northern Nova Scotia. The Horton Bluff Shale geology is complex and faulted.

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World Shale Gas Resources: An Initial Assessment

Figure I-19. Horton and Frederick Brook Shale (Horton Group) Stratigraphy

Source: Mukhopadhyay, 2009

JAF21298.AI

Reservoir Properties (Prospective Area). The regional extent of the Horton Shale play is only partly defined as the basin and prospective area boundaries are highly uncertain. A preliminary outline and prospective area of 524 mi2 for the Horton Bluff Shale play is provided in Figure I-20. The depth of the prospective area ranges from 3,000 to 5,000 feet. The shale interval is on the order of 500 to 1,000 feet thick with 500 feet of organic-rich gross pay and 300 feet of net pay. The TOC is 4% to 5% (locally higher). The thermal maturity of the prospective shale area ranges from an R o of 1.1% in the south to an R o of over 2.5% in the northeastern portion of the area, placing the bulk of the Horton Bluff Shale in the dry gas window. Data from the Kennetcook #1, drilled to test the Horton Bluff shale in the Windsor Basin provided a portion of the data on reservoir properties.

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World Shale Gas Resources: An Initial Assessment

Figure I-20. Preliminary Outline and Prospective Area for Horton Bluff Shale (Nova Scotia)

Resource. The potentially prospective area of the Horton Bluff Shale in Nova Scotia is 524 mi , covering the northern and eastern portions of the play area. Within this prospective area, the shale has a resource concentration of 82 Bcf/mi2. As such, our preliminary estimate is 9 Tcf of risked shale gas in-place. Given the geologic complexity in the prospective area, we estimate a risked technically recoverable shale gas resource of 2 Tcf for the Horton Bluff Shale. Exploration Activity. Two small operators, Triangle Petroleum and Forent Energy,
2

have acquired leases and have begun to explore the Horton Bluff Shale.

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World Shale Gas Resources: An Initial Assessment

Mo n c to n S u b -Ba s in (Ne w Bru n s wic k)/Fre de ric k Bro o k S ha le

The Frederick Brook Shale is located in the Moncton Sub-Basin of the larger Maritimes Basin of New Brunswick, Figure I-21. This Mississippian-age shale is correlative with the

Horton Group in Nova Scotia, Figure I-19. The Moncton Sub-Basin is bounded on the east by the Caledonia Uplift, on the west by the Kingston Uplift and on the north by the Westmoreland Uplift, Figure I-22. Because of limited data, the definition of the prospective area of the

Frederick Brook Shale has not yet been established. The Frederick Brook Shale is structurally complex, with extensive faulting and deformation. Its depth ranges from about 3,000 feet along the basins eastern edges to 15,000 feet in the north. The total organic content of the shale ranges widely, from 1% to 10% and typically from 3% to 5%. No data are available on the mineralogy of the shale. The shales thermal maturity ranges from immature R o < 1% in the shallower portions of the basin to highly mature (R o > 2%) in the deeper western and southern areas. Figure I-21. Location of the Moncton Sub-Basin

MARITIMES

Moncton Sub-Basin

Source: Geological Survey of Canada, 2009 CSPG CSEG CWLS Convention, Canada

JAF21297.AI

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World Shale Gas Resources: An Initial Assessment

Much of the data for this preliminary assessment of the Frederick Brook Shale is from the McCully gas field along the southwestern edge of the Moncton Sub-Basin and from a handful of vertical exploration wells. Other area, such as the Cocagne Sub-Basin, Figure I-22, may also be prospective for the Frederick Brook Shale but have yet to be explored or assessed. Figure I-22. Structural Controls for Moncton Sub-Basin (New Brunswick) Canada

Source: P.K. Mukhopadhyay, Search and Discovery Article #10167 (2008)

JAF21296.AI

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World Shale Gas Resources: An Initial Assessment

Na tu ra l Ga s P ro file
Canada is a major producer and a net exporter of natural gas. In 2009, Canada

produced 5,697 Bcf of natural gas, making it the worlds third largest producer of this resource. Canada consumed 3,342 Bcf and exported 2,758 Bcf to the U.S. in 2009. Overall natural gas production in 2009 declined by nearly 6% from 2008, with gas exports to the U.S. dropping below 3 Tcf for the first time in this decade. Much of Canadas natural gas production is concentrated in the Western Canada Sedimentary Basin, particularly in the province of Alberta. Conventional natural gas production in Canada has been steadily declining, with coalbed methane, tight gas and more recently shale gas production helping stem the decline. Canadas proved reserves of natural gas, which had been declining steadily, stabilized at 58 Tcf in 2009. Canadas natural gas pipeline system is highly interconnected with the U.S. Within

Canada, TransCanada Pipeline operates a 25,600-mile network including the 13,900-mile, 10.6 Bcfd Alberta System and the 8,900-mile, 7.2 Bcfd Canadian Mainline. Spectra Energy operates a 3,540-mile, 2.2 Bcfd pipeline system connecting western Canada gas supply regions with markets in the U.S. and Canada. Spectra Energy also operates the Maritimes and Northeast Pipeline linking eastern Canada gas supply with markets in the eastern U.S.

REFERENCES
Adams, C., British Columbia, A Leading Canadian Oil and Gas Province, New Shale Gas Opportunities in the Horn River Basin, Montney and Other Basins, British Columbia Ministry of Energy, Mines and Petroleum Resources, presented at NAPE 2010, February 20, 2010, Houston, Texas.

Dawson, F.M., Unconventional Gas in Canada, Opportunities and Challenges, Canadian Society for Unconventional Gas, Service Sector Workshop, June 22, 2010.

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World Shale Gas Resources: An Initial Assessment

II.

MEXICO

INTRODUCTION
Thick, organic-rich and thermally mature source rock shales of Jurassic- and Cretaceous-age occur in northeast and east-central Mexico, along the countrys onshore portion of the Gulf of Mexico Basin, Figure II-1. These shales are time-correlative with gas productive shales in the United States, including Eagle Ford, Haynesville, Bossier and Pearsall shales. 1 However, compared with the shale belts of Texas and Louisiana, Mexicos coastal shale zone is narrower, less continuous and structurally much more complex. Regional compression and thrust faulting related to formation of the Sierra Madre Ranges has narrowed Mexicos coastal plain, creating a series of partly prospective, discontinuous sub-basins. 2 Many of

Mexicos largest conventional oil and gas fields have been discovered here, both onshore and offshore. Conventional gas is produced mainly from sandstone reservoirs of Miocene and

Pliocene age sourced by deep, organic-rich and thermally mature Jurassic (Tithonian) and Cretaceous-age shales. exploration in Mexico. Based on regional mapping and source rock characterization, Advanced Resources (ARI) estimates that the five Mexico onshore basins assessed in this study contain approximately 2,366 Tcf of geologically risked shale gas in-place, Table II-1. An estimated 681 Tcf (risked) is judged to be technically recoverable. Structural complexity (faulting and folding), These deep source rocks are the principal targets for shale gas

excessive depth (>5,000 m), and locally thin or absent shale on paleo highs constrain the resource assessment. No shale gas leasing or exploration activity has been reported to have occurred in these five basins.

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World Shale Gas Resources: An Initial Assessment

Figure II-1. Onshore Shale Gas Basins of Eastern Mexicos Gulf of Mexico Basin. Cross-section locations are noted

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World Shale Gas Resources: An Initial Assessment

Table II-1. Shale Gas Reservoir Properties and Resources of Mexico

Basic Data
Basin/Gross Area Shale Formation Geologic Age Prospective Area (mi ) Interval Thickness (ft) Organically Rich Net Interval Depth (ft) Average Reservoir Pressure Average TOC (wt. %) Thermal Maturity (%Ro) Clay Content GIP Concentration (Bcf/mi ) Risked GIP (Tcf) Risked Recoverable (Tcf)
2 2

Burgos Basin
(24,200 mi) Eagle Ford Shale L-M Cretaceous 18,100 300 - 1,000 600 400 3,390 - 16,400 10,380 Normal 5.0% 1.30% Low 209 1,514 454

Sabinas Basin
(23,900 mi)

Tithonian Shales Eagle Ford Shale Tithonian La Casita Upper Jurassic L-M Cretaceous Late Jurassic 14,520 100 - 1,400 500 200 5,000 - 16,400 12,000 Normal 3.0% 1.30% Low 75 272 82 12,000 300 - 1,000 500 400 5,000 - 12,500 9,000 Underpressured 4.0% 1.30% Low 113 218 44 12,000 200 - 2,600 800 240 9,800 - 13,100 11,500 Underpressured 2.0% 2.50% Low 58 56 11

Resource

Reservoir Properties

Physical Extent

Basic Data

Basin/Gross Area Shale Formation Geologic Age Prospective Area (mi2) Interval Thickness (ft) Organically Rich Net Interval Depth (ft) Average Reservoir Pressure Average TOC (wt. %) Thermal Maturity (%Ro) Clay Content
2 GIP Concentration (Bcf/mi ) Risked GIP (Tcf) Risked Recoverable (Tcf)

Tampico Basin (15,000 mi) Pimienta Jurassic 14,240 16 - 650 490 245 3,300 - 10,700 6,200 Normal 3.0% 1.30% Low 63 215 65

Tuxpan Platform
(2,810 mi) Tamaulipas L-M Cretaceous 1,950 50 - 500 300 225 6,000 - 10,100 7,900 Normal 3.0% 1.25% Low 65 25 8 Pimienta Jurassic 1,950 400 - 1,000 490 245 6,600 - 10,700 8,500 Normal 3.0% 1.30% Low 72 28 8

Veracruz Basin (9,030 mi) Maltrata Upper Cretaceous 8,150 0 - 600 300 120 9,850 - 12,000 11,200 Normal 2.0% 1.50% Low/Medium 29 38 9

Resource

Reservoir Properties

Physical Extent

In April 2010 PEMEX announced plans to drill Mexicos first shale gas test well in Coahuila state sometime during this year, while in August 2010 Pemex Director General Juan Jose Suarez listed shale gas among Mexicos "great future" untapped opportunities.

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World Shale Gas Resources: An Initial Assessment

GEOLOGIC CHARACTERIZATION Re g io n a l Ge olo g y

Onshore eastern Mexico contains a series of medium-sized basins and structural highs (platforms) within the larger western Gulf of Mexico Basin. 3 These structural features contain

organic-rich marine shales of Jurassic and Cretaceous age that may be prospective for shale gas development. The accurate coastal shale belt includes the Burgos, Sabinas, Tampico, Tuxpan Platform, and Veracruz basins and uplifts. While detailed geologic maps of these areas generally are not publicly available, ARI constructed a general pattern of shale depth and thickness from a wide range of published local-scale maps and cross sections. Many of Mexicos shale basins are too deep in their center for shale gas development (>5 km), while their western portions tend to be overthrusted and structurally complex. However, the less deformed eastern portions of these basins and adjacent shallower platforms are structurally more simple. Here, the most prospective areas for shale gas development are buried at suitable depths of 1 km to 5 km over large areas. Pyrolysis geochemistry, carbon isotopic and biomarker analysis of oil and gas fields identify three major Mesozoic hydrocarbon source rocks in Mexicos Gulf Coast Basin: the Upper Cretaceous (Turonian to Santorian), Lower-Mid Cretaceous (Albian-Cenomanian), and -most importantly Upper Jurassic (Tithonian), the latter having sourced an estimated 80% of the conventional oil and gas discovered in this region. 4 These targets, particularly the Tithonian, also appear to have the greatest potential for shale gas development, Figure II-2. This section discusses the shale gas geology of the individual sub-basins and platforms along eastern Mexicos onshore Gulf of Mexico Basin. The basins discussed start in northern Mexico near Texas moving to the south and southeastern regions close to the Yucatan Peninsula.

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World Shale Gas Resources: An Initial Assessment

Figure II-2. Stratigraphy of Jurassic and Cretaceous rocks in the Gulf of Mexico Basin, Mexico and USA. Shale gas targets are highlighted.

Modified from Salvador, A. and Quezada-Muneton, J.M., 1989

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World Shale Gas Resources: An Initial Assessment

Bu rg o s Ba s in
Overview. Located in northeast-most Mexicos Coahuila state, directly south of the Rio Grande River, the Burgos Basin is the southern extension of the Maverick Basin in Texas, the latter hosting the highly productive Eagle Ford and Pearsall shale plays. The Burgos Basin covers a total area of approximately 24,200 mi2. Reservoir Properties (Eagle Ford Shale). Based on an analog with the Eagle Ford Shale in Texas, ARI considers the Eagle Ford Shale in the Burgos Basin to be Mexicos topranked shale prospect. In the western margin of the Burgos Basin the Eagle Ford Shale gross pay ranges from 100 to 300 m thick (average 200 m), Figure II-3. 5 Recognizing the sparse regional depth and thickness control on the Eagle Ford Shale in the Burgos Basin 6, we estimate a prospective area of 18,100 mi2 within the 1 km to 5 km depth window, Figure II-4, with a net organically-rich shale thickness of 400 feet. The eastern section of the basin is excluded as the shale is deeper than 5 km. Total organic content (TOC) is estimated at 5% (average) with a mean vitrinite reflectance of 1.3% R o . Because reservoir pressure data were lacking; a

hydrostatic pressure gradient (0.43 psi/ft) was assumed. The surface temperature in this region averages approximately 20C, while the geothermal gradient typically is 23C/km. Resources (Eagle Ford Shale). Within its 18,100 mi2 prospective area, the Eagle Ford Shale exhibits a high resource concentration of 210 Bcfmi2. Risked shale gas in-place is 1,514 Tcf with a risked technically recoverable resource of 454 Tcf.

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World Shale Gas Resources: An Initial Assessment

Figure II-3. Stratigraphic Cross-Section Along the Western Margin of the Burgos Basin. Section is flattened on top Cretaceous. The Eagle Ford Shale (EF) here ranges from about 100 to 300 m thick (average 200 m).

Modified from Horbury et al., 2003

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DRAFT - EIA International Shale Gas Report

Figure II-4. Burgos Basin Outline and Shale Gas Prospective Area.

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DRAFT - EIA International Shale Gas Report

Reservoir Properties (Tithonian Shale). The Upper Jurassic Tithonian Shale is the other important petroleum source rock in the Burgos Basin. Extrapolating from the structure of the younger Eagle Ford, the average depth of the Tithonian Shale is 12,000 feet, with a prospective range of 5,000 to 16,400 feet. Gross thicknesses can be up to 1,400 feet, with an organically-rich net pay of 200 feet. A moderate TOC of 3.0% and thermal maturity of 1.30% R o are estimated for the Tithonian Shale. Resources (Tithonian Shales). With a prospective area of 14,520 mi2, the Tithonian Shale of the Burgos Basin has an average resource concentration of 75 Bcf/mi2. The risked shale gas in-place is 272 Tcf with a risked technically recoverable resource of 82 Tcf.

S a b in a s Ba s in
Overview. The Sabinas is one of Mexicos largest onshore marine shale sub-basins, extending over a total area of 23,900 mi2 in the northeast part of the country, Figure II-5. The Sabinas Basin is structurally quite complex, having been deformed into a series of tight, NW-SE trending, evaporate-cored folds of Laramide origin called the Sabinas foldbelt. salt-withdrawal tectonics. 7 Much of the basin is probably too structurally deformed for shale gas development, although a small area on the northeast side of the basin is more gently folded and may be prospective. The Eagle Ford (Turonian) and the Late Jurassic La Casita Fm (Tithonian) 8 in this basin appear to be the most prospective for shale gas development (The deltaic to continental Cretaceous Olmos Shale appears to be rich in terrigenous clay and coals). Reservoir Properties (Eagle Ford Shale). The Eagle Ford Shale (Turonian) is In addition,

withdrawal of Lower Jurassic salt during early Tertiary time induced an overprint of complex

distributed across the NW, NE, and central portions of the Sabinas Basin. It consists of a 300-m thick sequence of black shales rhythmically interbedded with sandy limestone and carbonatecemented sandstone. We assume an organically-rich interval of 500 feet with 400 feet of net pay. We have used the Eagle Ford Shale in the Maverick Basin of South Texas as the analog for reservoir properties, using a TOC of 4%, a thermal maturity of 1.30% (R o ) and moderate to low gas-filled porosity. By extension of Burgos Basin data to the east, the average depth for the prospective Eagle Ford is 9,000 feet. Based on reported data, we use an underpressured gradient of 0.28 psi/ft for the Sabinas Basin.

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DRAFT - EIA International Shale Gas Report

Figure II-5. Sabinas Basin Outline and Shale Gas Prospective Area.

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Resources (Eagle Ford Shale). Within a prospective area of 12,000 mi2, the Eagle Ford Shale of the Sabinas Basin has a resource concentration of 113 Bcf/mi2. The risked shale gas in-place is estimated at 218 Tcf, with a risked technically recoverable resource of 44 Tcf. Reservoir Properties (La Casita Fm). The underlying La Casita Fm (Tithonian) is regarded as the primary hydrocarbon source rock in the Sabinas Basin, consists of organic-rich shales deposited in a deepwater marine environment. The La Popa sub-basin is one of numerous sub-basins within the Sabinas Basin, Figure II-6. 9 The La Popa is a rifted pull-apart basin that contains thick source rock shales. Up to 370 m of black carbonaceous limestone is present in the Upper Jurassic La Casita Fm (Tithonian), overlying several km of evaporitic gypsum and halite. Total shale thickness in the La Casita ranges from 60 m to 800 m. Thick (300 m), prospective La Casita Fm shales have been mapped at depths of 2,000 to 3,000 m in the central Sabinas Basin. Nearby, a thicker sequence (400-700 m) was mapped at greater depth (3,000 to 4,000 m). We assume an organically-rich interval of 800 feet with 240 feet of net pay. TOC ranges from 1.0% to 3.0%, and thermally the shale is well into the dry gas window (R o = 2 to 3%). Resources (La Casita Fm). Uncertainty of reliable formation depths along the edges of the Sabinas limited our estimate of the prospective area to 12,000 mi2 for the La Casita Fm. With gas in-place concentrations for the La Casita Fm at 58 Bcf/mi2, the risked shale gas inplace is 56 Tcf, with a risked technically recoverable resource of 11 Tcf.

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Figure II-6. Geologic Map of the La Popa Sub-Basin, Southeastern Portion of the Sabinas Basin. Note the numerous detachment and salt-controlled folds.

Source: Hudson and Hanson, 2010.

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Ta m p ic o Ba s in
Overview. Bounded on the west by the fold-and-thrust belt of the Sierra Madre Oriental (Laramide) and on the east by the Tuxpan platform, the Tampico-Mizatlan Basin extends north from the Santa Ana uplift to the Tamaulipas arch north of Tampico. At the northern margin of the basin is an arch, limited by a series of faults extending south from the Tamaulipas arch. In the southern Tampico Basin, the Pimienta Shale is at a prospective depth of 1,400 to 3,000 m. Three structures dominate this area. The NE-SW trending Piedra de Cal anticline in southwest Bejuco area is about 40 km long with a Pimienta Shale cresting at 1,600-m depth. The SW-NE trending Jabonera syncline in southeast Bejuco is about 20 km long, with a maximum shale depth of 3,000 m in the east and a minimum of about 2,400 m in the west. A system of faults defines the Bejuco field in the center of the area. Two large areas (Llano de Bustos and La Aguada) remained emergent and lack upper Tithonian shale deposits. Reservoir Properties (Pimienta Fm). Near the city of Tampico, some 50 conventional wells have penetrated organic-rich Upper Jurassic (Tithonian) Pimienta Fm shales at depths of about 1,000 to 3,000 m, Figure II-7. Detailed shale thickness data are not available, but the Pimienta Fm here generally ranges from 200 m thick to as little as 10 m thick on paleo highs. We estimate an average net shale thickness of 245 feet for the prospective area. Average net shale TOC is estimated at 3%, with a thermal maturity of 1.3% Ro. Resources (Pimienta Fm). Bcf/mi2. Excluding the paleo highs, the prospective area of the

Pimienta Shale is 14,240 mi2 in the Tampico Basin. The resource concentration averages 63 We estimate a risked shale gas in-place of 215 Tcf, with a risked technically

recoverable resource of 65 Tcf.

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Figure II-7. Potentially Prospective Pimienta Formation (Tithonian) Shale, Tampico Basin.

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Tu xp a n P la tfo rm
Overview. This feature southeast of the Tampico Basin is a subtle basement high capped with a well-developed Early Cretaceous carbonate platform. 10 A particularly prospective and relatively well defined shale gas deposit is located in the southern Tuxpan Platform. Approximately 50 km south of the city of Tuxpan, near Poza Rica, a dozen or so conventional petroleum development wells in the La Mesa Syncline area penetrated thick organic-rich shales of the Pimienta (Tithonian) and Tamaulipus (Lower Cretaceous) Formations. 11 A detailed crosssection of the Tuxpan Platform shows thick. Lower Cretaceous and Upper Jurassic source rocks dipping into the Gulf of Mexico Basin, Figure II-8. These source rocks reach prospective depths of 2,500 m. Reservoir Properties (Tamaulipas Fm). The Lower Cretaceous Tamaulipas Fm spans a depth range of 6,000 to 10,100, averaging 7,900 feet. The gross interval averages 500 feet while the net organically-rich pay is 225 feet. TOC in the Tamaulipas Fm is estimated at 3.0%. The thermal maturity is slightly lower than for the deeper Pimienta, at 1.25% R o . Resources (Tamaulipas Fm). Given limited data on the younger Tamaulipas Fm, the

prospective area of the Pimienta Shale was used, limiting the area to 1,950 mi2, Figure II-9. The shallower Tamaulipas Shale is estimated to hold about 65 Bcf/mi2 with a risked shale gas inplace of 25 Tcf. The Tamaulipas Fm has a risked technically recoverable resource of 8 Tcf. Reservoir Properties (Pimienta Fm). The Pimienta Shales range from 140 to 350 m thick, is 2,400 to 3,300 m deep, and is prospective for shale gas development across a nearly 80-km long trend. However, southeast of Poza Rica some areas have thin to absent shale, probably due to submarine erosion or lack of deposition. The gamma ray log response in the organic-rich Pimienta shale indicates high TOC. Resources (Pimienta Fm).
2

In the Tuxpan Platform, the prospective area of the

Pimienta Fm shale is 1,950 mi . Greater depth pushes the resource concentration to 72 Bcf/mi2 and the risked shale gas in-place to 28 Tcf. The risked technically recoverable of the Pimienta Shale equals 8 Tcf.

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Figure II-8. Detailed Cross-Section of the Tuxpan Platform in East-Central Mexico Showing Thick Lower Cretaceous and Upper Jurassic Source Rocks Dipping into the Gulf of Mexico Basin.

Modified from Salvador 1991c

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Figure II-9. Potentially Prospective Shale Gas Area of the Tuxpan Platform.

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Ve ra c ru z Ba s in
Overview. The Veracruz Basin extends over a total area of about 9,030 mi2 onshore near its namesake city. The basins western margin is defined by thrusted Mesozoic carbonates (early Tertiary Laramide Orogeny) of the Cordoba Platform and Sierra Madre Oriental, Figure II10. The basin is asymmetric in cross section, with gravity showing the deepest part along the western margin. The basin comprises several major structural elements, from west to east: the Buried Tectonic Front, Homoclinal Trend, Loma Bonita Anticline, Tlacotalpan Syncline, Anton Lizardo Trend, and the highly deformed Coatzacoalcos Reentrant in the south. 12 Reservoir Properties (Upper Cretaceous Maltrata Fm). The Upper Cretaceous (Turonian) Maltrata Formation is a significant source rocks in the Veracruz Basin, with up to 80 m of shaly marine limestones and TOC exceeding 2%. Currently the Maltrata is in the late oilto-gas preservation window, with R o of 1.0% to 1.3%. Resources (Upper Cretaceous Maltrata Fm). Assuming that 90% of the Veracruz Basin is in a favorable depth range, the prospective area of the Upper Cretaceous Maltrata Fm of the Veracruz Basin is 8,150 mi2. ARI estimates a relatively low resource concentration of 29 Bcf/mi2, resulting in a risked shale gas in-place of 38 Tcf. The risked technically recoverable resource is estimated at 9 Tcf.

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Figure II-10. Veracruz Basin Outline and Shale Gas Prospective Area.

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NATURAL GAS P ROFILE

Mexico produced 1.84 Tcf of natural gas in 2008 and consumed 2.36 Tcf, 13 Mexicos Gulf of Mexico Basin is the countrys main petroleum producing area, with approximately 12.7 Tcf of proved natural gas reserves as of 2010. The Southern Region of Mexico includes the majority of the reserves though the Northern Region is expected to grow as unconventional prospects are explored. With an estimated total 681 Tcf of technically recoverable resources, shale gas could greatly expand Mexicos existing natural gas reserves. State-owned Pemex operates more than 5,700 miles of natural gas pipelines across Mexico as well as much of the distribution network. There are currently ten active import

connections with the United States, which saw 338 Bcf of U.S. imports to Mexico and 28.3 Bcf of Mexicos gas exports to the U.S. in 2009.

EXP LORATION ACTIVITY

Despite the close proximity of successful shale gas plays in the USA, such as the Eagle Ford Shale in South Texas, no shale gas exploration drilling has yet occurred in Mexico. The national oil company PEMEX plans to drill the countrys first shale gas test well sometime later this year, very likely targeting the Eagle Ford Shale in Coahuila state.

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REFERENCES
1

Salvador, A. and Quezada-Muneton, J.M., 1989. Stratigraphic Correlation Chart, Gulf of Mexico Basin. In The Geology of North America, Vol. J, The Gulf of Mexico Basin. The Geological Society of America, 1991, p. 131-180. Mello, U.T. and Karner, G.D., 1996. Development of Sediment Overpressure and Its Effect on Thermal Maturation: Application to the Gulf of Mexico Basin. American Association of Petroleum Geologists, vol. 80, no. 9, p. 1367-1396. Salvador, A., 1991a. Plate 3 : Structure at Base and Subcrop Below Mesozoic Marine Sections, The Gulf of Mexico Basin. The Geology of North America, Vol. J, The Gulf of Mexico Basin. The Geological Society of America. Guzman-Vega, M.A., Castro Ortiz, L., Roman-Ramos, J.R., Medrano-Morales, L., Valdez, L.C., Vazquez-Covarrrubias, E., and Ziga-Rodriguez, G., 2001. Classification and Origin of Petroleum in the Mexican Gulf Coast Basin: an Overview. In Bartolini, C., Buffler, R.T., Cant-Chapa, A. (Eds.), The Western Gulf of Mexico Basin: Tectonics, Sedimentary Basins and Petroleum Systems. American Association of Petroleum Geologists, Memoir 75, pp. 127-142. Horbury, A. D., Hall, S., Gonzalez, F.., Rodrguez, D., Reyes, A., Ortiz, P., Martnez, M., and Quintanilla, G., 2003. Tectonic Sequence Stratigraphy of the Western Margin of the Gulf of Mexico in the Late Mesozoic and Cenozoic: Less Passive than Previously Imagined. in C. Bartolini, R. T. Buffler, and J. Blickwede, eds., The Circum-Gulf of Mexico and the Caribbean: Hydrocarbon Habitats, Basin Formation, and Plate Tectonics. American Association of Petroleum Geologists, Memoir 79, p. 184245. Perez Cruz, G.A., 1993. Geologic Evolution of the Burgos Basin, Northeastern Mexico. Ph.D. thesis, Rice University, 577 p. Soegaard, K., Ye, H., Halik, N., Daniels, A.T., Arney, J., and Garrick, S., 2003. Stratigraphic Evolution of Latest Cretaceous to Early Tertiary Difunta Foreland Basin in Northeast Mexico: Influence of Salt Withdrawal on Tectonically Induced Subsidence by the Sierra Madre Oriental Fold and Thrust Belt. in C. Bartolini, R. T. Buffler, and J. Blickwede, eds., The Circum-Gulf of Mexico and the Caribbean: Hydrocarbon Habitats, Basin Formation, and Plate Tectonics, American Association of Petroleum Geologists, Memoir 79, p. 364394. Eguiluz de Antuano, S., 2001. Geologic Evolution and Gas Resources of the Sabinas in Northeastern Mexico. In: Bartolini, C., Buffler, R.T., Cant-Chapa, A. (Eds.), The Western Gulf of Mexico Basin: Tectonics, Sedimentary Basins and Petroleum Systems. American Association of Petroleum Geologists, Memoir 75, pp. 241270. Lawton, T.F., Vega,, F.J., Giles, K.A., and Rosales-Dominguez, C., 2001. Stratigraphy and Origin of the La Popa Basin, Nuevo Leon and Coahuila, Mexico. In C. Bartolini, R.T. Buffler, and A. Cantu-Chapa, eds., The Western Gulf of Mexico Basin: Tectonics, Sedimentary Basins, and Petroleum Systems. American Association of Petroleum Geologists, Memoir 75, p. 219-240. Salvador, A., 1991c. Plate 6 : Cross Sections of the Gulf of Mexico Basin. The Geology of North America, Vol. J, The Gulf of Mexico Basin. The Geological Society of America. Cantu-Chapa, A., 2003. Subsurface Mapping and Structural Elements of the Top Jurassic in Eastern Mexico (Poza Rica and Tampico Districts). In C. Bartolini, R.T. Buffler, and J. Blickwede, eds. The Circum-Gulf of Mexico and the Caribbean: Hydrocarbon Habitats, Basin Formation, and Plate Tectonics. American Association of Petroleum Geologists, Memoir 79, p. 51-54. Prost, G. and Aranda, M., 2001. Tectonics and Hydrocarbon Systems of the Veracruz Basin, Mexico. In C. Bartolini, R.T. Buffler, and A. Cantu-Chapa, eds., The Western Gulf of Mexico Basin: Tectonics, Sedimentary Basins, and Petroleum Systems. American Association of Petroleum Geologists, Memoir 75, p. 271-291. U.S. Department of Energy, Energy Information Administration, accessed November 6, 2010.

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11

12

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III. NORTHERN S OUTH AMERICA

INTRODUCTION
A series of Late Cretaceous-age organic-rich shales exist in northern South America. These shales have sourced the vast majority of the conventional oil and gas produced from Venezuela and Colombia, in particular from the Maracaibo Basin and its inclusive Catatumbo Sub-basin, Figure III-1. 1 These organic-rich shale source rocks in these basins are age-

equivalent to the prolific South Texas Eagle Ford Shale in the United States. Based on regional mapping and analysis of available geologic data, the Maracaibo and Catatumbo onshore basins in Venezuela contain the most prospective shale gas plays in northern South America, holding an estimated 120 Tcf of risked shale gas in-place, Table III-1. Technically recoverable shale gas resources are estimated at approximately 30 Tcf. While a high proportion of these two basins contain shale source rocks, significant areas are immature for gas generation and/or are excessively deep for exploration and production (over 5,000 meters). In addition, the Upper Magdalena Valley and Llanos basins in west-central and eastern Colombia were analyzed for shale gas potential. While thick sequences of Late Cretaceous black shales are also present here, low thermal maturities 2 (~0.5% Ro) persist across the region and the shale gas formations appear to be immature for gas generation. Further limiting the prospectivity of the Columbian shales are the complex Andean tectonics which include numerous thrust and extensional faults, particularly in the Llanos Foothills. 3

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Figure III-1. Gas Shale Basins of Northern South America.

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Table III-1. Gas Shale Reservoir Properties and Resources of Northern South America.
Basic Data
Basin/Gross Area Shale Formation Geologic Age
2

Maracaibo Basin (20,420 mi) La Luna Fm Late Cretaceous

Catatumbo Sub-Basin (2,380 mi) La Luna Fm Late Cretaceous 1,310 100 - 300 200 180 6,000 - 7,200 6,600 Normal 4.5% 1.05% Low/Medium 74 29 7 Capacho Fm Late Cretaceous 1,550 590 - 1,400 800 320 6,500 - 8,500 7,500 Normal 1.3% 1.10% Low/Medium 106 49 12

1,800 Prospective Area (mi ) Interval 100 - 400 Thickness (ft) Organically Rich 200 Net 180 Interval 12,500 - 15,000 Depth (ft) Average 13,500 Reservoir Pressure Normal Average TOC (wt. %) 5.6% Thermal Maturity (%Ro) 1.25% Clay Content Low/Medium GIP Concentration (Bcf/mi ) Risked GIP (Tcf) Risked Recoverable (Tcf)
2

Resource

Reservoir Properties

Physical Extent

93 42 11

MARACAIBO BAS IN (VENEZUELA)

Geologic Characterization. The Maracaibo Basin in northeastern Venezuela is

situated in a triangular intermontane depression. 4 The western edge of the basin is bounded by the Sierra de Perija mountain range. The Merida Andes define the southern limit and the Trujillo Mountains the eastern extent of this basin, Figure III-2. Beginning in the Late Jurassic, sediments were deposited in depressions defined by north-northeast trending normal faults. 5 Throughout the Cretaceous and Paleocene, clastic and carbonate material along with marine shales were laid down across the passive margin, eventually becoming the main source rocks of the Maracaibo Basin. By the end of the Paleocene, when the Caribbean plate began to collide with northwestern South America, the main sedimentary depocenter shifted from northwest to southeast. The convergence resulted in subsidence and a 3-mile thick Eocene foreland wedge of clastic sediments that accumulated across much of the present-day Maracaibo Basin. The area was then affected by regional uplift across the central and northeastern portions during the Oligocene, which brought about erosion and an Eocene unconformity. The uplift of the

surrounding mountain ranges resulted in Miocene-Holocene subsidence of the basin.

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Figure III-2. Regional Outline of the Maracaibo Basin.

Modified from Escalona, A. and Mann, P., 2006

Major structural features present within the Maracaibo Basin include the Icotea and Pueblo Viejo faults which run north-south through central Lake Maracaibo and its eastern flank. The Burro Negro Fault stretches northwest-southeast in the northeastern portion of the basin. The Valera Fault runs north-south along the eastern portion of the basin. These structural elements are mapped in Figure III-2 and shown in the corresponding seismic cross-sections of Figures III-3 and III-4. To the east of the Icotea Fault, numerous minor faults make up a small pull-apart basin, extending up to the Eocene unconformity. The seismic profiles also show most of the hydrocarbon reservoirs present reside below this erosional surface.

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Figure III-3. Seismic Profiles, Maracaibo Basin.

Modified from Escalona, A. and Mann, P., 2006

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Figure III-4. Seismic Profiles, Maracaibo Basin.

Modified from Escalona, A. and Mann, P., 2006

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Despite these and other geologic complexities, the Maracaibo Basin is home to some of the worlds richest source rocks and conventional oil and gas reservoirs. In particular, the Late Cretaceous shales of the La Luna Formation are a highly prospective target for shale gas exploration, Figure III-5. Figure III-5. Maracaibo Basin Stratigraphy.

Source: Escalona, A. and Mann, P., 2006

Reservoir Properties (La Luna Shale). The Cretaceous (Cenomanian-Santonian) La Luna Formation, deposited under anoxic conditions, has long been a focus of study for conventional onshore oil production as it is the primary source rock for the hydrocarbons in the Maracaibo Basin. 6 Limestone intervals within the La Luna Fm can be excellent oil reservoirs, sourced by hydrocarbons of the adjoining deep shales. The outer-shelf shales of the overlying Colon Fm act as effective petroleum seals across the region, with most oil seepage only occurring via fault pathways.

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Distributed across much of the Maracaibo Basin, the black calcareous La Luna Shale ranges from 100 to over 400 feet thick, 7 thinning towards the south and east, 8 Figure III-6. Maximum thickness of nearly 500 feet occurs in the extreme northern part of the basin. To the south and along Lake Maracaibos eastern flank, the La Luna averages about 200 feet thick. ARI estimates that between one- and two-thirds of the gross thickness is net source rock pay. While it is widely accepted that the formation was deposited in an anaerobic setting, paleowater depth estimates range from over 3,000 feet 9 to only 160 feet. 10 The deeper environment is based on faunal assemblages, whereas the shallow deposition theory argues for upwelling of deep water onto a shallow platform. Figure III-6. La Luna Fm Isopach, Maracaibo Basin.

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Depth to the Precambrian-Jurassic basement in the Maracaibo Basin reaches over 20,000 feet in southern Lake Maracaibo and its onshore eastern edge, Figure III-7. Much shallower depths occur towards the west, where the basement depth quickly rises to 5,000 feet. Depth to the La Luna Fm ranges from less than 5,000 to over 15,000 feet, generally deepening from northeast to southwest, Figure III-8. ARIs mapping indicates that the best shale gas potential exists at depths of 12,500 to 15,000 feet, the interval where the La Luna becomes thermally mature and gas prone. Thermal maturity of the La Luna Fm increases from west to east across the Maracaibo Basin, from less than 0.7% R o to over 1.7% R o east of Lake Maracaibo, Figure III-9. 11 Vitrinite reflectance data indicate the unit is mainly in the oil generation window, with only a narrow area of the eastern basin prospective for shale gas. This gas prone area covers approximately 1,800 mi2 and establishes the prospective area for this basin. The western boundary is defined by the 1.0% R o contour. The eastern edge is limited by maximum 15,000-ft depth, inferred from the structure of the Late Jurassic basement. 12 To date, no significant free gas accumulations have been discovered in the Maracaibo Basin; all natural gas production has been associated gas. Total organic carbon (TOC) varies across the basin, with values ranging from 3.7% to 5.7% in the northwest to 1.7% to 2% in the south and east. Maximum TOC values can reach 16.7%. ARI estimates the average TOC across the entire Maracaibo Basin is approximately 5.6%. A large portion of this shale-gas-prospective area includes part of Lake Maracaibo itself. ARI chose to include this submerged area because water depths are shallow (less than 100 feet) and there are numerous conventional production platforms that could provide access to shale drilling and development. The underlying Capacho Formation, which is defined as a separate unit in the southern and eastern regions, contains black limestone and overlying micaceous-argillaceous shale with gross thicknesses of over 500 feet in the Maracaibo Basin. However, the Capacho Fm was determined to be mostly located in areas that exceeded the prospective depth threshold and/or where gas maturity was not reached, thus its shale gas potential was not assessed.

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Figure III-7. Maracaibo Basin Depth to Basement.

Modified from Lugo, J. and Mann, P., 1995

Figure III-8. Maracaibo Basin Cross Section.

Source: Escalona, A. and Mann, P., 2006

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Figure III-9. Maracaibo Basin, La Luna Shale Prospective Area.

Resources (La Luna Shale). The La Luna Formation shales of the Maracaibo Basin have an estimated resource concentration of approximately 93 Bcf/mi2, a level which is prospective and compares favorably with that of the Marcellus Shale. With an estimated 1,800mi2 prospective area as well as significant geologic complexity in the region, the risked gas-inplace is approximately 42 Tcf. Risked recoverable resources for the La Luna Shale is estimated at about 11 Tcf, Table III-1.

CATATUMBO S UB-BAS IN (COLOMBIA)

Geologic Characterization. The southwestern Catatumbo Sub-basin extension in

eastern Colombia also shows La Luna and Capacho shale potential. The Santander Massif forms the western boundary of this geologic province, the Merida Andes limit its southern and southeastern extent, and the Colombia-Venezuela border defines its eastern edge. The

western and eastern areas of the sub-basin are characterized by folds, reverse faults and thrust

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faults, Figure III-10. Much like in the northern Maracaibo Basin, the Catatumbo Sub-basin has numerous conventional oil fields across its 2,380-mi2 areal extent. Reservoir Properties (La Luna Shale). The La Luna Formation is at relatively shallow depth in the Catatumbo Sub-basin, ranging from 6,000 to 7,600 feet. 13 Limited available well

samples mapped in Figure III-11 show the average depths (along with other geologic properties), range from 7,120 feet in the extreme eastern Tibu 178K well to the slightly deeper 7,530 feet in the Socuavo 1 well, fifteen miles to the northwest. The unit consists of limey mudstones, wackestones, and minor shales ranging in gross thickness from 100 to 300 feet, averaging nearly 200 feet. Based on available vitrinite samples, thermal maturity ranges from 0.85 to 1.21% R o , with generally higher reflectance in the central and northern areas of the basin. Samples from the Cerro Gordo 3 well in the southeast portion of the Catatumbo Subbasin averaged 0.85% R o , indicating that this area is oil prone. Figure III-10. Catatumbo Sub-basin Cross-Section.

Source: Yurewicz, D.A., Advocate, D.M., Lo, H.B., and Hernndez, E.A., 1998.

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Figure III-11. La Luna Fm Basemap and Geologic Properties, Catatumbo Sub-basin.

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Total organic carbon in core samples reaches a maximum of 11.2% in the La Luna, but more typically averages a still rich 4 to 5% TOC. Figure III-12 shows a slight increase in TOC concentration towards the base of the La Luna Fm in the Cerrito 1 well, southeastern Catatumbo Sub-basin. In the eastern Catatumbo, the La Luna Fm shows lower TOC of 2.99% in the Tibu 178K well. Based on pyrolysis and maturity data, organics are mainly type II Rock-Eval

kerogen, with original hydrogen indices (HI) ranging from 200 to 500 mg/g C.

analyses show lower rock extract HI values, approximately 97 to 130 mg/g C, in the eastern to northeast region of the basin. ARI estimates the total prospective area for shale gas development to be about 1,310 mi2, based on thermal maturity distribution and depth cut-off. Additionally, basin modeling shows that the present-day temperature gradient in the area ranges from 1.7 and 2.0 degrees F per 100 feet of depth. Resources (La Luna Shale). ARI estimates a moderately high average 74 Bcf/mi2 resource concentration for the La Luna Shale in the Catatumbo Sub-basin.
2

Covering a

prospective area of approximately 1,310 mi (Figure III-10), the risked shale gas in-place totals an estimated 29 Tcf. Risked technically recoverable resources for the La Luna Shale amount to about 7 Tcf, considerably less than in the Maracaibo Basin due to shallower burial and a smaller prospective area. Reservoir Properties (Capacho Formation). The Capacho Formation (CenomanianConiacian) is a distinct unit from the overlying La Luna Formation in the Catatumbo Sub-basin, whereas the two units are merged in most of the Maracaibo Basin. The Capacho Fm consists of dark-gray to black shales and limestones and is much thicker than the La Luna, ranging from 590 to nearly 1,400 feet in total thickness. Depth to the Capacho ranges from 6,500 feet to 8,500 feet in the Catatumbo Sub-basin, with greater measured depth in the north and east at 8,275 feet in the Socuavo 1 well, Figure III-13. Vitrinite reflectance ranges from 0.96% R o in the northern Rio de Oro 14 well to 1.22-1.24% R o in southeastern well samples. Based on the above properties, the prospective area for the Capacho Formation shales is about 1,550 mi2, larger than the prospective area for the La Luna shale primarily due to higher thermal maturity in the south.

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Figure III-12. Calculated TOC (wt/%) Well Log from Cerrito 1 Well, South-Central Catatumbo Sub-basin.

Source: Yurewicz, D.A., Advocate, D.M., Lo, H.B., and Hernndez, E.A., 1998.
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Figure III-13. Capacho Fm Basemap and Geologic Properties, Catatumbo Sub-basin.

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Maximum measured total organic carbon reaches 5% in the Capacho Formation, as shown in the Socuavo 1 well in the northeastern Catatumbo Sub-basin. However, more

typically, the TOC is lower, with a mean value of about 1.3 to 1.5%, shown in Figure III-12 in the Cerrito 1 well. The lowermost segment of the Capacho Fm, shown in the Cerrito 1 well, is believed to have been deposited during a transgressive period dominated by slow sedimentation and more anoxic conditions yielding better preservation of organic matter. Figure III-14 plots original HI versus original TOC of samples from the Capacho and La Luna formations, indicating the Capacho Formation ranges from a good oil to poor gas source. The underlying Aguardiente Fm is also plotted in the chart but was not assessed due to unpromising TOC and HI levels. Pyrolysis data shows kerogen within the Capacho Fm to be a mixture of Types II and III. Resources (Capacho Formation). Within the Catatumbo Sub-basin, the Capacho

Formation has an estimated 106 Bcf/mi2 resource concentration. The prospective area of 1,550 mi2 yields a risked gas in-place of about 49 Tcf, with a risked technically recoverable resource of approximately 12 Tcf.

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Figure III-14. Source-Rating Chart Plotting Original HI and TOC Among Formations in the Catatumbo Subbasin.

Source: Yurewicz, D.A., Advocate, D.M., Lo, H.B., and Hernndez, E.A., 1998.

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VENEZUELA
Venezuela produced 848 Bcf of natural gas in 2008 and consumed 901 Bcf, importing a small volume from neighboring Colombia. 14 Proven natural gas reserves were estimated at 176 trillion cubic feet in 2010 by the Oil & Gas Journal (OGJ), of which 90% is associated with oil reserves. The government regulatory agency Enagas reports that 70% of natural gas

production is not marketed but rather re-injected for enhanced crude oil extraction. Recent upgrades to Venezuelas natural gas pipeline network include the Interconnection Centro Occidente (ICO), with ultimate capacity of 520 MMcf/d, connecting the central and western parts of the country. ARI estimates a risked shale gas in-place of 42 Tcf for Venezuela, all coming from the La Luna Formation of the Maracaibo Basin. approximately 11 Tcf. The risked recoverable resource here is

COLOMBIA
Colombia produced 318 billion cubic feet of natural gas in 2008 and consumed 265 Bcf. OGJ reported Colombias proven natural gas reserves were 3.96 Tcf in 2010, mostly located in the Llanos Basin. Re-injection for enhanced oil recovery consumed 43% of gas production in 2008. Approximately 2,000 miles of natural gas pipeline stretch across Colombia. In early 2008 the new Antonio Ricuarte pipeline linked the country with Venezuela. Initially, gas is being exported to aid oil production in western Venezuela, though current plans call for flow reversal beginning in 2012. Colombias cumulative shale gas resource (risked) totals 79 Tcf, combining the gas inplace of the Catatumbo Sub-Basins La Luna and Capacho formations. Ultimately, 19 Tcf is determined to be technically recoverable.

Exploration Activity
As previously mentioned, much of the current oil production in the Maracaibo Basin and Catatumbo Sub-basin is from conventional stratigraphic traps. A recent well drilled by Ecopetrol -- apparently the first test of the La Luna Formation in the Catatumbo reportedly showed good gas potential, albeit from conventional targets. Junior Canadian E&P Alange Energy

Corporation is evaluating the prospectivity of the eastern area of the basin. However, this

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World Shale Gas Resources: An Initial Assessment

exploration activity also appears to be focused on conventional reservoirs within the La Luna Shale interval.

REFERENCES

Mann, P., Escalona, A., and Castillo, M.V., 2006. Regional Geologic And Tectonic Setting Of The Maracaibo Supergiant Basin, Western Venezuela. American Association of Petroleum Geologists, vol. 90, no. 4, p. 445-477. Mann, U. and Stein, R., 1997. Organic Facies Variations, Source Rock Potential, and Sea Level Changes in Cretaceous Black Shales of the Quebrada Ocal, Upper Magdalena Valley, Colombia. American Association of Petroleum Geologists, vol. 81, no. 4, p. 556-576. Cooper, M.A., Addison, F.T., Alvarez, R., Coral, M., Graham, R.H., Hayward, A.B., Howe, S., Martinez, J., Naar, J., Peas, R., Pulham, A.J., and Taborda, A., 1995. Basin Development and Tectonic History of the Llanos Basin, Eastern Cordillera, and Middle Magdalena Valley, Colombia. American Association of Petroleum Geologists, vol. 79, no. 10, p. 1421-1443. Escalona, A. and Mann, P., 2006. An Overview Of The Petroleum System Of Maracaibo Basin. American Association of Petroleum Geologists, vol. 90, no. 4, p. 657-678. Erlich, R. N., Macostay , O., Nederbragt, A.J., and Lorente, M.A., 1999. Palaeoecology, Palaeogeography And Depositional Environments Of Upper Cretaceous Rocks Of Western Venezuela. Palaeogeography, Palaeoclimatology, Palaeoecology, 153, p. 203-238. Goddard, D.A. and Talukdar, S.C., 2002. Cretaceous Fine-Grained Mudstones Of The Maracaibo Basin, Venezuela. Gulf Coast Association of Geological Societies Transactions, Volume 52, p. 1093-1101. Goddard, D.A., 2006. Venezuela Sedimentary Basins: Principal Reservoirs & Completion Practices. Venezuela Society of Petroleum Engineers, 60 pages. Lugo, J. and Mann, P., 1995. Jurassic-Eocene Tectonic Evolution of Maracaibo Basin, Venezuela. in A.J. Tankard, R. S. Soruco, and H.J. Welsink, eds., Petroleum Basins of South America. American Association of Petroleum Geologists, Memoir 62, p. 699725. Boesi, T. and Goddard, D., 1989. A New Geologic Model Related to the Distribution of Hydrocarbon Source Rocks in the Falcn Basin, Northwestern Venezuela. in K.T. Biddle, ed., Active Margin Basins. American Association of Petroleum Geologists, Memoir 52, p. 35-49. Mendez, J., 1990. La Formacin La Luna: Caractersticas de Una Cuenca Anxica en Una Plataforma de Aguas Someras. 7th Venezuelan Geological Congress, Caracas, Venezuela, p. 852-866. Blaser, R. and White, C., 1984. Source-Rock and Carbonization Study, Maracaibo Basin, Venezuela. in American Association of Petroleum Geologists Memoir 35, p. 229-252. Castillo, M.V. and Mann, P., 2006. Deeply Buried, Early Cretaceous Paleokarst Terrane, Southern Maracaibo Basin, Venezuela. American Association of Petroleum Geologists, vol. 90, no. 4, p. 567-579. Yurewicz, D.A., Advocate, D.M., Lo, H.B., and Hernndez, E.A., 1998. Source Rocks and Oil Families, Southwest Maracaibo Basin (Catatumbo Subbasin). Colombia. American Association of Petroleum Geologists, vol. 82, no. 7, p. 1329-1352. U.S. Department of Energy, Energy Information Administration, accessed November 27, 2010.

10

11

12

13

14

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IV. S OUTHERN S OUTH AMERICA

INTRODUCTION
The Southern Cone region of South America has world-class shale gas potential that is just beginning to be tested. Figure IV-1 shows the principal shale gas basins of South America. Figure IV-1. Shale Gas Basins of Southern South America

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World Shale Gas Resources: An Initial Assessment

Argentinas Neuquen Basin appears the most prospective.

Also in Argentina, the

Cretaceous shales in the Golfo San Jorge and Austral-Magallanes basins have good potential, although higher clay content may be a risk in these lacustrine-formed deposits. Additional shale gas potential exists in the frontier Parana-Chaco Basin complex of Brazil and Paraguay in Devonian Los Monos Formation shales. The Neuquen, Golfo San Jorge, and Austral basins in Argentina, the Magallanes Basin in Chile, the Chaco Basin in Paraguay, Argentina, and Bolivia, and the Parana Basin in Brazil and Uruguay contain an estimated 4,449 Tcf of risked shale gas in-place with 1,195 Tcf of technically recoverable resources, Table IV-1. Smaller Tertiary rift basins also are present in coastal southeastern Brazil, 1 but were not assessed. Table IV-1. Reservoir Properties and Resources of Southern South America
Basic Data

Basin/Gross Area Shale Formation Geologic Age Prospective Area (mi ) Interval Thickness (ft) Organically Rich Net Interval Depth (ft) Average Reservoir Pressure Average TOC (wt. %) Thermal Maturity (%Ro) Clay Content GIP Concentration (Bcf/mi2) Risked GIP (Tcf) Risked Recoverable (Tcf)
2

Neuquen Basin
(66,900 mi) Los Molles Fm Middle Jurassic 9,730 0 - 3,300 800 300 6,500 - 15,000 12,500 Overpressured 1.1% 1.50% Low/Medium 123 478 167

San Jorge Basin

(46,000 mi)

Vaca Muerta Fm Aguada Bandera Fm Pozo D-129 Fm Jurassic-Early CretaceLate Jurassic-Early Cretaceous Early Cretaceous 8,540 100 - 750 500 325 5,500 - 10,000 8,000 Overpressured 4.0% 1.25% Low/Medium 168 687 240 8,380 0 - 15,000 1,600 400 6,500 - 16,000 12,000 Normal 2.2% 2.00% Low/Medium 149 250 50 4,990 800 - 4,500 1,200 420 6,600 - 15,800 10,500 Normal 1.5% 1.50% Low/Medium 151 180 45

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Resource

Reservoir Properties

Physical Extent

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World Shale Gas Resources: An Initial Assessment

Neuquen Basin (Argentina)

Geologic Characterization. Located in west-central Argentina, the Neuquen Basin

contains Late Triassic to Early Cenozoic strata that were deposited in a back-arc tectonic setting. 2 Extending over a total area of 66,900 mi2, the basin is bordered on the west by the Andes Mountains and on the east and southeast by the Colorado Basin and North Patagonian Massif, Figure IV-2. The sedimentary sequence exceeds 22,000 feet in thickness, comprising carbonate, evaporite, and marine siliclastic rocks. 3 Compared with the thrusted western part of the basin, the central Neuquen is deep, less structurally deformed. The Neuquen Basin is a major oil and gas production area for conventional and tight sandstones and could be an early site for shale gas development in South America. Figure IV-2. Neuquen Basin Shale Gas Prospective Area and Basemap

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The stratigraphy of the Neuquen Basin is shown in Figure IV-3. Of particular exploration interest are the shales of the Middle Jurassic Los Molles and Late Jurassic-Early Cretaceous Vaca Muerta Formations. These two thick deepwater marine sequences sourced most of the oil and gas fields in the basin and are considered the primary targets for shale gas development. Figure IV-3. Neuquen Basin Stratigraphy

VACA MUERTA FM

LOS MOLLES FM

Modified from Howell, J., et al., 2005

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Reservoir Properties (Los Molles Shale). The Middle Jurassic (Toarcian-Aalenian) Los Molles Formation is considered an important source rock for conventional oil and gas deposits in the basin. Basin modeling indicates that hydrocarbon generation took place in the Los Molles 50 to 150 Ma, with the overlying Lajas Formation tight sands serving as reservoirs. 4 The overlying Late Jurassic Aquilco Formation evaporites effectively seal this hydrocarbon system, resulting in overpressuring (0.60 psi/ft) in parts of the basin. The Los Molles Shale is distributed across much of the Neuquen Basin, reaching more than 3,300 feet thick in the central depocenter. Available data shows the shale thinning towards the east. 5 A southeast-northwest regional cross-section, Figure IV-4, shows the Los Molles deposit particularly thick in the basin troughs. Well logs reveal a basal Los Molles Shale about 500 feet thick. 6 Figure IV-4. Neuquen Basin SW-NE Cross Section

A
SW

A
NE

FRONTAL SYNCLINE

VACA MUERTA FM

HUINCUL ARCH
LOS MOLLES FM

PALEOZOIC BASMENT

Los Molles Gas Los Molles Oil Vaca Muerta Oil Vaca Muerta Gas Mosquera et al., 2009

Vaca Muerta Hydrocarbon Migration Pathways Los Molles Hydrocarbon Migration Pathways

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On average, the prospective Los Molles Shale occurs at depths of 9,500 to 12,500 feet, though maximum depth surpasses 15,000 feet in the basin center. In the south, the shale occurs at depths of 7,000 feet or shallower within the uplifted Huincul Arch. The Los Molles Shale is at shale-prospective depth across much of the Neuquen Basin. Total organic carbon for the Los Molles Shale was determined from various locations across the Neuquen Basin. Samples from five outcrops in the southwestern part of the basin showed average TOC ranging from 0.55 to 5.01%, with an overall mean of 1.62%. 7 In the southeast, TOC averaged 1.25% at depths near 7,000 feet at one location. Further east,

another interval of the Los Molles Formation sampled from depths of 10,500 to 13,700 feet yielded TOCs in the range of 0.5% to nearly 4.0%. The lowermost 800-ft section here recorded a mean TOC of about 2%. Limited data were available for the central and northern regions, where shale is deeper and gas potential appears highest. One well in the basins center

penetrated two several-hundred-foot thick intervals of Los Molles Shale, with average 2% and 3% TOC, respectively. Regionally, the mean TOC of the Los Molles is in the range of 1.5%. 8 The thermal maturity of the Los Molles Shale varies across the Neuguen Basin, from highly immature (R o = 0.3%) in the shallow Huincul Arch region, oil-prone (R o = 0.6%) in the eastern and southern parts of the basin, to fully dry-gas mature (R o > 2.0%) in the basin center. 9,10 The lower portion of the Los Molles is marginally mature for gas (R o > 1.0%) in a well located north of the Huincul Arch. Formation. The prospective area of the Los Molles, Figure IV-5, is defined by low vitrinite reflectance cutoff in the north, thinning in the east, and complex faulting and shallow depth of the Huincul Arch in the south. ARI extended the western play edge beyond the main productive Neuquen area, where most of the conventional oil and gas fields are located, into the Agrio Fold and Thrust Belt along the foothills of the Andes Mountains. While there is some geologic risk associated with this region, the thermal maturity is favorable for shale gas generation. Resources (Los Molles Shale). The Los Molles Shale of the Neuquen Basin has an estimated resource concentration of approximately 123 Bcf/mi2, benefitting from favorable thickness and overpressuring. The prospective area for this Middle Jurassic shale is estimated at approximately 9,730 mi2, yielding a risked gas in-place of 478 Tcf. Risked technically Gas shows are prevalent throughout the Los Molles

recoverable resources for the Los Molles Shale are estimated at 167 Tcf, Table IV-1.

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Figure IV-5. Vaca Muerta Fm, TOC, Thermal Maturity, and Prospective Area, Neuquen Basin

Reservoir Properties (Vaca Muerta Shale). The Late Jurassic to Early Cretaceous (Tithonian-Berriasian) shales of the Vaca Muerta Formation are considered the primary source rocks for oil production in the Neuquen Basin. The Vaca Muerta consists of finely-stratified black and dark grey shales and lithographic lime-mudstones that total 200 to 1,700 feet thick. 11 The organic-rich marine shale was deposited in reduced oxygen environment and contains Type II kerogen. Although somewhat thinner than the Los Molles Fm, the Vaca Muerta has higher TOC and is more widespread across the basin. The Vaca Muerta Fm thickens from the south and east towards the north and west, ranging from absent to over 700 feet thick in the basin center. 12 Depth ranges from outcrop near the basin edges to over 9,000 feet deep in the central syncline. 13 Prospective depth for the Vaca Muerta Shale averages 8,000 feet.

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World Shale Gas Resources: An Initial Assessment

The Vaca Muerta Formation generally is richer in TOC than the Los Molles Formation. Sparse available TOC data were derived from wells and bitumen veins sampled from mines in the north. 14 These asphaltites are very rich in organic carbon, increasing northward to a In the south, mapped TOC data range from 2.9 to 4.0%. TOC of up to

maximum of 14.2%.

6.5% is reported in the lower bituminous shale units of the Vaca Muerta. While the Vaca Muerta Formation is present across much of the Neuquen Basin, it is mostly immature for gas generation (<1% R o ). Figure IV-4 shows the Vaca Muerta at depths approaching the upper end of the oil window; note that numerous conventional oil fields occur in this region. Thermal maturity increases from less than 0.6% R o to >1.5% R o into the deep northwest trough. 15 Northeast of the Huincul Arch, R o of 0.8% was measured, immature for gas. Bounded in the east and north by the 1.0% R o contour, the prospective play area of 8,540 mi2 is further limited by the Huincul Arch to the south and Andes Mountains towards the west, Figure IV-5. Resources (Vaca Muerta Shale). Based on the available geologic properties, the

resource concentration of the Vaca Muerta Shale in the Neuquen Basin is estimated at 168 Bcf/mi2, comparable to that of the age-equivalent Haynesville Shale in the United States. A risked shale gas in-place of 687 Tcf, with risked technically recoverable resources of 240 Tcf, Table IV-1.

Golfo San Jorge Basin (Argentina)

Geologic Characterization. Located in central Patagonia, the 67,000-mi2 Golfo San Jorge Basin accounts for about 30% of Argentinas conventional oil and gas production. 16 An intra-cratonic extensional basin, the San Jorge extends across the width of southern Argentina, from the Andean foothills on the west to the offshore Atlantic continental shelf in the east. Excluding its small offshore extent, the onshore Golfo San Jorge Basin covers approximately 46,000 mi2. Figure IV-6 shows the basin bordered by the Deseado Graben and Massif to the south, by the Somuncura Massif to the north, and the Andes Mountains in the west. structures of the San Bernardo Fold Belt transect the west-central region. basin is less faulted. 18
17

Compressional

Extensional faults

are widespread in the northeastern and southern flanks, while the northwestern edge of the

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Figure IV-6. San Jorge Basin

Sylwan, 2001

Extensional events marked by the formation of grabens and half-grabens in the presentday location of the Golfo San Jorge Basin began in the Triassic to Early Jurassic as the Gondwana supercontinent began to break up. 19 A separate period of extension followed in the Middle Jurassic, as the Lonco Trapial Volcanics were deposited via northwest-striking faults. The region subsided by the end of the Jurassic and extensive, mainly lacustrine deposits formed, including the thick black source rock shales and mudstones of the Neocomian Aguada Bandera Formation, Figure IV-7.

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Figure IV-7. San Jorge Basin Stratigraphy

POZO D-129 FM

AGUADA BANDERA FM

Sylwan, 2001

Reservoir Properties (Aguada Bandera Shale). The Late Jurassic-Early Cretaceous Aguada Bandera Formation comprises fine gray sandstones grading into a tuffaceous matrix towards the top of the formation, with black shales and mudstones increasing towards its base. 20 Much of the sediments deposited are lacustrine in origin, though foraminifera found in western areas suggest possible marine sources in particular beds. 21 Towards the north, other biota indicative of an outer marine platform depositional environment were observed in well samples near Lago Colhue Huapi. 22 The Aguada Bandera Formation is a heterogeneous unit comprising shale, sandstone, and occasional limestone. Total formation thickness varies widely, from more than 15,000 feet thick in the southwest to 0-2,000 feet thick about 60 miles offshore in the east. A similar thickness variation also is seen in the west. Limited data is present south of Lago Colhue Huapi to the north. The Aguada Bandara Fm is generally 1,000 to 5,000 feet thick in the central basin, probably only a fraction of which is high-quality organic shale.

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Depth to the top of the Aguada Bandera Formation is based on the top of underlying Middle Jurassic Loncol Trapial volcanics. Burial depth reaches a maximum 20,000 feet along the onshore coast in the center of the basin. Depocenters in the western portion of the basin typically average a more prospective 10,000 to 12,000 feet deep. The Aguada Bandera is much shallower, 2,000 to 8,000 feet deep, along the northern and western flanks. In the eastern coastal onshore portion of the basin, the Aguada Bandera Shale is about 1,500 to 2,500 feet thick and 20,000 feet deep. Limited mappable geochemical data were available for analysis in the Aguada Bandera, which is considerably deeper than the conventional reservoirs and thus rarely sampled. Only two available wells have TOC and R o data, both located in the basins western area. Average TOC ranged from 1.44% to 3.01% at depths of 12,160 feet and 11,440 feet, respectively. 23 Organic-rich intervals reached 4.19% TOC. Vitrinite reflectance averaged 1.07%, with dry-gas thermal maturity of 2.4% R o . Petroleum basin modeling indicates that the minimum gas generation threshold (R o = 1.0%) is typically achieved across the basin at depths below 2,000 m, or roughly 6,600 feet. Thus, the Aguada Bandera Formation appears to be mature for gas generation across most of the basin. The unit is likely to be over mature in the deep basin center, where R o is modeled to exceed 4%. Using depth distribution and appropriate minimum and maximum R o cutoffs, ARIs prospective area for the Aguada Bandera Shale, Figure IV-8, covers approximately 8,380 mi2 of the onshore Golfo San Jorge Basin. The central coastal basin (>16,000 feet deep) and the northern Lake region (<6,000 feet deep) were excluded as not prospective. Resources (Aguada Bandera Shale). The average resource concentration for the Late Jurassic to Early Cretaceous Aguada Bandera Shale is estimated to be 149 Bcf/mi2. Based on the 8,380-mi2 prospective area for shale gas potential, a risked gas in-place resource of 250 Tcf is estimated. The risked technically recoverable resource for the Aguada Bandera Shale is approximately 50 Tcf, reduced considerably by faulting. Estimated gas recovery also was reduced because of the lacustrine deposition environment of this unit, Table IV-1.

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Figure IV-8. Aguada Bandera Fm, TOC, Thermal Maturity, and Prospective Area, San Jorge Basin

Reservoir Properties (Pozo D-129 Shale).

The Early Cretaceous Pozo D-129

Formation comprises a wide range of lithologies, with the deep lacustrine sediments -- organic black shales and mudstones considered most prospective for hydrocarbon generation. 24 The presence of pyrite, dark laminations, and the absence of fossil burrows in the marine shale portions of this unit all point to favorably anoxic depositional conditions. 25 Siltstones,

sandstones, and oolitic limestones also were deposited in the shallower water environments of the Pozo D-129. The Pozo D-129 Shale is consistently thicker than 3,000 feet in the central basin, with local maxima exceeding 4,500 feet thick. Along the northern flank the interval is typically 1,000 to 2,000 feet thick. A locally thick deposit occurs in the western part of the basin, but thins rapidly from about 1,000 feet thick to absent.

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Northeast of Lago Colhue Huapi, the Pozo D-129 shoals rapidly from just under 6,000 feet to around 2,800 feet deep. Just southwest of the lake, depth increases from about 5,000 feet to nearly 9,500 feet. To the south, depths range from 5,000 feet to 6,400 feet, with similar depths in the west. The Pozo D-129 deepens along the eastern coastal flank of the basin to nearly 15,900 feet near the city of Comodoro Rivadavia. Available data indicates organic richness in the southwest, 1.42% to 2.45% TOC, with a corresponding gas-mature 1.06% R o . In the north-central region a low 0.32% TOC was recorded, with slightly higher 0.5% R o near Lago Colhue Huapi. 26 Towards the basin center in the east, organic carbon rises to around 1.22%. The thermal maturity in this deep setting is correspondingly high, 2.49 to 3.15% R o . In the south, thermal maturity drops to oil-prone levels, 0.83% R o ; the measured TOC here is about 0.84%. ARI defined the shale gas prospective area for the Pozo D-129 Fm, based primarily on depth and available (but incomplete) vitrinite reflectance data. Depth was set at an approximate 6,600-foot minimum limit. The sub-1.0% R o value confined the southeast, and the low TOC value limited the north. Based on these data, the prospective area for the Pozo D-129 Shale is estimated at approximately 4,990 mi2. Resources (Pozo D-129 Shale). Relying on the above geologic properties, the

average resource concentration for the Pozo D-129 Shale in the Golfo San Jorge Basin is approximately 151 Bcf/mi2. The total risked shale gas in-place is estimated to be 180 Tcf, with the risked technically recoverable resource estimated at 45 Tcf.

Austral-Magallanes Basin (Argentina and Chile)

Geologic Characterization. Located in southern Patagonia, the 65,000-mi2 AustralMagallanes Basin has promising but untested shale gas potential. Most of the basin is located onshore in Argentina, where it is usually called the Austral Basin. A small southernmost portion of the basin is located in Chiles Tierra del Fuego area, where it is commonly referred to as the Magallanes Basin. Conventional natural gas production in the Argentina (Austral) portion of the basin is mainly from deltaic to fluvial sandstones in the Early Cretaceous Springhill Formation at depths of around 6,000 feet. The Chile portion of the basin accounts for essentially all of that countrys oil production.

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The Austral-Magallanes Basin is bounded on the west by the Andes Mountains and on the east by the Rio Chico Ridge. To the north it is separated from the Golfo San Jorge Basin by the Deseado Massif. The southern part of the basin is truncated by the Fagnano fault system of the Andean thrust belt. The basin comprises two main structural regions: a normal faulted eastern domain and a thrust faulted western area. The basin contains a thick sequence of Upper Cretaceous and Tertiary sedimentary and volcaniclastic rocks unconformably overlying deformed metamorphic basement of Paleozoic age, Figure IV-9. Total sediment thickness ranges from 3,000 to 6,000 feet along the eastern coast to a maximum 25,000 feet along the basin axis. Petroleum source rocks in the basin, of Lower Cretaceous-age, are present at moderate depths of 6,000 to 10,000 feet across large areas. 27 The main source rock in the basin is the Lower Cretaceous Lower Inoceramus Formation (Tithonian-Aptian), which contains black organic-rich shales. The equivalent Rio Mayer Fm occurs in the northwest portion of the basin, while another equivalent in the southeast is called the Palermo Aike Fm. The Palermo Aike Shale in the southeast part of the basin is approximately 200 m thick. Another important source rock in the Austral-Magallanes Basin is the Magnas Verdes Fm (Aptian-Albian), which comprises marine mudstones and marl with moderate TOC. The Lower Inoceramus and Magnas Verdes shales together range from 800 feet thick in the north to 4,000 feet thick in the south, representing neritic facies deposited in a low-energy and anoxic environment. 28 Total organic content of these two main source rocks generally ranges from 1.0% to 2.0%, with hydrogen index of 150 to 550 mg/g. 29 Thermal maturity of the Lower Cretaceous source rock shales increases with depth in a half-moon pattern, Figure IV-10. Source rocks are generally oil-prone (R o = 0.6 to 0.8%) along an eastern belt extending from onshore to just off the southeastern Atlantic coast, increasing westward in maturity to gas-condensate (R o = 1.0%), and finally becoming dry-gas-prone further west (R o > 1.3%).

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Figure IV-9. Stratigraphy of the Austral-Magallanes Basin, Argentina and Chile

MARGAS VERDES FM

LOWER INOCERAMUS FM

Rossello et al., 2008

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Figure IV-10. Inoceramus Shale, Depth,TOC, and Thermal Maturity, Austral / Magallanes Basin, Argentina and Chile

Reservoir Properties (Lower Inoceramus Shale).

The Lower Cretaceous Lower

Inoceramus Formation (Tithonian-Aptian), considered the primary source rock in the AustralMagallanes Basin, contains black organic-rich shales that are approximately 200 m thick, 2 to 3 km deep, with 0.6% to 2.0% TOC consisting of Type II and II kerogen. The Estancia Los Lagunas gas condensate field in the southeast measured a 0.46 psi/ft pressure gradient with elevated temperature gradients in the Serie Tobifera Fm, immediately underlying the Lower Inoceramus equivalent. 30 Resources (Lower Inoceramus Shale). Based on the above geologic properties, the average resource concentration for the Lower Inoceramus Shale in the Austral-Magallanes Basin is approximately 86 Bcf/mi2. The total risked shale gas in-place is estimated at 420 Tcf, due the large prospective area. The risked technically recoverable resource is estimated at about 84 Tcf.
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Reservoir Properties (Magnas Verdes Shale). The Lower Cretaceous (Aptian-Albian) Magnas Verdes Formation comprises marine mudstones and marl with 0.5% to 2.0% TOC, including a rich 30-40 m thick basal section, and Type II-III kerogen. A 0.46 psi/ft pressure gradient and temperature gradient of 6.4C/100 m was assumed. Lacking detailed data, many of the other reservoir properties of the Magnas Verdes Shale were carried over from the Lower Inoceramus Shale. Resources (Magnas Verdes Shale). The average resource concentration for the

Magnas Verdes Shale in the Austral-Magallanes Basin is approximately 72 Bcf/mi2. The total risked shale gas in-place for this aerially extensive target is estimated to be 351 Tcf, with risked technically recoverable resources of 88 Tcf.

Parana-Chaco Basin (Brazil, Paraguay, Uruguay, Argentina, Bolivia)

Geologic Characterization. The very large (>500,000-mi2) frontier Parana-Chaco

Basin complex covers most of Paraguay and parts of southern Brazil, Uruguay, northern Argentina, and southern Bolivia. It is an intra-cratonic foreland basin broadly similar in origin to the Neuquen and other South American basins east of the Andes Mountains. On the Brazil (Parana) side of the basin, the surface is blanketed by thick plateau basalt flows which are impermeable to seismic monitoring, oil and gas production is very limited. exploration wells have been drilled in this basin. The Parana-Chaco Basin contains a thick sequence of primarily marine Paleozoic rocks that are overlain by mostly continental Mesozoic deposits, Figure IV-11. 31 Devonian to Less than 150

Carboniferous rocks were deposited in a westward-regressing sequence of marine, transitional and continental facies. ARIs analysis indicates that large shale gas potential exists within the 8,000 to 12,000-foot thick Devonian Los Monos Formation in the Carandaity and Curupaity subbasins of Paraguay, which include black, organic-rich, shallow-marine deposited shales. Scarce geochemical data suggest 0.5% overall average TOC for the entire Los Monos, but richer zones are likely to be present in this thick and poorly documented unit. Structural highs partition the Parana-Chaco Basin into sub-regions. The Ascuncion Arch separates the 250,000-km2 Chaco Basin in Paraguay from the Parana Basin in Brazil. Structural uplifts in the Chaco Basin have high geothermal gradients and are gas-prone. Structure is relatively simple, with scattered mainly vertical normal faults and none of the thrusting typical of Andean tectonics further to the west.

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Figure IV-11. Stratigraphy, Parana-Chaco Basin

SAN ALFREDO GR

Wiens, 1995

Natural gas generated by Devonian marine shales sourced conventional Carboniferous Permian reservoirs of the Itarare Group, which are thick, sand-rich units that were deposited during the CarboniferousPermian glaciation. 32 These source rock shales reach thicknesses of 8,000 feet and 12,000 feet in the Carandaity and Curupaity sub-basins, respectively, in central Paraguay. Within this thick sequence, the Devonian San Alfredo Shales appear to be most prospective, comprising a lower sandy unit and an upper thick, monotonous black shale that formed under shallow marine conditions. 33

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World Shale Gas Resources: An Initial Assessment

An exploration well in the Curupaity sub-basin measured 0.3 to 2.1% TOC in this unit. Independent E&P Amerisur reports TOC of 1.44% to 1.86% in the Devonian Los Monos Fm in the Curupaity sub-basin. 34 Depth to the Los Monos Shale can exceed 10,000 feet (3,000 m) in deep synclines such as the San Pedro Trough, Figure IV-12. Figure IV-12. Parana-Chaco Basin

The Devonian appears to be the most prospective source rock shale in the ParanaChaco Basin. It is exceptionally thick in southern Bolivia but consists mainly of coarse-grained sandstones there. The thickest Devonian section (8,339 feet) penetrated in the Chaco Basin was in the Pure Oil Co. Mendoza-1 well. The Los Monos marine shale accounted for about 8,200 feet of this section. 35
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World Shale Gas Resources: An Initial Assessment

Reservoir Properties (San Alfredo and Equivalent Shales).

The San Alfredo is

exceptionally thick (as much as 12,000 feet), of which only 2,000 feet was assumed to be organically rich. The prospective area also is large, perhaps 10% of the basin, or 50,000 mi2. Faulting is not extensive within the basin, thus relatively little area is sterilized due to structural complexity. The shale matrix reportedly consists primarily of brittle minerals such as calcite, dolomite, albite feldspar, ankerite, quartz as well as significant rutile and pyrite. Though clays are present, mainly illite, kaolinite and chlorite, they are less common. 36 Temperature gradients range from elevated 1.9F/100 feet on structural highs to much lower 1.0F/100 feet in the Carandaity sub-basin. Amerisur reported that the Devonian Lima Fm has good (2-3%) TOC but R o of only 0.87% at their conventional exploration block in Paraguay. In Brazil, the equivalent Devonian Ponta Grossa Fm is up to 600 m thick and includes shales with 1.5% TOC, but is thermally immature in the north part of the basin. The southern part of the Parana Basin has basaltic intrusions that may have boosted shale maturity, generating condensate and natural gas, but also complicate drilling and seismic. Resources (San Alfredo and Equivalent Shales). Based on the above geologic

properties, the average resource concentration for the San Alfredo Shale in the Parana-Chaco Basin is estimated at 347 Bcf/mi2, due mainly to the great thickness of this Devonian shale. Heavily discounting this play due to poor data control, slightly low thermal maturity, and uncertainty about net thickness still yields a considerable 2,083 Tcf of risked shale gas in-place. Risked technically recoverable resources are estimated at about 521 Tcf, Table IV-1.

Natural Gas Profile

With total recoverable resources initially estimated at 1,195 Tcf, shale gas could contribute significant supplies to the natural gas sector of southern South America. Each of the six countries profiled has small but expanding natural gas production and transportation industries that could accommodate shale gas development.

ARGENTINA
Argentina produced about 4.3 Bcfd of natural gas during 2009 but became a net importer in 2008. Gas production in the country is centered on the Neuquen, Golfo San Jorge, and Austral basins, where extensive pipeline systems are in place. Argentinas proved reserves of natural gas have declined by 50% during the past decade to 13.3 Tcf in 2009. However,
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World Shale Gas Resources: An Initial Assessment

starting mid-2010 the country allowed unconventional gas production to be sold at higher prices ($5/MMBtu). This new Gas Plus policy is having a positive impact: Repsol-YPF recently announced discovery of 4.5 Tcf of reserves in tight sandstone reservoirs. 37 Among all of Argentinas assessed basins, ARI estimates a risked shale gas in-place of 2,732 Tcf. This includes 1,165 Tcf in the Nequen Basin, approximately 430 Tcf in the San Jorge Basin, 483 Tcf in the Austral-Magallanes Basin, and finally the Parana-Chaco Basin with 654 Tcf. The cumulative risked recoverable resource for Argentina totals 774 Tcf, with individual region allocations of 408, 95, 108, and 164 Tcf for the above basins, respectively.

BOLIVIA
Natural gas production in Bolivia amounted to 446 Tcf in 2009, with only 100 Tcf being consumed domestically. The countrys proved reserves were last reported at 27 Tcf. Based on limited data, a risked resource of 192 Tcf was assigned to Bolivia, solely derived from the Devonian-age shales of the Parana-Chaco Basin. Ultimately, about 48 Tcf of risked recoverable gas in-place was estimated for the country.

BRAZIL
Brazil produced an average 446 MMcfd of natural gas in 2008, mostly from the offshore Campos Basin. Petrobras is the dominant producer, controlling about 90% of Brazils 12.9 Tcf of proved reserves and operating the countrys 4,000-mile gas pipeline system, which is concentrated in the southeast and northeast. The country consumed 835 MMcfd in 2008,

importing the balance mainly from Bolivia. The industrial sector accounted for 80% of Brazils natural gas consumption, though gas-fired power generation is growing rapidly. All of Brazils assessed shale gas potential lies within the vast Parana-Chaco Basin, with an estimated 906 Tcf in risked gas in-place and 226 Tcf of technically recoverable resources.

CHILE
Chile has limited natural gas reserves (3.5 Tcf), concentrated in the Magallanes Basin in the extreme southeastern part of the country, far from the dominant Santiago gas market. The country produced an average 170 MMcfd in 2009 and imported an additional 230 MMcfd, mostly through its two LNG regasification terminals.

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World Shale Gas Resources: An Initial Assessment

The Early Cretaceous shales of the Austral-Magallanes Basin comprise Chiles prospective shale gas resource, approximately 287 Tcf of risked gas in-place. recoverable gas is estimated at 64 Tcf. Technically

PARAGUAY
Paraguay has no natural gas production or significant proved reserves, nor any measurable consumption. Thus, the addition of nearly 249 Tcf of potential risked gas in-place (62 Tcf recoverable) from Devonian shales of the Parana-Chaco Basin could fundamentally change the domestic energy outlook in Paraguay.

URUGUAY
Much like its neighbor to the north, Uruguay reportedly had no natural gas production or proved reserves, its small consumption of 1 Tcf consisted entirely of imports. ARIs shale gas analysis places approximately 83 Tcf of risked gas in-place in Uruguay, all from the ParanaChaco Basin. Risked recoverable resources for the country are 21 Tcf.

Exploration Activity
Initial shale exploration drilling is underway in Argentinas Neuquen Basin, led by Apache and Repsol. Apache Corporation and YPF (Repsol) are partnered in the development of unconventional resources (including shale) in the Neuquen and Austral basins. Counting the acreage yet to be awarded from its three recent bid wins in the Neuquen, Apache controls approximately 1.6 million gross acres (900,000 net acres) in the basin that it considers to be prospective for shale gas. As of December 9, 2010, Apache reported drilling Latin America's first horizontal multifracture well into a shale gas target. 38 The company also has performed three hydraulic fracture stimulation jobs in shale intervals (probably in vertical wells) and recovered cores of source rocks for laboratory analysis. In addition, Apache and Repsol have extensive 3D seismic

coverage in the basin. Apache has not yet publicly estimated the shale gas resource potential of its Argentine blocks. Independent E&P Apco Oil & Gas, 69% owned by Williams, also is active in the Neuquen Basin. Apco plans to test the Vaca Muerta Shale in two exploration wells at the Coiron Amargo block during 2011. 39 The company also holds onshore conventional oil and gas leases in the Chaco, Golfo San Jorge and Austral basins.
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World Shale Gas Resources: An Initial Assessment

In October 2009 Schuepbach Energy LLC (Dallas) signed a one-year prospecting contract -- the first of its kind in Uruguay -- with government-owned ANCAP on a 10,000-km2 area in north-central Uruguay. Schuepbach plans to conduct geochemical analysis of shale potential, which could lead to a production sharing contract on the block. Devonian-age shale. The target is

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Howell, J.A., Schwarz, E., Spalletti, L.A., and Veiga, G.D., 2005. The Neuqun Basin: An Overview. In G.D. Viega, L.A. Spalletti, J.A. Howell, and E. Schwarz, eds., The Neuqun Basin, Argentina: A Case Study in Sequence Stratigraphy and Basin Dynamics. Geologic Society, London, Special Publications, 252, p. 1-14.
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Manceda, R. and Figueroa, D., 1995. Inversion of the Mesozoic Neuqun Rift in the Malargue Fold and Thrust Belt, Mendoza, Argentina. in A.J. Tankard, R.S. Soruco, and H.J. Welsink, eds., Petroleum Basins of South America. American Association of Petroleum Geologists, Memoir 62, p. 369382.

Rodriguez, F., Olea, G., Delpino, D., Baudino, R., and Suarez, M., 2008. Overpressured Gas Systems Modeling in the Neuquen Basin Center. American Association of Petroleum Geologists Annual Convention and Exhibition, April 20-23, 2008, 4 pages. Cruz, C.E., Boll, A., Omil, R.G., Martnez, E.A., Arregui, C., Gulisano, C., Laffitte, G.A., and Villar, H.J., 2002. Hbitat de Hidrocarburos y Sistemas de Carga Los Molles y Vaca Muerta en el Sector Central de la Cuenca Neuquina, Argentina. IAPG, V Congreso de Exploracin y Desarrollo de Hidrocarburos, Mar del Plata, November 2002, 20 pages.

Stinco, L.P., 2010. Wireline Logs and Core Data Integration in Los Molles Formation, Neuquen Basin, Argentina. Society of Petroleum Engineers, SPE 107774, 2007 SPE Latin America and Caribbean Petroleum Engineering Conference, Buenos Aires, Argentina, 15-18 April, 7 p. Martinez, M.A., Prmparo, M.B., Quattrocchio, M.E., and Zavala, C.A., 2008. Depositional Environments and Hydrocarbon Potential of the Middle Jurassic Los Molles Formation, Neuqun Basin Argentina: Palynofacies and Organic Geochemical Data. Revista Geolgica de Chile, 35 (2), p. 279-305. Kugler, R.L., 1985. Soure Rock Charcateristics, Los Molles and Vaca Muerta Shales, Neuquen Basin, West-Central Argentina. American Association of Petroleum Geologists, Bulletin, vol. 69, no. 2, p. 276.

Sounders-Smith, A., 2001. Neuquen Province Offers Areas With Exploration Potential. Oil & Gas Journal, September 24, 2001.
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Villar, H.J., Legarreta, L., Cruz, C.E., Laffitte, G.A., and Vergani, G., 2005. Los Cinco Sistemas Petroleros Coexistentes en el Sector Sudeste de La Cuenca Neuquina: Definicin Geoqumica y Comparacin a lo Largo de una Transecta de 150 Km. IAPG, VI Congreso de Exploracin y Desarrollo de Hidrocarburos, Mar del Plata, November 2005, 17 pages. Aguirre-Urreta, M.B., Price, G.D., Ruffell, A.H., Lazo, D.G., Kalin, R.M., Ogle, N., and Rawson, P.F, 2008. Southern Hemisphere Early Cretaceous (Valanginian-Early Barremian) Carbon and Oxygen Isotope Curves from the Neuquen Basin, Argentina. Cretaceous Research, vol. 29, p. 87-99.

11

12 Hurley, N.F., Tanner, H.C., and Barcat, C., 1995. Unconformity-Related Porosity Development in the Quintuco Formation (Lower Cretaceous), Neuqun Basin, Argentina. in D.A. Budd, A.H. Saller, and P.M. Harris, eds., Unconformities and Porosity in Carbonate Strata. American Association of Petroleum Geologists, Memoir 63, p. 159-176.

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13 Mosquera, A., Alonso, J., Boll, A., Alarcn, Zavala, C., Arcuri, M., and Villar, H.J., 2009. Migracin Lateral y Evidencias de Hidrocarburos Cuyanos en Yacimientos de la Plataforma de Catriel, Cuenca Neuquina. In M. Schiuma, ed., IAPG, VII Congreso de Exploracin y Desarrollo de Hidrocarburos, p. 491-526. 14

Parnell, J., and Carey, P.F., 1995. Emplacement of Bitumen (Asphaltite) Veins in the Neuqun Basin, Argentina. American Association of Petroleum Geologists, Bulletin, vol. 79, no. 12, p. 1798-1816.

15 Cobbold, P.R., Diraison, M., Rossello, E.A., 1999. Bitumen Veins and Eocene Transpression, Neuqun Basin, Argentina. Tectonophysics, 314, p. 423-442. 16

Torres-Verdn, C., Chunduru, R.G., and Mezzatesta, A.G., 2000. Integrated Interpretation of 3D Seismic and Wireline Data to Delineate Thin Oil-Producing Sands in San Jorge Basin, Argentina. Society of Petroleum Engineers 62910, presented at the 2000 SPE Annual Technical Conference and Exhibition, 10 pages. Peroni, G.O., Hegedus, A.G., Cerdan, J., Legarreta, L., Uliana, M.A., and Laffitte, G., 1995. Hydrocarbon Accumulation in an Inverted Segment of the Andean Foreland: San Bernardo Belt, Central Patagonia. in A.J. Tankard, R.S. Soruco, and H.J. Welsink, eds., Petroleum Basins of South America. American Association of Petroleum Geologists, Memoir 62, p. 403-419.

17

Hirschfeldt, M., Martinez, P., and Distel, F., 2007. Artificial-Lift Systems Overview and Evolution in a Mature Basin: Case Study of Golfo San Jorge. Society of Petroleum Engineers 108054, presented at the 2007 SPE Latin American and Caribbean Petroleum Engineering Conference, 13 pages.
18 19 Fitzgerald, M.G., Mitchum, R.M. Jr., Uliana, M.A., and Biddle, K.T., 1990. Evolution of the San Jorge Basin, Argentina. American Association of Petroleum Geologists, Bulletin, vol. 74, no. 6, p. 879-920. 20 21

Sylwan, C.A., 2001. Geology of the Golfo San Jorge Basin, Argentina. Journal of Iberian Geology, 27, p. 123-157.

Laffitte, G.A., and Villar, H.J., 1982. Poder Reflector de la Vitrinita y Madurez Trmica: Aplicain en el Sector NO. de la Cuenca del Golfo San Jorge. I Congreso Nacional de Hidrocarburos, Petrleo y Gas. Exploracin, p. 171-182.

Seiler, J.O., and Via, F., 1997. Estudio Estratigrfico, Palinofacial y Potencial Oleogentico Pozo: OXY.Ch.RChN.x-1. Area: CGSJ-5 Colhu Huapi. Pcia del Chubut. Rep. Argentina. Pan American Energy. Unpublished.
22 23 Rodriguez, J.F.R, and Littke, R., 2001. Petroleum Generation and Accumulation in the Golfo San Jorge Basin, Argentina: A Basin Modeling Study. Marine and Petroleum Geology, 18, p. 995-1028. 24

Figari, E.G., Strelkov, E., Laffitte, G., Cid de la Paz, M.S., Courtade, S.F., Celaya, J., Vottero, A., Lafourcade, P., Martnez, R., and Villar, H., 1999. Los Sistemas Petroleros de la Cuenca del Golfo San Jorge: Sintesis Estructural, Estratigrafa y Geoqumica. Actas IV Congreso de Exploracin y Desarollo de Hidrocarburos, Mar del Plata, I, p. 197-237.

25 Paredes, J.M., Foix, N., Piol, F.C., Nillni, A., Allard, J.O., and Marquillas, R.A., 2008. Volcanic and Climatic Controls on Fluvial Style in a High-Energy System: The Lower Cretaceous Matasiete Formation, Golfo San Jorge Basin, Argentina. Sedimentary Geology, 202, p. 96-123. 26

Bellosi, E.S., Villar, H.J., and Laffitte, G.A., 2002. Un Nuevo Sistema Petrolero en el Flanco Norte de la Cuenca del Golfo San Jorge: Revelacin de reas Marginales y Exploratorias. IAPG, V Congreso de Exploracin y Desarrollo de Hidrocarburos, Mar del Plata, November 2002, 16 pages. Rodriquez, J. and Cagnolatti, M.J., 2008. Source Rocks and Paleogeography, Austral Basin, Argentina. American Association of Petroleum Geologists, Search and Discovery Article #10173, 24 p.

27

28

Ramos, V.A., 1989. Andean Foothills Structures in Northern Magallanes Basin, Argentina. American Association of Petroleum Geologists, Bulletin, vol. 73, no. 7, p. 887-903.

29 Pittion, J.L. and Arbe, H.A., 1999. Sistemes Petroleros de la Cuenca Austral. IV Congreso Exploracion y Desarrollo de Hidrocarburos, Mar del Plata, Argentina, Actas I, p. 239-262. 30

Venara, L., Chambi, G.B., Cremonini, A., Limeres, M., and Dos Lagunas, E., 2009. Producing Gas And Condensate From a Volcanic Rock In The Argentinean Austral Basin. 24th World Gas Congress, 5-9 October, Buenos Aires, Argentina.

Winn, R.D. Jr. and Steinmetz, J.C., 1998. Upper Paleozoic Strata of the Chaco-Parana basin, Argentina, and the Great Gondwana Glaciation. Journal of South American Earth Sciences, vol. 11, no. 2, p.153-168.
31

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32

Vesely, F.F., Rostirolla, S.P., Appi, C.J., and Kraft, R.P., 2007. Late Paleozoic Glacially Related Sandstone Reservoirs in the Parana Basin, Brazil. American Association of Petroleum Geologists, Bulletin, vol. 91, no. 2, p. 151160. Petzet, A., 1997. Nonproducing Paraguay to get Rare Wildcats. Oil and Gas Journal, April 21. Amerisur Resources PLC, 2009. Interim Results Presentation, December, 36 p.

33 34 35

Wiens, F., 1995. Phanerozoic Tectonics and Sedimentation in the Chaco Basin of Paraguay, with Comments on Hydrocarbon Potential. ln A. J. Tankard, R. Suarez S., and H. J. Welsink, eds., Petroleum Basins of South America. American Association of Petroleum Geologists Memoir 62, p. 185-205.

36 Kern, M., Machado, G., Franco, N., Mexias, A., Vargas T., Costa, J., and Kalkreuth, W. 2004. Source Rock Characterization of Paran Basin, Brazil: Sem and XRD Study of Irati and Ponta Grossa Formations Samples. 3 Congresso Brasileiro de P&D em Petrleo e Gs, 2 a 5 de outubro de 2005, Salvador, Brasil. 37 38 39

Repsol YPF, press release, December 7, 2010. Apache Corporation, press release, December 9, 2010. Apco Oil & Gas International, Inc., press release, December 2, 2010.

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V.

P OLAND

INTRODUCTION
Active levels of shale gas leasing and exploration are already underway in Poland. The target is the Lower Silurian-Ordovician organically rich shales, present in the Lower Paleozoic sedimentary basin that exists as a northeast to southwest band through the center of the country. The shales are deposited in three basins The Baltic in the north, the Lublin in the south, and the Podlasie in the east, Figure V-1. The organically rich shales in these three basins appear to have favorable characteristics for shale gas exploration. Figure V-1. Major Shale Gas Basins of Poland

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We estimate that Poland has 792 Tcf of risked shale gas-in place, 514 Tcf in the Baltic Basin, 222 Tcf in the Lublin Basin and 56 Tcf in the Podlasie Basin. We estimate a risked technically recoverable shale gas resource of 187 Tcf from these three basins, Table V-1.

Table V-1. Shale Gas Reservoir Properties and Resources of Poland

Basic Data
Basin/Gross Area Shale Formation Geologic Age
2

Baltic Basin (101,611 mi) Lower Silurian Llandovery

Lublin Basin (11,882 mi) Lower Silurian Wenlock 11,660 330 - 1,115 415 228 6,560 - 13,450 10,005 Overpressured 1.5% 1.35% Medium 79 222 44

Podlasie Basin (4,306 mi) Lower Silurian Llandovery 1,325 360 - 720 540 297 5,740 - 11,350 8,545 Overpressured 6.0% 1.25% Medium 142 56 14

8,846 Prospective Area (mi ) Interval 330 - 820 Thickness (ft) Organically Rich 575 Net 316 Interval 8,200 - 16,400 Depth (ft) Average 12,300 Overpressured Reservoir Pressure Average TOC (wt. %) 4.0% Thermal Maturity (%Ro) 1.75% Clay Content Medium GIP Concentration (Bcf/mi2) Risked GIP (Tcf) Risked Recoverable (Tcf) 145 514 129

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Resource

Reservoir Properties

Physical Extent

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World Shale Gas Resources: An Initial Assessment

BALTIC BAS IN Ge o lo g ic Ch a ra c te riza tio n

The Baltic Basin covers an area of approximately 102,000 square miles area in Poland, Lithuania, Russia, Latvia, Sweden and the Baltic Sea. Its southwestern border is formed by the Trans-European Fault Zone. Paleozoic sediments compose 75% of the basin fill, with the Silurian strata most prevalent 1. The southwest margin of the Baltic Basin received very thick sediments of marine deposits as the basin subsided during the late Ordivician-Silurian collision of the Avalonia and Baltica tectonic plates. Anoxic conditions in the deep marine environment of the early Silurian allowed for the deposition of thick layers of organic rich shale, which were subsequently buried to depths sufficient to thermally mature the shales into the wet to dry gas window. The deposition of the Silurian-age shales occurred along the Trans-European fault zone bounding the Baltic Basin, continuing southeast into the present day Lublin and Podlasie basins. These two basins share the same regional depositional environment as the Baltic Basin but are differentiated by local geologic features, such as the Mazury-Belarus High and regional tectonic faulting. Subtle differences in elevation and marine conditions created by these features caused organically rich shales to be deposited at different periods of the Silurian. In the Baltic and Podlasie basins, the most prospective shale intervals occur in the Lower Silurian Llandovery. In the Lublin Basin, organically rich shales were deposited in the slightly younger and thicker Wenlock strata. The 8,850 mi2 shale gas prospective area in the Baltic Basin was determined using the depth and thermal maturity of the Llandovery Formation. The formation shallows to the northwest, where its prospective area is limited by lack of sufficient thermal maturity. In the deep, western margin of the basin, the Llandovery Formation is highly thermally mature, with Ro values greater than 5.0%. However, the basin becomes very deep in this area. In the western areas, the prospective area is limited by the 5,000m depth contour interval, Figure V-2.

Re s e rvo ir P ro p e rtie s (P ro s p e c tive Are a )

Silurian. The Lower Silurian Llandovery-Wenlock graptolitic black shales are the main shale gas targets in the Baltic Basin, Figure V-3. Drilling depths to the base of the Silurian can be as deep as 18,000 feet, but generally range from 8,200 to 16,400 feet over the prospective
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World Shale Gas Resources: An Initial Assessment

area, Figure V-4. While the gross interval of the total Silurian formation covers 3,200 feet, the organically rich Llandovery strata has a gross thickness of 330 to 820 feet 2. Based on well log data, ARI assumes a regional net to gross ratio of 55%, resulting in a net shale thickness of 316 feet 3. Total organic content (TOC) in the prospective area can reach as high as 10%, but generally averages 4% for the net shale thickness investigated. Clay content is low in the Baltic Basin, with silica content generally above 50%. Thermal maturity varies in the basin, from over 5% in the northwest to below Ro 1% in the north east portions of the Baltic Basin. High Ro values indicate that some of the gas in the formations may have been converted to CO 2 . However, in the prospective area, the Ro averages 1.75% and is in the dry gas window. A thin section of Ordovician Shale exists below the Silurian and is judged to be prospective. However, it is not sufficiently distinct from the Silurian to merit separate discussion and is included with the Silurian Shale 4. Figure V-2. Onshore Baltic Basin, Lower Silurian Llandovery Shale Depth and Structure

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World Shale Gas Resources: An Initial Assessment

Figure V-3. Baltic Basin Stratigraphic Column 5

Figure V-4. Baltic Basin Depth and Structure Cross Section

Lower Silurian Llandovery

Llandovery Shale sequence

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World Shale Gas Resources: An Initial Assessment

Re s o u rc e s
The Baltic Basin Silurian Shale has a high resource concentration of 145 Bcf/mi2. Given a 8,850 mi2 prospective area, the risked shale gas in-place is 514 Tcf. Based on the favorable reservoir properties and mineralogy, we estimate a risked technically recoverable shale gas resource of 129 Tcf for the Baltic Basin, Table V-1.

Ac tivity
The majority of Polands oil and gas fields are located in the southern Carpathian region. The northern region of the country is relatively undeveloped, excepting a group of oil and condensate fields approximately 75 miles northwest of Gdansk and a cluster of small fields offshore 6. The shales in the Baltic Basin are being actively leased by numerous large international and smaller independent exploration companies, as well as the countrys national gas entity, PGNiG, Figure V-5. The most active company in the basin is 3Legs Resources (a subsidiary of Lane Energy Poland). Conoco Phillips has partnered with 3Legs to jointly evaluate the shale potential of the Baltic Basin. In late September 2010, the joint venture drilled the basins first shale exploration wells, Lebian LE1 and gowo LE1. The wells were drilled vertically through the Silurian and Ordovician formations. No production information or other results have been released, as of the date of this report. A joint venture led by BNK Petroleum is planning to drill an exploratory well in October, also targeting the Silurian and Ordovician formations in the basin. Talisman Energy has plans to drill three shale gas wells and perform seisimic testing during the next two years. Marathon Oil has one concession in the Baltic Basin in which it plans to drill one well and perform 2D seismic. Both Chevron and ExxonMobil have accumulated acreage in the Baltic Basin and have reported plans to drill exploratory wells within the next year. In addition to the major exploration companies, a number of smaller firms are acquiring and testing acreage in the Baltic Basin, including Realm Energy International, San Leon Energy and Aurealian Oil and Gas.

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Figure V-5. Poland Shale Gas Leasing Activity 7

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LUBLIN BAS IN Ge o lo g ic Ch a ra c te riza tio n

The Lublin Basin contains very similar Silurian depositional strata to the Baltic Basin, though regional tectonic events and rifting during the Devonian created a different maturity and depth profile than observed for Silurian Shale in the Baltic Basin. The basin covers an area of 10,010 square miles. It is bounded by the Grojec fault to the north (which separates it from the Baltic Basin), the Trans-European Fault Zone to the west, the Mazury-Belarus high in the east, and (for this study) the Polish-Ukrainian Border to the south. The Lublin Basin transitions from a Cambrian active rift basin in the north to a post rift thermal sag basin in the southeast, with moderate faulting throughout. The primary shale gas target in the Lublin Basin is the Lower Silurian Wenlock Formation. Maturity and depth measurements suggest that almost the entire 11,880 square mile area may be prospective for shale gas development, though the recoverability of shale gas may be limited by regional faults. A small, 220 square mile area was excluded from the analysis due to the possibility of Silurian erosion, resulting in a prospective area of 11,660 square miles, Figure V-6.

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Figure V-6. Lublin Basin Shale Gas Prospective Area

Re s e rvo ir P ro p e rtie s (P ro s p e c tive Are a )

Lower Silurian. The shale gas potential of the Lublin Basin exists in a 2,000 foot section of the lower Silurian Shale, from the Ludlow through Llandovery, Figure V-7. A thin interval of Ordovician Shale is also thought to be prospective, but due to its similarity to the Silurian Shale, it has been combined with the Silurian. Drilling depths to the Silurian range from 6,500 feet to 3,450 feet over most of the prospective area 8. The prospective shale section thickens from east to west, from 330 feet to 1,115 feet and has an organically rich gross thickness of 415 feet with a net thickness of 228 feet, Figure V-8. Total organic content in the Wenlock Formation is lower than in the slightly older Llandovery Formation, ranging from 1% to 1.7% with an average of 1.5%. Thermal maturity ranges from over mature (>2.5%Ro) in the central areas of the trough to the threshold of the wet gas window (1.0% Ro) on the basins eastern boundary. Average thermal maturity is 1.35% Ro in the prospective area.

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Figure V-7. Lubin Basin Stratigraphic Column

Figure V-8. Lublin Basin Fault Map and Cross Section 9

Wenlock Shale sequence

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Re s o u rc e s
The Silurian and Ordovician shales of the Lublin Basin contain a moderate resource concentration 79 Bcf/mi2. However, considerable variability exists in shale thickness and organic content from east to west in the basin. As such, the shale gas resource concentration will vary considerably from this average value. Given a 11,660 mi2 prospective area, the risked shale gas in-place is 222 Tcf. Based on reservoir properties and mineralogy, we estimate a risked technically recoverable shale gas resource of 44 Tcf, Table V-1.

Ac tivity
The Lublin Basin is the site of modest oil and gas production from a small group of oil and gas conventional fields. As in the Baltic Basin, a number of international firms and Polands state owned gas company (PGNiG) are actively evaluating the Lublin Basins shale gas potential. In early August, Halliburton completed Polands (and the Lublin Basins) first shale gas well fracturing operation on the Markowola-1 exploratory well for PGNiG. Production and test results have not yet been released. At least six other exploration companies have acquired unconventional gas exploration concessions in the basin, including ExxonMobil, Chevron, Marathon Oil and others, Figure V-5.

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P ODLAS IE BAS IN Ge o lo g ic Ch a ra c te riza tio n

The Podlasie Basin (Podlasie Depression) is an isolated section of the Lower Paleozoic sedimentary basin, east of the Baltic and Lublin basins. It is bounded on the north and south by the Mazury-Belarus high and (for this study) by the Polish-Belorussian border on the east. The Silurian interval in the Podlasie Basin crops out in the east, just inside the border with Belarus, and deepens rapidly to the west, where active shale gas leasing is underway. The shale gas target in the Podlasie Basin is the lower Silurian Llandovery Formation, Figure V-5. Based on depth and thermal maturity data, ARI has established a 1,325 square mile prospective area for the Podlasie Basin shale. The prospective area is limited on the east by the 1.0 Ro% contour line.

Re s e rvo ir P ro p e rtie s (P ro s p e c tive Are a )

Lower Silurian. In the prospective area of the Podlasie Basin shale thickness ranges from 360 feet to 720 feet . Within this larger trend is an organically rich section of 540 feet, with a net thickness of 297 feet. Depth to the base of the Silurian Shale ranges from 5,740 feet to 11,350 feet, with an average of 8,545 feet, Figure V-8. Total organic content is much higher in the Podlasie Basin than in the Baltic or Lublin, reaching 20% in places. Average TOC content in the basin is 6%. Thermal maturity in the basin decreases toward the east, where it quickly leaves the gas window. Average Ro% in the prospective areas of the Podlasie Basin is 1.25%.

Re s o u rc e s
Our analysis suggests the Silurian Shale of the Podlasie Basin contains an attractive resource concentration of 142 Bcf/mi2. Given a 1,330 mi2 prospective area, the risked shale gas in-place is 56 Tcf. Based on moderately favorable reservoir properties and mineralogy, we estimate a risked technically recoverable resource of 14 Tcf, Table V-1.

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World Shale Gas Resources: An Initial Assessment

Figure V-8. Podlasie Basin Depth to Base of Llandovery Shale

Ac tivity
Though no exploratory wells have yet been drilled into the Silurian Shale in the Podlasie Basin, it is being actively leased, Figure V-5. ExxonMobil holds the largest lease position in the basin, with three shale gas exploration concessions. Poland is a large net importer of natural gas. Of the 577 Bcf of natural gas consumed in Poland in 2009, 350 Bcf (61%) was imported, almost all of which was supplied from Russia. After a plateau in production from 2004 to 2007, the countrys natural gas production has again begun to decline. Annual production is currently 0.6 Bcfd, from proved reserves of 6 Tcf 10. Realizing the potential for unconventional natural gas to support its declining conventional gas production, the Polish government has shown strong support for shale gas drilling. It has put into place very attractive fiscal terms for gas development, although infrastructure and regulatory issues remain as barriers to efficient development. Development of
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World Shale Gas Resources: An Initial Assessment

Polands large shale gas technically recoverable resource of 187 Tcf could significantly increase the countrys natural gas reserves and internal gas production.

REFERENCES
1 Schleicher, M., J. Koster, H. Kulke, and W. Weil. RESERVOIR AND SOURCE-ROCK CHARACTERISATION OF THE EARLY PALAEOZOIC INTERVAL IN THE PERIBALTIC SYNECLISE, NORTHERN POLAND. Journal of Petroleum Geology 21, no. 1 (1, 1998): 33-56. 2 3

Hadro, Jerzy. Shale-Gas Potential in Poland presented at the EGU General Assembly, Vienna, Austria, April 2009.

Kielt, Marian. Possibility of Natural Gas Occurence in Silurian Schist Formation of the East-European Platform: Composite Analysis of Geophysical Measurements. Geofizyka Torun, Date Unknown.
4

Poprawa, Pawel. Shale gas potential of the Lower Palaeozoic complex in the Baltic and Luiblin-Podlasie Basins (Poland). Przeglad Geologiczny 58, no. 3 (2010).

5 Poprawa, Pawel. Shale gas hydrocarbon system - North American Experience and European Potential. Przeglad Geologiczny 58, no. 3 (2010): 216-225. 6 7 8

Polish Geological Institute, Map of Oil and Gas Fields in Poland, 2004. http://www.pgi.gov.pl/mineral_resources/oil_map.htm Polish Ministry of the Environment.

Paczena, Jolanta, and Pawe Poprawa. Eustatic versus tectonic control on the development of Neoproterozoic and Cambrian stratigraphic sequences of the Lublin-Podlasie Basin (SW margin of Baltica). Geosciences Journal 9, no. 2 (6, 2005): 117-127. Botor, Dariusz, Maciej Kotarba, and Pawel Kosakowski. Petroleum generation in the Carboniferous strata of the Lublin Trough (Poland): an integrated geochemical and numerical modelling approach. Organic Geochemistry 33, no. 4 (April 2002): 461-476. EIA Country Analysis Brief.

10

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World Shale Gas Resources: An Initial Assessment

VI.

EAS TERN EUROP E

INTRODUCTION
Outside of Poland, the shale gas potential of Eastern Europe has not been widely explored. However, several basins contain promising shale gas targets, such as the northern Baltic Basin in Lithuania, the southeastern extent of the Lublin Basin into Ukraine and the Dnieper-Donets Basin in Ukraine, Figure VI-1. Additional potentially prospective basins include the Pannonian-Transylvanian Basin in Hungary and Romania, and the Carpathian-Balknian in Southern Romania and Bulgaria, but were not assessed by the study, Figure VI-1. Figure VI-1. Shale Gas Basins of Eastern Europe

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World Shale Gas Resources: An Initial Assessment

For the three Eastern European basins for which ARI was able to establish a prospective area, we estimate a risked shale gas in-place of 93 Tcf in the Baltic Basin, 48 Tcf in the Dnieper-Donets Basin, and 149 Tcf in the Lublin Basin, Table VI-1. Of this 290 Tcf of risked gas in-place, ARI estimates a technically recoverable shale gas resource of 65 Tcf, Table VI-1. Not enough information is available on the key shale reservoir properties in the PannonianTransylvanian and Carpathian-Balkanian basins for conducting a reliable resource assessment.
Table VI-1. Reservoir Properties and Resources of Eastern Europe

Basic Data

Basin/Gross Area Shale Formation Geologic Age Prospective Area (mi ) Interval Thickness (ft) Organically Rich Net Interval Depth (ft) Average Reservoir Pressure Average TOC (wt. %) Thermal Maturity (%Ro) Clay Content GIP Concentration (Bcf/mi2) Risked GIP (Tcf) Risked Recoverable (Tcf)
2

Baltic Basin (101,611 mi) Lower Silurian Silurian 3,071 393 - 524 459 284 5,904 - 7,544 6,724 Overpressured 4.0% 1.20% Medium 101 93 23

Dnieper-Donets (38,554 mi) Rudov Bed Carboniferous 7,134 26 - 230 128 102 9,840 - 16,400 13,120 Overpressured 4.0% 1.30% Medium 42 48 12

Lublin Basin (26,500 mi) Lower Silurian Silurian 7,850 1,312 - 3,260 415 208 3,280 - 16,400 9,840 Overpressured 2.5% 1.35% Medium 79 149 30

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World Shale Gas Resources: An Initial Assessment

BALTIC BAS IN Ge o lo g ic Ch a ra c te riza tio n

The Baltic Basin (Baltic Syneclise) is a large marginal synclinal basin located in the southwestern part of the East European Craton and a major structure of the three Baltic States. The basin is about 700 km long and 500 km wide. The basin deepens along its NE to SW axis; depth below sea level of the Pre-Cambrian basement increases from a few hundred meters in Estonia to 1,900 m in southwestern Latvia, 2,300 m in western Lithuania, and 5,000 m in Poland. This chapter will focus on the non-Polish section of the basin. (The Polish Baltic Basin is discussed in Chapter V.) The shale gas target in the Baltic Basin is the lower Silurian marine shale package, which, though less mature than in Poland, has favorable characteristics for shale gas development. ARI defined a 3,070 mi2 prospective area for the Baltic Basin outside of Poland

using the 1% Ro contour line, Figure VI-2.

Re s e rvo ir P ro p e rtie s (P ro s p e c tive Are a )

Depths to the base of the Lower Silurian Shale range from 5,900 feet to 7,550 feet over the prospective area, averaging 6,720 feet, Figure VI-3. While the gross interval of the total Silurian formation can reach 3,600 ft, the organically rich, Lower Silurian strata has a gross thickness of 459 and, a net thickness of 284 ft, Figure VI-4. 1 Total organic content (TOC) in the prospective area ranges from 2% to 6% with an average of 4%. The thermal maturity data ranges from 1.0% to 1.9% Ro, averaging 1.2% 2.

Re s o u rc e s
Our analysis suggests the Lower Silurian Shale of the Baltic Basin contain a moderate resource concentration of 101 Bcf/mi2. Given a 3,071 mi2 prospective area, the risked shale gas in-place is 93 Tcf. Based on favorable reservoir properties and mineralogy, we estimate a risked technically recoverable resource of 23 Tcf, Table VI-1.

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World Shale Gas Resources: An Initial Assessment

Figure VI-2. Baltic Basin Structure Map

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World Shale Gas Resources: An Initial Assessment

Figure VI-3. Baltic Basin Stratigraphic Column 3

Figure VI-4. Baltic Basin Cross Section3:

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World Shale Gas Resources: An Initial Assessment

Ac tivity
Outside of Poland, the shale gas potential of the Baltic Basin has yet to be explored. Government representatives of the Lithuanian government have noted they are aware of the potential, but leasing is not underway in the country. In its northern, thermally immature areas, the shallow high kerogen content shale in the Baltic Basin are mined for use for power and chemical production. The Ordovician/Silurian Kukersite oil shale in Estonia has been under development since WWII.

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World Shale Gas Resources: An Initial Assessment

DNIEP ER-DONETS BAS IN Ge o lo g ic Ch a ra c te riza tio n

The Dnieper-Donets (Dniepr-Donets) Basin forms a NW-SE trend through central Ukraine and into Russia. It is part of the larger Pripyat-Dniepr-Donets intercratonic rift basin, which trends further NW into Belarus. The basin is flanked by the regional highs: the Ukrainian Shield (to the south) and the Voronezh Massif (to the North). After extensive rifting, faulting and volcanic activity during the basins formation in the Devonian, it entered a period of calm, marine sedimentation during the Carboniferous. Shales deposited during this time are likely the source of hydrocarbons produced from Permian and Carboniferous reservoirs in the basin. Uplifting during the Permian created stress fractures on the basin margin, which penetrated localized areas of the lower Carboniferous strata. Furthermore, salt layers deposited in the Permian likely contributed to a regional overpressuing of the underlying Carboniferous strata. The geochemical analysis of the natural gas produced in this basin suggests it was generated from marine shales of Carboniferous-age. These data also suggest the dominant

shale gas formation in the Dnieper-Donets Basin is the Rudov Bed, a Lower Carboniferous (Visean) black shale, Figure VI-6. Today, the Dnieper-Donets Basin provides approximately 90% of Ukraines oil and gas, from over 140 producing fields. Additional shale gas potential may exist in Frasnian (Upper Devonian) shale and carbonate packages in more isolated portions of the basin, but insufficient data were available to estimate their potential. The 7,134 mi2 prospective area used in this report is based on depth limits and shale thermal maturity. The prospective area along the eastern margin of the basin is formed by the 16,400 foot depth cutoff, the western boundary is formed by the 9,840 foot depth cutoff, which corresponds to the beginning of the gas window for Lower Carboniferous strata 4. Thermal maturation in the deeper areas of the basin is not well understood, some data suggest areas of comparatively little heat flow in the central areas of the basin, which could limit the extent of the shale formation inside the gas window. ARI has compensated for this thermal maturity

uncertainty in its estimation of risked gas in-place.

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World Shale Gas Resources: An Initial Assessment

Re s e rvo ir P ro p e rtie s (P ro s p e c tive Are a )

Carboniferous (Rudov Bed). The prospective area of the Dneiper-Donets Basin is most limited by its great depth. The Carboniferous strata deepens toward the center of the basin, reaching over 12 kilometers below the surface in the basin center, Figure VI-7. As such, the prospective area defined in this study is confined to the north and lateral sections of the basin, with depth above 16,400 feet, Figure VI-5. Insufficient data was available to establish a prospective area in the southeastern portion of the basin. Depths to the Rudov Bed Formation range from 9,840 feet to 16,400 feet over the prospective area, with an average of 13,120 feet4. The gross interval of the organically rich Rudov Bed Formation is between 26 feet to 230 feet, averaging 130 feet. 5 ARI assumes an 80% net to gross ratio, based on the formations relatively stable marine sedimentary environment. Total organic content in the prospective area ranges from 2% to 6% with an average of 4%. Vitrinite reflectance data suggest this formation is in the wet to dry gas window, with Ro values between 1% to 1.6%, Table VI-14.

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World Shale Gas Resources: An Initial Assessment

Figure VI-5. Dnieper-Donets Shale Gas Prospective Area

Re s o u rc e s
The Rudov Bed Shale in the Dnieper-Donets Basin contains a moderate resource concentration of 42 Bcf/mi2. Given a 7,134 mi2 prospective area, the risked shale gas in-place is 48 Tcf. This estimate accounts for development risks associated with the faulted margins of the basin, its depth and uncertain thermal maturity profile. Based on moderately favorable reservoir properties and mineralogy, we estimate a risked technically recoverable shale gas resource of 12 Tcf, Table VI-1.

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World Shale Gas Resources: An Initial Assessment

Figure VI-6. Dnieper-Donets Basin Stratigraphic Column 6

Figure VI-7. Central Dnieper-Donets Basin Stratigraphic Column 7

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World Shale Gas Resources: An Initial Assessment

Ac tivity
The Dnieper-Donets Basin is under investigation for unconventional gas potential. At present, shallower CBM deposits in the eastern area of the basin are the primary exploration targets, but firms are also studying the deeper shale gas potential in the basin. EuroGas, an independent E&P company, recently partnered with Total to explore the shale gas potential of its recently acquired lease concessions in the Dnieper-Donets Basin. The firm intends to drill its first horizontal wells some time in 2010. No results have yet been reported. Major E&P companies such as Shell and Exxon Mobil have also expressed interest in Ukrainian shale gas potential, but have not specified which areas they intend to explore. The large, U.S. E&P company, Marathon Oil, exited Ukraine in 2008 8.

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World Shale Gas Resources: An Initial Assessment

UKRANIAN LUBLIN BAS IN Ge o lo g ic Ch a ra c te riza tio n

The Ukrainian Lublin Basin is the southern extension of the Lower Paleozoic sedimentary basin deposited along the western slope of the Baltica paleocontinent. It is

bounded by the Grojec Fault in central Poland (which separates it from the Baltic Basin), the Trans-European Fault Zone to the west, the Mazury-Belarus high in the east, and, in this analysis, by the Romanian border to the south. The Ukrainian portion of the Lublin Basin covers an area of 26,500 mi2. The primary target in the Lublin Basin is shale in the Silurian-Ordovician section. Data on Ukrainian geology is sparse, so ARI relied heavily on data from the Polish Lublin Basin to establish a prospective area for the Silurian Shale in the Ukraine. Based on continuation of depth and maturity trends observed from Poland, ARI assumes 7,850 mi2 of the Ukrainian Lublin Basin to be prospective. The basin becomes shallow to the North and east, and exhibits uplifted faulting to the south and west, limiting the prospective area to a deep, thick centralized area in the Northwest of Ukraine, Figure VI-8.

Re s e rvo ir P ro p e rtie s (P ro s p e c tive Are a )

Silurian Depths to the Lower Silurian Shale range from 3,280 feet to 16,400 feet over the prospective area, with an average of 9,840 feet. The gross interval of the total Lower Silurian Shale Formation is between 1,310 ft to 3,260 ft, Figure VI-9; the organically rich strata has an gross thickness of 415 ft and a net thickness of 208 ft, based on data from the Polish Lublin Basin. Total organic content in the prospective area ranges from 1% to 3% with an

average of 2.5%. Vitrinite reflectance data suggest this formation is in the wet to dry gas window, with Ro values between 1% to 1.7%, Table VI-1 9.

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World Shale Gas Resources: An Initial Assessment

Figure VI-8. Lublin Basin Shale Gas Prospective Area

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World Shale Gas Resources: An Initial Assessment

Figure VI-9. Lubin Basin Stratigraphic Column9

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World Shale Gas Resources: An Initial Assessment

Figure VI-10. Lublin Basin Geology and Cross Section9

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World Shale Gas Resources: An Initial Assessment

Re s o u rc e s
The Silurian black shale in the Lublin Basin of Ukraine contains a resource concentration of 79 Bcf/mi2. Given a 7,850 mi2 prospective area, the risked shale gas in-place is 149 Tcf. Based on moderately favorable reservoir properties and mineralogy, we estimate a risked recoverable technically resource of 30 Tcf, Table VI-1.

Ac tivity
To date, the major exploration companies have focused their Lublin Basin exploration activities in Poland, favoring the countrys more transparent business climate. The only

international firm actively exploring the Ukrainian Lublin Basin is Eurogas, Inc, which plans to test for commercial gas potential from CBM and shale formations.

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World Shale Gas Resources: An Initial Assessment

P ANNONIAN-TRANS YLVANIAN BAS IN Ge o lo g ic Ch a ra c te riza tio n

The Pannonian-Transylvanian Basin is a large, Neogene-age, extensional basin covering a 124,000 square mile area largely inside of Hungary, Romania and Slovakia, Figure VI-8. It is bounded to the north and east by the Carpathian Mountains and to the south and west by the Dinaric and Eastern Alps, Figure VI-11. During the Oligocene, the basin was a vast sea, at one point connected to the Mediterranean. The marine sediments deposited in this basin are believed to be the source rocks for much of Hungarys hydrocarbon reserves, Figure VI-12. A number of uplifted basement blocks separate the Pannonian Basin into subbasins, including the Great Hungarian Plain (site of the Mako Trough, a tight gas target), Danube Basin and Transcarpathian Basin, among others. Each of these subbasins share a similar sequence of Neogene fill 10. Though the basin is relatively young, it has a very high geothermal gradient, allowing for organic matter to mature into the oil and gas window, Figure VI-13. However, the shale gas potential in the basin is low, as most of the regional organically rich source rocks are clay-like marls that offer limited commercial shale gas exploration potential. In the southeast of the basin, shale formations are immature and low in organic content 11. Limited data are available from basement shale formations in Jurassic and Cretaceous strata may have favorable characteristics for shale gas development, though detailed source rock data is scarce.

Re s e rvo ir P ro p e rtie s (P ro s p e c tive Are a )

At this time, insufficient data is available to establish a prospective area for shale gas formations in the Panonnian-Transylvanian Basin. Shale gas potential is being investigated by one firm in northern Romania, but geologic data on their lease concessions is not publically available.

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World Shale Gas Resources: An Initial Assessment

Figure VI-11. Pannonian-Translyvanian Basin

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World Shale Gas Resources: An Initial Assessment

Figure VI-12. Pannonian-Transylvanian Basin Stratigraphic Column

Figure VI-13. Generalized Pannonian-Transylvanian Depth and Structure Cross Section

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World Shale Gas Resources: An Initial Assessment

Ac tivity
Shale gas exploration in the Pannonian-Translyvanian Basin is still in a very speculative phase. East West Resources, an Alberta-based E&P company, is targeting shale formations in the Cretaceous-Jurassic pre-rift basement of the basin. It has applied for lease concessions to explore the conventional and shale horizons in the northern Romanian portion of the basin and should receive approval in 2011.

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World Shale Gas Resources: An Initial Assessment

CARP ATHIAN-BALKANIAN BAS IN Ge o lo g ic Ch a ra c te riza tio n

The Carpathian-Balkanian Basin is a geologically complex basin composed of a series of mountain nappes, foredeeps and plains in Southern Romania and Bulgaria, Figure VI-16. The basin is bounded by the Pannonian-Translyvanian Basin to the west, Moldova to the east, Ukraine to the north and the erosional boundary of the Moesian platform to the south, Figure VI14. With access to additional data, the Moesian Platform and Getic depression may prove to have prospective areas for shale gas development, Figure VI-17. Several strata, including the Silurian Tandarei formation, Jurassic Dogger Balls and Lias Etropole formations appear to have high organic content and appropriate levels of maturity for shale gas development, Figure VI15 12.

Re s e rvo ir P ro p e rtie s (P ro s p e c tive Are a )

Sufficient data is not currently available to establish the prospective shale gas areas in the Carpathian-Balkanian Basin. Figure VI-14. Carpathian-Balkanian Basin Map

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World Shale Gas Resources: An Initial Assessment

Figure VI-15. Carpathian-Balkanian Stratigraphic Column

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World Shale Gas Resources: An Initial Assessment

Figure VI-16. Carpathian-Balknian Basin Component Map 13

Figure VI-17. Carpathian-Balknian Basin Cross Section

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World Shale Gas Resources: An Initial Assessment

Ac tivity
The shale gas potential of the Carpathian Balkanian Basin was first realized in 2008, when Direct Petroleum Exploration drilled through a gas-bearing shale formation while targeting the Alexandrovo sandstone interval. major Chevron 14. In July 2010, Chevron reported that it secured three shale gas exploration blocks in the Romanian portion of the Carpathian-Balkanian Basin, totaling 675,000 acres. The company has not provided a timeline for exploration 15. In an official statement after meeting with the Bulgarian government to petition for shale gas exploration rights, Chevron estimated that it could extract up to 8 Tcf of shale gas in the country 16. Bulgarias Energy and Economy ministry estimates that industrial production of shale gas could commence within 5 to 10 years 17. Several firms have since begun exploring the shale gas

potential in Bulgaria, including Park Place Energy Group, Integrity Towers and U.S. super

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World Shale Gas Resources: An Initial Assessment

LITHUANIA
Lithuania relies entirely on imports to satisfy its natural gas demand. In 2008, the

country consumed 0.3 Bcfd of natural gas. We estimate that Lithuania has 17 Tcf of gas inplace (risked) in the prospective area of the Baltic Basin. Of this 17 Tcf, we estimate 4 Tcf could be ultimately technically recoverable.

RUS S IA (KALININGRAD OBLAS T)

Russia has the worlds largest natural gas proved reserves, estimated at 1,680 Tcf in 2009. It is also the worlds largest natural gas exporter. Of the almost 60 Bcfd the country produced in 2009, it exported 17 Bcfd to Europe. With its large conventional natural gas

resource base, Russia is unlikely to aggressively pursue shale gas reserves, though it likely is well endowed with these as well. Within the portion of the Baltic Basin in Russias Kaliningrad Oblast, we estimate a risked GIP of 76 Tcf. recoverable. Of this 76 Tcf, we estimate 19 Tcf could be ultimately technically

UKRAINE
Like most of Eastern Europe, Ukraine depends on Russian gas to meet its consumption needs. In 2008, the country consumed 7.8 Bcfd of natural gas, of which 1.9 Bcfd was produced domestically from 39 Tcf of proved reserves 18. We estimate that Ukraine has 48 Tcf of gas in-place (risked) in the prospective area of the Dnieper-Donets Basin and 149 Tcf of gas in-place (risked) in the Lublin Basin. Of this 197 Tcf, we estimate 42 Tcf could be ultimately technically recoverable, representing a large increase in the countrys current reserve base.

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REFERENCES
Kielt, Marian. Possibility of Natural Gas Occurrence in Silurian Schist Formation of the East-European Platform: Composite Analysis of Geophysical Measurements. Geofizyka Torun, Date Unknown.
1 2

Zdanaviciute, Onyte, and Jurga Lazauskiene. Hydrocarbon migration and entrapment in the Baltic Syneclise. Organic Geochemistry 35, no. 4 (April 2004): 517-527.

Ulmishek, G. Geologic Evolution and Petroleum Resources of the Baltic Basin. In Interior Cratonic Basins, 603-632. AAPG Memior 51. American Association of Petroleum Geologists, 1991. Ulmishek, G, V Bogino, M Keller, and Z Poznyakevich. Structure, Stratigraphy, and Petroleum Geology of the Pripyat and Dnieper-Donets Basins, Byelarus and Ukraine. In Interior Rift Basins, 125-156. AAPG Memior 59. American Association of Petroleum Geologists. 1994 .

Stovba, S. Structural features and evolution of the Dniepr-Donets Basin, Ukraine, from regional seismic reflection profiles. TECTONOPHYSICS -AMSTERDAM- 268, no. 1/4 (1996): 127-148.
5 6

Ulmishek, Gregory. Petroleum Geology and Resources of the Dnieper-Donets Basin, Ukraine and Russia. USGS Bulletin 2201-E (2001).

Law, B., G. Ulmishek, J. Clayton, B. Kabyshev, N. Pashova, and V. Krivosheya. Basin-centered gas evaluated in DnieperDonets basin, Donbas foldbelt, Ukraine. Oil and Gas Journal, November 1998. http://www.ogj.com/index/articledisplay/22292/articles/oil-gas-journal/volume-96/issue-47/in-this-issue/general-interest/basin-centered-gas-evaluated-in-dnieperdonets-basin-donbas-foldbelt-ukraine.html
7 8 9

http://eurogasinc.com/files/bilder/ukraine/ukraine_plans_to_develop_its_shale_gas_reserves_-_ukrainian-energy.com.pdf EuroGas Corporate Presentation

10

Dolton, Gordon. Pannonian Basin Province, Central Europe (Province 4808)- Petroleum Geology, Total Petroleum Systems, and Petroleum Resource Assessment. USGS Bulletin 2204-B (2006). Pawlewicz, Mark.. Transylvanian Composite Total Petroleum System of the Transylvanian Basin Province, Romania, Eastern Europe. USGS Bulletin 2204-E (2005). Popescu, Bogdan M. Romania's petroleum systems and their remaining potential. Petroleum Geoscience 1, no. 4 (November 1, 1995): 337-350.

11

12

13 Pawlewicz, Mark. Total Petroleum Systems of the Carpathian-Balkanian Basin Province of Romania and Bulgaria. USGS Bulletin 2204-F (2007). 14 15 16 17 18

http://www.energy-pedia.com/article.aspx?articleid=142577 http://www.chevron.com/documents/pdf/earnings_30Julyl2010.pdf http://www.energetika.net/eu/novice/articles/chevron-interested-in-bulgarian-shale-gas http://sofiaecho.com/2010/07/15/932982_chevron-and-integrity-towers-to-compete-for-bulgarian-shale-gas EIA World Energy Brief.

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VII. WES TERN EUROP E

INTRODUCTION
The gas-bearing shales of Western Europe are being actively explored and evaluated by a host of small to large companies. Numerous shale gas basins exist in Western Europe, containing Carboniferous, Permian, Jurassic and Ordovician-age shales, Figure VII-1. Specifically, shale gas leasing is ongoing in France, Germany, the Netherlands, Sweden, Denmark and Austria (See Chapters VI and V for discussion of Eastern European and Poland shale gas). Figure VII-1. Shale Gas Basins of Western Europe

January 21, 2011

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World Shale Gas Resources: An Initial Assessment

We estimate a risked gas in-place for the Western European shales assessed by this study of 1,505 Tcf, of which 372 Tcf is estimated to be technically recoverable, Table VII-1. Because of its large area, the Scandinavian Alum Shale holds the largest shale gas resource. Shales of the Paris South-East France and North Sea-German basins exhibit favorable characteristics, but contain comparatively modest resource due to their moderate thickness and/or limited area.

Table VII-1. Shale Gas Reservoir Properties and Resources of Western Europe

Basin/Gross Area

Basic Data

France Paris Basin (61,454 mi) PermianCarboniferous Permian Carboniferous 17,942 164 - 7,216 382 115 8,528 - 13,120 10,824 Normal 4.0% 1.65% Medium 47 303 76

France South-East Basin (17,800 mi) "Terres Noires" Liassic Shales

North Sea-German Basin (78,126 mi) Posidonia Shale Jurassic Namurian Shale Carboniferous Wealden Shale Cretaceous

Scandanivia Region (38,221 mi) Alum Shale Ordovician 38,221 0 - 459 328 164 3,280 Normal 10.0% 1.85% Low 77 589 147

U.K. Northern Petroleum System (22,431 mi)

U.K. Southern Petroleum System (7,644 mi)

Shale Formation Geologic Age Prospective Area (mi2) Interval Thickness (ft) Organically Rich Net Interval Depth (ft) Average Reservoir Pressure Average TOC (wt. %) Thermal Maturity (%Ro) Clay Content GIP Concentration (Bcf/mi2) Risked GIP (Tcf) Risked Recoverable (Tcf)

Bowland Shale Liassic Shales Carboniferous 9,822 0 - 4,000 492 148 3,280 - 6,300 4,800 Normal 5.8% 1.40% Medium/High 48 95 19 Jurrasic 160 1,000 - 1,640 415 125 11,500 - 15,500 13,500 Normal 2.4% 1.15% Medium 45 2 1

Upper Jurrasic Lower Jurrasic 16,900 0 - 1,200 333 100 3,280 - 6,560 4,920 Normal 3.5% 1.25% Low 27 112 28 17,800 100 - 2,000 525 158 8,200 - 16,400 12,300 Normal 2.5% 1.45% Medium 57 305 76

2,650 3,969 1,810 25 - 350 249 - 6,937 25 - 325 148 407 112 100 122 75 3,280 - 16,400 8,200 - 16,400 3,280 - 9,840 9,840 12,300 6,560 Normal Overpressured Normal 5.7% 3.5% 4.5% 1.50% 2.50% 1.25% Low/Medium Medium Medium 33 26 7 54 64 16 26 9 2

January 21, 2011

Resource

Reservoir Properties

Physical Extent

VII-2

World Shale Gas Resources: An Initial Assessment

P ARIS BAS IN
Ge o lo g ic Ch a ra c te riza tio n
The Paris Basin is a large 61,454 mi2 intracratonic basin underlying most of NorthCentral France. The basin is bounded on the east by the Vosques mountain range, on the

south by the Central Massif, on the west by the Armorican Massif and, for the purposes of this study, by the English Channel on the north. The Paris Basin contains two organically rich shale source rocks: the Toarcian Schistes Carton black shale formation and the Permian-Carboniferous shales. The lower thermal

maturity Schistes Carton shales are the source rock for most of the oil produced in the Paris Basin. These shale source rocks have high organic content, ranging from 1% to 10%

throughout the basin. With thermal maturity ranging between 0.5 to 0.9% Ro, the Schistes Carton shales are still in the oil window and immature with respect to shale gas potential. A number of firms, such as Toreador Resources, are investigating the shale oil potential of the Liassic interval in the Paris Basin 1. The deeper, more mature Permian-Carboniferous shales are less explored, but have promising characteristics for shale gas development. These strata were formed by continental deposits in the rift basins formed after the Hercynian orogeny and subsequent subsidence of the basins granite basement. Based on available data, we have mapped a 17,942 mi2 prospective area for the shales in the Paris Basin, Figure VII-2. The Northern boundary of the prospective area follows the 50 meter gross shale isopach line, its southern and eastern border is formed by the basin edge.

Re s e rvo ir P ro p e rtie s (P ro s p e c tive Are a )

Permian-Carboniferous Shales. As shown in Figure VII-3, the Permian-Carboniferous shales referred to in this report encompass a series of horizons ranging from the Pennsylvanian (Carboniferous) to late Permian. Detailed geologic data on these shale formations is scarce. Where information was lacking, we used data from regional analogue basins. The Permian-Carboniferous shales range from 8,500 feet to 13,100 feet deep, averaging 10,824 feet deep over the prospective area. The shales thicken to the east, ranging from 160 feet thick in the central Paris Basin to over 7,200 feet in isolated sections of the basins eastern margin, Figure VII-4. Average shale interval thickness in the prospective area is assumed to be
January 21, 2011 VII-3

World Shale Gas Resources: An Initial Assessment

1,150 feet. Due to a lack of well log or other net shale thickness data, we assume one-third of the formation interval is organically rich, and apply a 30% net to gross factor, consistent with similar age shales in Poland, to reach an organically rich net shale thickness of 115 feet. Data on total organic content (TOC) in the prospective area was not available, so TOC data from the Dniper-Donets Basin, an analogue of similar age and depositional environment was used. Assumed TOC values range from 2% to 6% with an average of 4%. prospective area 2. Figure VII-2. Prospective Area and Gross Isopach of Permian Carboniferous Shales, Paris Basin The Permian-

Carboniferous shales are in the gas window, with Ro ranging from 1.3% to over 2% across the

Re s o u rc e s
Our analysis suggests the Permian-Carboniferous shales of the Paris Basin contain a moderate resource concentration of 47 Bcf/mi2. Risked gas in-place for the Paris Basin is 303 Tcf, The risked technically recoverable shale gas resource is estimated at 76 Tcf, Table VII-1.
January 21, 2011 VII-4

World Shale Gas Resources: An Initial Assessment

Figure VII-3. East Paris Basin Stratigraphic Column

Figure VII-4. Paris Basin Cross Section:

PermoCarboniferous Shales

January 21, 2011

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World Shale Gas Resources: An Initial Assessment

Ac tivity
While most of the exploration activity in the Paris Basin is targeting the Liassic-age liquid shale oil plays in the center of the basin, some firms are beginning to acquire acreage in the eastern portions of the basin, where the Permian-Carboniferous shale gas formation is thickest. The Moselle Permit (~$4 million dollars; 2,070 mi2), first granted to East Paris Petroleum Development Corp, was acquired by Elixir Petroleum in February, Figure VII-5. While the terms of the lease do not require the company to drill any wells, Elixr has publically stated that it intends to investigate the unconventional gas potential (both CBM and shale gas) on its lease 3. Figure VII-5. Moselle Permit, Paris Basin

January 21, 2011

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World Shale Gas Resources: An Initial Assessment

S OUTHEAS T BAS IN
Ge o lo g ic Ch a ra c te riza tio n
The Southeast Basin is the thickest sedimentary basin in France, containing up to 10km of Mesozoic to Cenozoic sediments. The basin is bounded on the east and south by the Alpine thrust belt and on the west by the Massif Central, an uplifted section of the Paleozoic basement, Figure VII-6. Local oil and gas seeps discovered in the 1940s encouraged hydrocarbon exploration early in the basin. However, despite the drilling of 150 wells in the onshore and offshore Recent re-

portions of the basin, no significant oil and gas deposits have been found.

evaluations of the basins potential by the French research institute IFP and others have peaked interest once again. The deep Jurassic shales and marls present over much of the basin area appear to have favorable characteristics for oil and gas source rocks. Some limited leasing is ongoing to test this potential. This study will focus on the shale gas potential of two formations in the Southeast Basin, the Upper Jurassic Terres Niores black shales, and the Lower Jurassic Liassic black shales. These shales are composed of Type II marine organic matter, and were deposited during a time of subsidence and rifting, when the Liguro-Piemontais ocean covered portions of what is now southern France 4. These formations have been evaluated and mapped to establish their The Lower Jurassic shale sequence is prospective throughout

respective prospective areas.

the basin, while well data suggests the Upper Jurassic shales enter the oil window on their western boundary. ARI calculates a 16,900 mi2 prospective area for the Upper Jurassic shale sequence 5.

Re s e rvo ir P ro p e rtie s (P ro s p e c tive Are a )

Upper Jurassic Terres Niores. The Terres Niores black shales are marine shales deposited throughout the Southeast Basin. They range from 3,300 feet to 6,600 feet deep over the basin, averaging 4,900 feet, Figure VII-7. The gross interval of the shale reaches 1,200 feet, containing 333 feet of organically rich gross shale and 100 feet of net shale4, Figure VII-8. Total organic content (TOC) in the prospective area ranges from 1% to 3% with an average of 2%. In the eastern portions of the basin, the Terres Niores shale is in the gas window, with Ro of 1.5%. At the western edges, the shale enters the wet gas/oil window, with Ro of 1%.

Average vitrinite reflectance (Ro) over the prospective area is 1.25% Ro5.
January 21, 2011 VII-7

World Shale Gas Resources: An Initial Assessment

Lower Jurassic Liassic Shale. The Liassic Shale of the Southeast Basin is deeper, thicker and generally more mature than the Terres Niores Shale, though it has a higher clay content and is not as brittle. Uplifting along the western margin of the Southeast Basin has brought the Liassic Shale to a more reasonable depth for exploration. Depth to the Liassic Shale package ranges from 3,300 feet to 16,300 feet deep over the basin, with most of the prospective area at an average depth of 9,800 feet. Figure VII-8. The gross interval of the shale ranges from 100 to 2,000 feet with 525 feet of organically rich and 160 feet of net shale. Total organic content (TOC) in the prospective area ranges from 1% to 6% with an average of 3.5%. Thermal maturity in the Liassic Shale increases with depth, ranging from 1.2% Ro in the more shallow western areas to over 1.7% Ro in the deep eastern area. reflectance (Ro) over the prospective area is 1.45%. Figure VII-6. Southeast Basin Prospective Area and Upper Jurassic Shale Isopach Average vitrinite

January 21, 2011

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World Shale Gas Resources: An Initial Assessment

Figure VII-7. Southeast Basin Stratigraphic Column

Figure VII-8. Generalized Southeast Basin Cross Section

January 21, 2011

VII-9

World Shale Gas Resources: An Initial Assessment

Re s o u rc e s
Our analysis suggests the Upper Jurassic Terres Niores Shale of the Southeast Basin contains a relatively low resource concentration of 27 Bcf/mi2, Table VII-1. Low average TOC content and relatively thin net shale thickness are the main determinants of this low resource concentration. Isolated areas throughout the basin with higher shale thickness or more organic richness would contain higher gas in-place. The risked gas in-place for the Terres Niores Shale is 112 Tcf, of which we estimate 28 Tcf will be technically recoverable. The Upper Liassic Shale contains a slightly higher, though still moderate, resource concentration than the Terres Niores shales, averaging 57 Bcf/mi2, Table VII-1. Risked shale gas in-place over the prospective area is 305 Tcf, of which 76 Tcf is technically recoverable.

Ac tivity
A number of firms are beginning to explore the shale gas potential of the Southeast Basin; the initial permit award deadline was delayed due to the large numbers of applications. In March of this year, the French Ministry of Energy and the Environment awarded several exploration permits, worth over $115 million and covering over 4,000 mi2 (~22% of the prospective area), to companies interested in investing in the drilling and exploration of shale formations in Southeast France. Where information was available, the leases are shown on Figure VII-9. The Navacelle permit (~ $5 Million dollars; 84 mi2) was awarded to Egdon resources (later acquired by eCORP), Eagle Energy and YCI Energy to allow for seismic surveys and an exploration well over the next 5 years. The Plaine dAles permit (~$2 million dollars; 194 mi2) was awarded to Bridgeoil Ltd and Diamoco Energy to perform seismic reprocessing and drill a new exploration well or reenter a 1949 well with heavy crude shows. The Montelimar permit (~$51 million dollars; 1,670 mi2) was awarded to Total E&P and Devon energy (Devons stake was subsequently bought by Total) to perform geological and geochemical studies and, if warranted, exploratory drilling over 5 years.

January 21, 2011

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World Shale Gas Resources: An Initial Assessment

The Villeneuve-de-Berg permit (~$54 million dollars; 360 mi2) was awarded to Schuepbach Energy LLC, Dallas, Dale Gas Partners LP of Texas, and FrancoBelgian GDF Suez. The companies agreed to perform 19 miles of new seismic surveys and drill two wells, one of which would hydraulically fracture the target shale formation, over the next 3 years.

The Nant permit (~$2.3 million dollars; 1,701 mi2) was awarded to these same companies, on which they will also perform 19 miles of seismic surveys and drill a shallow exploration well over the next 3 years.

The Bassin dAles permit (~$1.4 million dollars) was awarded to Mouvoil SA to perform seismic studies and drill an exploration well. Figure VII-9. Southeast Basin Leasing Map (Selected)

January 21, 2011

VII-11

World Shale Gas Resources: An Initial Assessment

NORTH S EA-GERMAN BAS IN

Ge o lo g ic Ch a ra c te riza tio n
For this report, we have defined the North Sea-German Basin as the large, 78,100 mi2 area of Paleozoic through Tertiary fill, extending from Belgium to Germanys eastern border, from the North Sea to the Tornquist suture zone, Figure VII-10. A number of smaller, localized basins, such as the German Lower Saxony, Musterland and the West Netherlands basins exist as grabens within the more regional North Sea-German Basin. Several formations in the North Sea-German Basin show potential for shale gas development. The three best identified formations are the marine Lower Jurassic Posidonia Shale, the deltaic Lower Cretaceous Wealden Shale and the marine Carboniferous Namurian Shale in the northwest of Germany and parts of the Netherlands. Each of these formations have been previously noted to be oil and gas source rocks, though their potential for shale gas development had not been realized until the past few years. Conventional drilling in areas of Germany and the Netherlands has provided logs and other geophysical data used to identify the prospective areas of these three shales, but there is still uncertainty, especially in the Netherlands, about the quality and producibility of these shale formations. Additionally, the lacustrine Permian shales in northeast and southern Germany (not evaluated in this study) appear to have some shale gas potential. 6,7 Based on available data, we have identified a 2,650 mi2 prospective area of Posidonia Shale in Germany and the Netherlands, a 3,969 mi2 prospective area of Namurian Shale in the Netherlands, and a 1,810 mi2 prospective area of the Wealden Shale in Germany. At this time prospective areas for the Namurian and Permian shales in Germany could not be established.

Re s e rvo ir P ro p e rtie s (P ro s p e c tive Are a s )

Lower Jurassic (Liassic) Posidonia Shale. The Lower Jurassic shale sequence

referred to in the report as the Posidonia Shale actually contains three shale bearing members: The Posidonia Formation, the Aalburg Formation and the Sleen Formation. Though it is likely

present throughout much of the North Sea-German Basin, the Posidonia Shale is prospective in isolated sections of Germany and the Netherlands, Figure VII-10. The Netherlands prospective area is based on reports released by energy company TNO, which used depth, maturity, thickness and other factors to identify highly prospective regions for shale gas development 8.

January 21, 2011

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World Shale Gas Resources: An Initial Assessment

Depth to the Posidonia Shale ranges from 3,300 feet to 16,400 feet, with an average depth in the prospective area of 9,840 feet, Figure VII-11. 9 The prospective area is relatively thin, with an organically rich thickness of 148 feet and a net shale thickness of 100 feet. Organic content varies in the Posidonia Shale, ranging from 1% to 14% with an average of 5.7%. Thermal maturity is the major liming factor for shale gas potential in this formation; the majority of its area is outside of the gas generating window. The central, deeper areas of known accumulations of Posidonia Shale exhibit sufficient maturity, Figure VII-12, with Ro ranging from 1.0% to 1.5%, placing the shale in the wet to dry gas window. 10 Porosity data from the

Netherlands suggests that much of the available pore space in the shale is water saturated. Cretaceous Wealden Shale. The Wealden Shale is a known source rock in the Lower Saxony Graben of the North Sea-German Basin. Like the Posidonia Shale, it is immature with respect for gas generation throughout most of its area, but is prospective in its deeper core areas. The prospective area was defined by the erosional edge of the shale within the German Lower Saxony Graben at depths below 3,300 feet. In this area, the Wealden Shale ranges from 3,300 feet to 9,840 feet, averaging 6,560 feet deep. Approximately 112 feet of the shale is organically rich, with 75 feet of net shale thickness 11. TOC in the Wealden Shale is highly variable, ranging from 1% to 15%, averaging 4.5% in the prospective area. Thermal maturity is somewhat low for a shale gas target, ranging from 1% to 1.5% Ro, with an average Ro of 1.25%. Carboniferious Namurian Shale. The Namurian sequence in the Netherlands contains two prospective formations, the Epen and Geverik, which are collectively termed the Namurian Shales in this report. Data provided in the TNO report discussed above were used to establish areas with prospective depth, maturity and thickness for shale gas potential. Depth to the top of the Namurian Shales ranges from 8,400 feet to 16,400 feet, averaging 12,300 feet over the prospective area. Because the shale formation is so deep, it is very thermally mature, with an average Ro of 2.5%.8 Within the Namurian Shale package, the Epen Formation is very thick, reaching almost 7,000 feet in some areas. Organic rich shale thickness in the formation is approximately 407 feet, evenly split between the Geverik and Epen Formations 12. Net shale thickness is assumed to be 122 feet, based on analogue net to gross ratios observed in British Namurian Shales. Total organic content ranges from 1% to 15%, averaging 3.5%.

January 21, 2011

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World Shale Gas Resources: An Initial Assessment

Figure VII-10. North Sea-German Basin Prospective Shale Formations

January 21, 2011

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World Shale Gas Resources: An Initial Assessment

Figure VII-11. North Sea-German Basin Stratigraphic Column9

Figure VII-12. North Sea-German Basin Cross Section

A A

Green line: Posidonia Shale; Pink line: Wealden shale

January 21, 2011

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World Shale Gas Resources: An Initial Assessment

Re s o u rc e s
Based on the above data, we calculate that the prospective area of the Posidonia Shale contains a low resource concentration of 33 Bcf/mi2, largely due to the shales relatively low gas filled porosity, Table VII-1. Based on a prospective area of 2,650 mi2, the Posidonia Shale contains 26 Tcf of risked gas in-place, with 7 Tcf of technically recoverable shale gas resource. The 3,970 mi2 prospective area of the Namurian Shale in the Netherlands contains a resource concentration of 54 Bcf/mi2. Risked gas in-place is 64 Tcf, with 16 Tcf recoverable. The less mature and shallower Wealden Shale in Germany also has a low average resource concentration, calculated at 26 Bcf/mi2, Table VII-1. Based on a prospective area of 1,845 mi2, we estimate a risked gas in-place of 9 Tcf, with 2 Tcf technically recoverable.

Ac tivity
Super major Exxon Mobil has been the lead company leasing prospective shale gas acreage in Germany. The company has drilled five test wells on its exploration leases, at least three of which are reported to be testing shale gas potential, Figure VII-18. In early November, Exxon announced an additional 10 well exploration program that will be targeting shale gas potential in northwest Germany. In May 2010, Realm Energy announced the receipt of a small, 25 mi2 shale gas exploration permit in West Germany. The company plans to explore the oil and gas potential in the Posidonia and Weald shales underneath its acreage. Realms concession is valid for three years and does not require well drilling, but does provide the company with data from the 21 wells drilled on its acreage in past years. BNK Petroleum has leased approximately 3,745 square miles of land for shale, CBM and tight gas sand exploration in West and Central Germany. The company has yet to drill on any of its properties, but reports targeting three different shale formations, most likely the Posidonia, Wealden and Permian shales. Most of its concessions are not near areas with recognized shale gas potential, suggesting the company is pursuing a wildcatting approach in Germany, Figure VII-13. To date, the company has not provided details of drilling plans.

January 21, 2011

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World Shale Gas Resources: An Initial Assessment

In June 2009, 3Legs Resources secured a 980 mi2 exploration permit for shale gas exploration in Permian-Carboniferous horizons. The permit is valid for 3 years and requires 2D and 3D seismic testing and the drilling of one exploration well. The company has not provided addition information at this time. In the Netherlands, two companies have acquired exploration permits that are likely targeted toward shale gas exploration, Figure VII-13: Cuadrilla Resources, and DSM Energie (later sold to TAQA, the Abu Dhabi national energy company). Neither company has made public statements about their plans in the Netherlands. Queensland Gas Company (now BG Group) has a sizable exploration acreage position in east Netherlands, at the border with Germany in an area which may hold shale gas and CBM potential. Figure VII-13. North Sea-German Basin Leasing Activity

January 21, 2011

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World Shale Gas Resources: An Initial Assessment

S CANDINAVIA
Ge o lo g ic Ch a ra c te riza tio n
Scandinavias shale gas potential exists predominantly in the Cambrian-Ordovician Alum Shale. This highly organic rich shale was deposited over much of Scandinavia by the Lapetus Ocean and has been identified from Norway to Estonia, and south to Germany and Poland. The shale was deposited during an unusually long anoxic period, resulting in its high organic content and unusually high concentrations of uranium. The Alum shale outcrops in central and southern Sweden, where it has been mined as a source of oil shale for many decades. Outside of outcroppings, geologic data on the Alum Shale is scarce. Though the shale is somewhat thin and outside of the gas window in most of the area, its high organic content and moderate depth make it a very promising target where prospective. ARI has identified a 38,221 mi2 prospective area where maturity data indicate the shale is inside the gas window, Figure VII14. Thermal activity along the Caledonian deformation front provided sufficient heat to mature the shale into the gas window. Elsewhere the Alum Shale appears to be mostly oil-prone. In northern Norway, the prospective area is further constrained by shale thickness and the Caledonian deformation front, which likely represents an erosional edge to the Alum shale. Note that, because of the Alum shales wide areal coverage, only the prospective area is shown in Figure VII-14.

January 21, 2011

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World Shale Gas Resources: An Initial Assessment

Figure VII-14. Alum Shale Geographic Extent

Re s e rvo ir P ro p e rtie s (P ro s p e c tive Are a )

Regional data on the Alum Shale is sparse. Where data was not available for the prospective area of the Alum shale in the Northern of Sweden, we used data from the Skane area at the southern tip of the country as an analogue. The area of the Alum Shale inside the gas window is shown in Figure VII-14. Thermal maturity in the gas window ranges from 1.0% to 2.7% Ro% with an average Ro of 1.9% 13. Average thickness inside the prospective area is 330 feet with a net shale thickness of 160 feet 14. Depth to the Alum Shale Formation is assumed to be 3,300 feet, based on the

exploration well Shell reported drilling into its acreage in Southern Sweden, which reached a target depth of 1,000 meters (3,300 feet).

January 21, 2011

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World Shale Gas Resources: An Initial Assessment

A generalized stratigraphic column for the Alum Shale is provided in Figure VII-15. Total organic content of the shale can reach up to 28% in localized areas, but averages 10% within the prospective area.

Re s o u rc e s
We calculate a moderate resource concentration of 77 Bcf/mi2 for the Alum Shale. Though it has very favorable maturity and organic content, it is not as thick as the Baltic or Lublin shales of Poland, resulting in a lower resource concentration. Due to the relative lack of data on reservoir characteristics in large portions of the Alum shale prospective area, we employ high risk factors to calculate the risked recoverable resource. Within the Alum Shales 38,221 mi2 prospective area, we calculate a risked gas in-place volume of 589 Tcf, of which 147 Tcf is estimated to be technically recoverable. Figure VII-15. Central Sweden Stratigraphic Column 15

January 21, 2011

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World Shale Gas Resources: An Initial Assessment

Ac tivity
Shell Oil is the most active firm currently investigating the resource potential of the Alum Shale. Beginning in 2008, the firm has been accumulating an acreage position in the Skane region of Southern Sweden, which now amounts to approximately 400 mi2, Figure VII-16. Shells leases provide three years for the firm to drill 3 exploration wells and evaluate the areas shale gas potential. Local opposition to well drilling delayed the start of the drilling until earlier this year, though the firm has now drilled two of the three wells. Representatives from Shell reported the firm will analyze the results of the well tests for one year before determining whether to proceed with the project. Figure VII-16. Shells Alum Shale Acreage in Southern Sweden

A coalition between the GFZ German Research Centre for Geosciences together and the Geological Survey of Denmark and Greenland (GEUS) will also be exploring the Alum Shale. In August 2010, the agencies announced they will be drilling a shallow (130 feet) well into the Alum Shale on the Danish island of Bornholm. This effort is being undertaken by GASH, the Gas Shales in Europe research organization. Finally, in September 2010, Gripen Gas reported securing 5 exploration permits to investigate shale gas potential in the central Swedish county of stergtland. The permits were awarded for a period of three years.
January 21, 2011 VII-21

World Shale Gas Resources: An Initial Assessment

UK NORTHERN P ETROLEUM S YS TEM

Ge o lo g ic Ch a ra c te riza tio n
The U.K. contains two major petroleum systems: a Carboniferous Northern Petroleum System that ranges from the Varascan Front in central England north through Scotland; and a Mesozoic Southern Petroleum System that exists between the Varascan Front and the English Channel in England and Wales. While, each of these petroleum systems contains several petroleum basins, they share similar depositional and tectonic history and contain the same shale gas prospective formations. For simplicity, this report will discuss shale gas potential in the U.K. at the level of the petroleum systems rather than by basin. The Northern Petroleum System is a complex and highly faulted mosaic of mostly Carboniferous basins and uplifted highs. It contains the major Carboniferous Pennine Basin, as well as the Cheshire, West Lancashire, Cleveland and Scottish Midland Valley basins, Figure VII-17. Petroleum exploration has been ongoing in this area for over 100 years, leading to several large oil fields, containing over 2 billion barrels of oil in-place. 16 The main source rock in the Northern Petroleum System is the marine Namurian Bowland Shale (also known as the Holywell Shale in the Cheshire and West Lancashire basins), Figure VII-18. This shale matured during the Carboniferous and was uplifted by the Variscan Orogeny, though its depth varies by basin due to major faulting events. Using data on Bowland Shale maturity and net organic rich thickness from well logs, ARI calculates a 9,820 mi2 prospective area in the Northern U.K Petroleum System. However, current development

has only targeted the shales eastern areas. Additional exploration and data will be needed before the western extent of the shale can be established.

January 21, 2011

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World Shale Gas Resources: An Initial Assessment

Figure VII-17. UK Northern Petroleum Province, Basins, and Shale Gas Prospective Areas

Re s e rvo ir Ch a ra c te ris tic s (P ros p e c tive Are a )

The Boland Shale ranges from 3,280 to 6,300 feet deep, with an average depth of 4,800 feet in the prospective area, Figure VII-19. 17 Though its gross interval can reach up to 4,000 feet, approximately 500 gross feet are organically-rich, of which 200 feet is net shale. 18 The Boland Shale is organically rich, with total organic content ranging from 1% to 10%, averaging 5.8%. 19 Though most areas of the shale are in the oil window, the shale gas prospective area has a thermal maturity of 1% to 1.8% Ro, within the wet to dry gas window.

January 21, 2011

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World Shale Gas Resources: An Initial Assessment

Figure VII-18. Northern Petroleum System Stratigraphic Column16

Figure VII-19. Cleveland Basin Cross-Section, U.K. Northern Petroleum System16

Bowland Shale

Bowland Shale

January 21, 2011

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World Shale Gas Resources: An Initial Assessment

Re s o u rc e s
Based on the above data, ARI calculates that the Bowland Shale has a moderate resource concentration of 48 Bcf/mi2 in the prospective area. However, data from the eastern margins of the shale formation were used as proxies for the currently unexplored western areas, which adds uncertainty to the assessment. Based on the shales 9,820 mi2 area, it contains a risked shale gas in-place of 95 Tcf, of which 19 Tcf is technically recoverable.

Ac tivity
In December of 2010, Cuadrilla Resources finished drilling its first exploratory well into the Cheshire Basins Bowland Shale. Initial results from the Preese Hall #1 well, as provided by Cuadrilla, indicate that the shale has high prospectivity for shale gas development. Cuadrilla plans to drill two additional wells into the formation in early 2011, Figure VII-20. Though it has yet to drill any exploration wells, U.K. based Island Gas has a number of acreage positions in the U.K. Northern Petroleum System that it reports as having promising shale gas potential. The company is in the process of evaluating the shale gas resource potential of its acreage, which covers over 460 mi2 in the West Lancashire, Cheshire and Cleveland basins. Celtique Energy also has acreages positions in the Northern Petroleum System that could contain shale gas resources. The company reports acreage positions in the East

Midlands and Cheshire basins, on which it plans to target Carboniferous and Triassic sands sourced by Namurian Shales. Though the company has not expressly stated that it intends to target shale formations on its North Petroleum System acreage, it is targeting the Weald Shale in southern England.

January 21, 2011

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World Shale Gas Resources: An Initial Assessment

Figure VII-20. Operators Exploring Shale Gas in the U.K. Northern Petroleum System

January 21, 2011

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World Shale Gas Resources: An Initial Assessment

U.K. S OUTHERN P ETROLEUM S YS TEM

Ge o lo g ic Ch a ra c te riza tio n
The U.K. Southern Petroleum System contains the Mesozoic Weald and Wessex basins and ranges from the Variscan Front south to the English Channel, Figure VII-21. Petroleum basins in the U.S. Southern Petroleum System are characterized by Jurassic-age source rocks and Jurassic and Triassic clastic reservoirs. These formations are regionally equivalent with the shale formations in the Paris Basin across the English Channel, separated by the HampshireDieppe High, a regional arch. Both basins began as Permo-Triassic depositional centers, which were later uplifted during Tertiary time along major structural faults. Petroleum exploration has been ongoing in the Southern Petroleum System since the early 1920s, though few notable finds were discovered until 1973, when the Wytch Farm Oilfield, U.K.s largest oil field, was discovered16. The most prospective source rock for shale gas development in the Southern Petroleum System is a group of Liassic interbedded shallow marine shales and clays, known as the Liassic Clays, Figure VII-22. Widely believed to be immature for gas development, selected portions of the Liassic Clays have recently been shown to be in the gas generation window. Throughout much of the Weald and Wessex basins, however, the formation is within the oil window. Using data provided by operators in the region, ARI has identified a 160 mi2 area in which the Liassic Shales are within the gas window. A number of Upper Jurassic clays are also source rocks in the Southern Petroleum System, such as the Kimmeredge Clay, but are immature with respect to gas production.

January 21, 2011

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World Shale Gas Resources: An Initial Assessment

Figure VII-21. U.K. Southern Petroleum System and Shale Gas Prospective Area

Re s e rvo ir Ch a ra c te riza tio n (P ro s p e c tive Are a )

Depth to the top of the prospective area of the Liassic Shales ranges from 11,500 feet to 15,500 feet, with an average of 13,500 feet, 20 Figure VII-23. While the shale exists throughout the Weald and Wessex basins, it is only prospective in their deepest areas. At this depth, approximately 125 feet of the up to 2,000 feet of formation interval contains net, organic rich shale. 21 Total organic content varies from 1% to 7%, with an average of 2.4% in the deep, prospective areas.18 While in the wet gas window, the Liassic Shale is still somewhat immature, with vitrinite reflectance ranging from 1% to 1.3% Ro.20

January 21, 2011

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World Shale Gas Resources: An Initial Assessment

Figure VII-22. Southern Petroleum System Stratigraphic Column16

Figure VII-23. Weald Basin Cross-Section, U.K. Southern Petroleum System16:

Liassic Clays

January 21, 2011

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World Shale Gas Resources: An Initial Assessment

Re s o u rc e s
We calculate that the Liassic Shale has a low to moderate resource concentration of 45 Bcf/mi in its prospective area. Because the shale is only in the gas window in the deepest areas of the basin, its prospective area is small, approximately 160 mi2. Our analysis suggests that this area contains 2 Tcf of risked GIP, of which about 1 Tcf is recoverable.
2

Ac tivity
Celtique Energy (in 50/50 partnership with Magellan Petroleum) has acreage positions in the Southern Petroleum System. According to company data, its 386 mi2 exploration licenses in the Weald Basin could contain up to 2 Tcf of recoverable resource, which is supported by the fact that that the companys acreage covers almost the entirety of the prospective area of the Liassic Shale, Figure VII-24. The company has not provided a timeline for its drilling plans, but its license is valid until 2014. The U.K. based energy company Eden Energy is in a similar position to Celtique, with acreage it believes to be prospective for shale gas development that is currently untested. The company has license to 700 mi2, on which it reports 40 Tcf of shale gas potential. The company is actively looking for a Joint Venture partner, but has not provided additional information. Eurenergy, with acreage positions in Poland and France, has a small concession in the Weald Basin, totaling 192 mi2. Cuadrilla also has small acreage positions in the Southern Petroleum System, though it has not made its plans in the region public.

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Figure VII-24. Operators Exploring Shale Gas in the U.K. Southern Petroleum System

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VIENNA BAS IN
Ge o lo g ic Ch a ra c te riza tio n
The Vienna Basin is a Tertiary pull-apart basin located in northwest Austria and extending northward into the Czech Republic, Figure VII-25. The basin contains a thick, 33,000 feet sequence of Neogene through Mesozoic fill and rests atop the Calcareous Alps and Bohemian Massif basement, Figure VII-26. Faults traversing the basin provide pathways for hydrocarbons produced in Jurassic strata to migrate into a series of overlying stacked reservoirs. These reservoirs have provided over 1 billion barrels of oil to date, making the Vienna Basin one of Europes most important hydrocarbon sources. 22 Figure VII-25. Vienna Basin Regional Setting

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Figure VII-26. Geologic Setting of the Vienna Basin

Shale gas potential in the Vienna Basin occurs in the thick (up to 2km) succession of lime-rich mudstone known as the Upper Jurassic Mikulov Marl Formation. While not technically a shale, the Mikulov Marl Formation has an organic content of up to 10% in some areas, and is thought to be the main source of hydrocarbons in the basin. However, due to its clay-rich lithology, heavily faulted environment, and relative immaturity at prospective depths, the Mikulov Marl is a high risk shale gas target. 23

Re s e rvo ir P ro p e rtie s (P ro s p e c tive Are a )

Due to the Mikulov Marl Formations depth in the gas-prone areas, it is not prospective for shale gas development at this time. The formation ranges from 5,580 feet to 39,360 feet throughout the Vienna Basin, Figure VII-27. 24 However, at depths above 16,400 feet, it is immature for thermogenic gas development. 25,26

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Figure VII-27. Selected Vienna Basin Cross Sections

Ac tivity
Austrian based OMB Exploration and Production GmbH is exploring the potential of the Mikulov Marl formation as part of a three year study. It has secured exploration concessions in Northern Austria, which include 820 mi2 within the Vienna Basin, Figure VII-25. Though the company has publically estimated that the Vienna Basin contains 200 to 300 Tcf of resource, it cautions that the great depth and pressure of shale gas formations may make exploration technically or economically infeasible 27. In a recent interview, Wolfgang

Ruttenstorfer, OMVs chief executive, noted that well costs at depths greater than 16,400 feet could be $20 million or more.

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FRANCE
Approximately 98% of Frances gas consumption (4.7 Bcfd) is provided by imports, of which 24% originate from Russia. 28,29 In 2009, the country produced 0.08 Bcfd of gas, from negligible proved reserves. The shale gas in-place (risked) in Frances Paris and South-East basins equals 720 Tcf of which 180 Tcf is estimated to be technically recoverable.

GERMANY
Germany is also very dependent on natural gas imports to satisfy the countrys demand for the fuel. In 2009, Germany consumed 9 Bcfd of natural gas, but only produced 1.4 Bcfd, from proved reserves of 6 Tcf. Of the balance that the country imported, approximately 43% came from Russia. The Posidonia, Namurian and Wealden shales discussed in this report contain 34 Tcf of risked shale gas in-place, with 8 Tcf of technically recoverable resource. Additional, still undefined shale potential likely exists in the Permian-Carboniferous shales.

NETHERLANDS
Due to its significant offshore North Sea resource base, the Netherlands is self-sufficient in natural gas. In 2009, the country produced 7.6 Bcfd of natural gas, of which 4.7 Bcfd were consumed domestically. Despite the countrys abundance of conventional gas, there is interest in exploring for shale gas. The Netherlands portion of the Posidiana, Namurian and Wealden shales contain 66 Tcf of risked shale gas in-place, with 17 Tcf technically recoverable.

S WEDEN
Sweden does not produce natural gas. The 164 Tcf of risked shale gas in-place and the 41 Tcf of technically recoverable shale gas resources could meet domestic consumption, at 0.1 Bcfd in 2009, far into the future.

DENMARK
Denmark is currently self-sufficient in natural gas, consuming 0.4 Bcfd of the 0.8 Bcfd it produced in 2009. However, the country is likely to become a net importer, as its natural gas reserves have been steadily falling (from 4 Tcf in 2005 to 2 Tcf in 2009) in the face of increasing production. The prospective area of Denmark contains an estimated 92 Tcf of risked shale gas in-place and 23 Tcf of technically recoverable resource, which could sustain the countrys current level of consumption far into the future.
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NORWAY
Like the United Kingdom, Norway has a large endowment of natural gas resources from its North Sea fields. In 2009, the country produced 9.9 Bcfd of natural gas from 82 Tcf of reserves (almost half of Europes natural gas reserves), while only consuming 0.44 Bcfd. The Alum Shale could provide an additional 83 Tcf of recoverable resource, almost doubling the countrys existing natural gas resource base.

UNITED KINGDOM
Though the United Kingdoms North Sea and onshore fields provide substantial amounts of natural gas (5.7 Bcfd in 2009), it is currently a net importer, with natural gas consumption of 8.5 Bcfd in 2009. Like Denmark, the United Kingdoms natural gas reserves have been in decline decreasing from 27 Tcf in 2000 to 12 Tcf in 2009. The gas in-place (risked) in the Bowland and Liassic shales are estimated at 97 Tcf, with 20 Tcf of technically recoverable resource.

REFERENCES
1 2

Perrodon, A., and J. Zabeki. Paris Basin. In Interior Cratonic Basins, 633-639. AAPG Memoir 51, 1991.

Chungkham, Prithiraj. Paris Basin offers opportunities for unconventional hydrocarbon resources. first break 27 (January 2009). Elixr Petroleum Mascle, Alain, and Roland Vially. The petroleum systems of the Southeast Basin and Gulf of Lion (France). Geological Society, London, Special Publications 156, no. 1 (January 1, 1999): 121-140. Vially, Roland. Shale Gas in the South-East Basin presented at the Global Shale Gas Summit, Warsaw, Poland, July 2010.

3 4

5 6

Hartwig, Alexander, Sven Knitzer, Bettina Boucsein, Brian Horsfield, and Hans-Martin Schulz. Applying classical shale gas evaluation concepts to Germany--Part II: Carboniferous in Northeast Germany. Chemie der Erde - Geochemistry 70, no. Supplement 3 (August 2010): 93-106.
7

Hartwig, Alexander, and Hans-Martin Schulz. Applying classical shale gas evaluation concepts to Germany--Part I: The basin and slope deposits of the Stassfurt Carbonate (Ca2, Zechstein, Upper Permian) in Brandenburg. Chemie der Erde Geochemistry 70, no. Supplement 3 (August 2010): 77-91.

Muntendam-Bos, A. Inventory non-conventional gas. TNO Built Environment and Geosciences, 2009. http://www.google.com/url?sa=t&source=web&cd=13&ved=0CB4QFjACOAo&url=http%3A%2F%2Fwww.ebn.nl%2Ffiles%2Febn _report_final_090909.pdf&ei=zEQJTdGaJMP58AbB7ISyAw&usg=AFQjCNFS6yosmCAOzmwzPJx1BwFfw4jS_A&sig2=EslEsYA 7qAOxqtl6bxUI-A.
8 9

van Bergen, Frank. The Feasibility of Shale Gas in Europe From Subsurface Potential to Surface Use Constraints: The Netherlands Example presented at the Global Gas Shale Summit, Warsaw, Poland, July 19, 2010. Horsfield. Shale Gas in the Posidonia Shale, Hils Area, Germany. AAPG Search and Discovery # 110126 (June 4, 2010). VII-36

10

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11

Kockel, Franz, Hermann Wehner, and Peter Gerling. Petroleum Systsms of the Lower Saxony Basin, Germany. In The Petroleum System-from Source to Trap, 573-586. AAPG Memoir 60, 1994. van Balen, R., Frank van Bergen, C. de Leeuwen, H. Paginer, H. Simmelink, J. van Wees, and J. Verweij. Modelling the hydrocarbon generation and migration in thw West Netherlands Basin, the Netherlands. Netherlands Journal of Geosciences 79, no. 1 (2000): 29-44.

12

13

Buchardt, Bjorn, Arne Nielsen, and Niels Schovsbo. Alun Skiferen i Skandinavien. Geologisk Tidsskrift 3 (September 5, 1997): 1-30. Nielsen, Arne, and Niels Schovsbo. Cambrian to basal Ordovician Lithostratigraphy in southern Scandinavia. Bulletin of the Geological Society of Denmark 53 (2007): 47-92. . Thickpenny, A. The sedimentology of the Swedish Alum Shales. Geological Society, London, Special Publications 15, no. 1 (January 1, 1984): 511-525. Swann, Geoff, and Jim Munns. The Hydrocarbon Prospectivity of Britain's Onshore Basins. U.K. Depertment of Trade and Industry, 2009. https://www.og.decc.gov.uk/upstream/licensing/onshore_10th/Basin_HC_prosp.pdf. Cuadrilla Resources Harvey, Toni, and Joy Gray. The Unconventional Hydrocarbon Resources of Britain's Onshore Basins - Shale Gas. U.K. Department of Energy and Climate Change, 2010. https://www.og.decc.gov.uk/upstream/licensing/shalegas.pdf.

14

15

16

17 18

19

Spears, D., and M. Amin. Geochemistry and mineralogy of marine and non-marine Namurian black shales from the Tansley Borehole, Berbyshire. Sedimentology 28: 407-417. Celtique Resources, 2010.

20 21

Cornford, Chris, Olav Christie, Unn Endresen, Petter Jensen, and May-Britt Myhr. Source rock and seep oil maturity in Dorset, Southern England. Organic Geochemistry 13, no. 1-3 (1988): 399-409.
22

Ladwein, H. Organic Geochemistry of Vienna Basin: Model for Hydrocarbon Generation in Overthrust Belts. The American Association of Petroleum Geologists Bulletin 72, no. 5 (May 1998): 586-599. Mitt. Osterr. Geol. Ges. Guidebook Part 1: Outline of Sedimentation, Tectonic Framework and Hyrdocarbon Occurrence in Estern Lower Austria. 85, 1992. Arzmuller, Gerhard, Stepan Buchta, Eduard Ralbovsky, and Godfried Wessely. The Vienna Basin. In The Carpathians and their foreland: geology and hydrocarbon resources, 191-204. AAPG Memior 84, 2006.

23

24

25

Sachsenhofer, R. F., A. Bechtel, T. Kuffner, T. Rainer, R. Gratzer, R. Sauer, and H. Sperl. Depositional environment and source potential of Jurassic coal-bearing sediments (Gresten Formation, Hoflein gas/condensate field, Austria). Petroleum Geoscience 12, no. 2 (5, 2006): 99-114.

26

Bryant, Chris. Why OMV is cautious on European Shale Gas. Financial Times, March 3, 2010. http://blogs.ft.com/energysource/2010/03/08/why-omv-is-cautious-on-european-shale-gas/. Chew, Ken. Keynote Address presented at the The Teology of Unconventional Gas Plays, London, England, October 4, 2010. http://www.geolsoc.org.uk/webdav/site/GSL/shared/pdfs/specialist%20and%20regional%20groups/petroleum/Unconventional%2 0Gas%20Programme.pdf. EIA Country Energy Brief Horsfield, Brian. Shale Gas In Europe presented at the Energy Delta Convention, Groningen, November 23, 2010.

27

28 29

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VIII. CENTRAL NORTH AFRICA

INTRODUCTION
The Central North Africa region (Algeria, Tunisia and Libya) contains two major shale gas basins *: (1) the Ghadames Basin, in eastern Algeria, southern Tunisia and northwestern Libya; and (2) the Sirt Basin, in north-central Libya. Figure VIII-1 provides the outline map for these two basins as well as the regions natural gas pipeline system 1. Central North Africa holds significant volumes of shale gas resources, with 1,861 Tcf of risked gas in-place in the prospective areas of these two basins. Of this gas in-place, we estimate a risked recoverable resource of 504 Tcf, Table VIII-1. Figure VIII-1. Shale Gas Basins and Pipeline System of Central North Africa

* Additional basins in the region include: the Murzuq, Pelagian, Kuffra, Benghazi, Derna and offshore Tripolitania Basins. These are not considered here due to their relative lack of development and limited shale gas potential.

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Table VIII-1. Reservoir Properties and Resources of Central North Africa

Basic Data
Basin/Gross Area Shale Formation Geologic Age
2 Ghadames Basin (121,000 mi ) Sirt Basin (177,000 mi ) Tannezuft Frasnian Sirt-Rachmat Etel Silurian Middle Devonian Upper Cretaceous Upper Cretaceous 2

39,700 Prospective Area (mi2) Interval 1,000 - 1,800 Thickness (ft) Organically Rich 115 Net 104 Interval 9,000 - 16,500 Depth (ft) Average 12,900 Reservoir Pressure Overpressured Average TOC (wt. %) 5.7% Thermal Maturity (%Ro) 1.15% Clay Content Medium GIP Concentration (Bcf/mi ) Risked GIP (Tcf) Risked Recoverable (Tcf)
2

12,900 200 - 500 197 177 8,200 - 10,500 9,350 Overpressured 4.2% 1.15% Medium 65 251 75

70,800 1,000 - 3,000 2,000 200 9,000 - 11,000 10,000 Normal 2.8% 1.10% Medium/High 61 647 162

70,800 200 - 1,000 600 120 11,000 - 13,000 12,000 Normal 3.6% 1.10% Medium/High 42 443 111

Resource

Reservoir Properties

Physical Extent

44 520 156

GHADAMES BAS IN Ge o lo g ic Ch a ra c te riza tio n

The Ghadames (Berkine) Basin is a large, 121,000 mi2 intracratonic, extensional basin underlying eastern Algeria, southern Tunisia and western Libya. In its western area, the basin contains reverse faulted structures, providing conventional oil and gas structural traps for petroleum sourced from Devonian- and Silurian-age shales. The central, deep portion of the basin contains uplifted fault blocks formed during the Cambrian-Ordovician 2. The Ghadames Basin contains two major organic-rich shale formations: (1) The lower Silurian massive shales of the Tannezuft Formation; and (2) The Middle Devonian Frasnian Hot Shale, Figure VIII-2. The formations were mapped and screened to establish the prospective areas with favorable reservoir characteristics for shale gas resources.

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Re s e rvo ir P ro p e rtie s (P ro s p e c tive Are a )

Silurian Tannezuft Formation. The depth of the prospective area of the Silurian Tannezuft Formation ranges from 9,000 along the northern and eastern edge to below 15,000 feet in the basin center, Figure VIII-3. The gross interval of the organically-rich portion of the Tannezuft formation reaches 1,800 feet, with an organically rich average net thickness of 104 net feet. The TOC of the Tannezuft Formation averages 5.7%. The lower portion of the formation is particularly organically-rich, with TOC values of up to 17%. The thermal maturity of the Tannezuft shale ranges from mature oil (Ro of 0.7% to 1.0%) in the northern portion of the basin, to gas/condensate (Ro of 1.0% to 1.2%) and to dry gas (Ro of 1.2% or greater) in the central and southern portion of the basin, Figure VIII-4. Middle Devonian Frasnian Hot Shale. The depth of the prospective area of the overlying Middle Devonian Frasnian Hot Shale ranges from 8,000 feet to 10,500 feet. The Frasnian Hot Shale interval ranges from 200 feet in the west to nearly 500 feet in the northcentral area of the basin, with an organically-rich net thickness of 177 feet. The Frasnian Hot Shale has TOC values that range from 1% to 12% with an average of 4.2%.2 The average thermal maturity in the prospective area is 1.15% Ro, placing the shale in the gas and condensate window.

Re s o u rc e s
The Ghadames is an important conventional hydrocarbon basin. Recent conventional oil field discoveries in the basin have helped boost oil and natural gas production in Algeria and Tunisia. In its 2000 World Petroleum Assessment, the USGS estimated 4.5 billion barrels of undiscovered oil and 12 Tcf of undiscovered natural gas for the Ghadames Basin (TanezuftGhadames Total Petroleum System 3). The Silurian Tannezuft shale has a low to moderate resource concentration of 44 Bcf/mi2. Given a 39,700 mi2 prospective area, the risked shale gas in-place is 520 Tcf. Based on favorable reservoir properties and mineralogy we estimate a risked technically recoverable resource of 156 Tcf, Table VIII-1. The Middle Devonian Frasnian Hot Shale has a moderate resource concentration of 65 Bcf/mi2. Given a 12,900 mi2 prospective area, the risked shale gas in-place is 251 Tcf, with a risked technically recoverable resource of 75 Tcf, Table VIII-1.

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Figure VIII-2. Ghadames Basin Stratigraphic Column 4

Figure VIII-3. Ghadames Basin Structure Depth Map and Cross Section4

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Figure VIII-4. Silurian Tannezuft Vitrinite Reflectance4

Figure VIII-5. Devonian Frasnian Vitirinite Reflectance4

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Ac tivity
Considerable exploration activity is underway in the Ghadames Basin. For example, Cygam Energy has acquired four permits in the Tunisia portion of the Ghadames Basin totaling 3.1 million gross acres 5. Cygams exploration program for 2010/2011 involves 2D/3D seismic, 3 exploration wells and 2 appraisal wells. Cygam Energy conducted a frac job in March 2010 on Well No. 1 in the Tannezuft shale at a depth of 13,000 ft in the Sud Tozeur permit area. No information has been provided on test results. Chinook Energy Inc. has acquired 7 lease blocks in the Tunisia portion of the Ghadames Basin, totaling 3 million gross acres. The Sud Remada block totals 1.2 million acres with 5-6 structures identified, including the Tannezuft shale 6. This year, the company plans to drill two appraisal wells in the Sud Remada lease block. Previous drilling into the deeper, oil bearing TT Ordovician reservoir, showed hydrocarbon potential in the Silurian Tannezuft formation. To date, no shale gas production has been reported from the Ghadames Basin.

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S IRT BAS IN

Ge o lo g ic Ch a ra c te riza tio n
The Sirt (Sirte) Basin is a relatively young, rifted, intracratonic basin underlying an area of 177,000 square miles of Central-West Libya. Active subsidence and block faulting in the Upper Cretaceous through Eocene has created several large troughs in the Sirt Basin, containing large volumes of organically-rich shale, Figure VIII-6. The Sirt Basin contains two prospective shale gas formations: (1) the Upper Cretaceous (Maestrictian-Coniacian) Sirt/Rachmat Shale, and (2) Upper Cretaceous (Turonian) Etel Shale, Figure VIII-7.

Re s e rvo ir P ro p e rtie s
Upper Cretaceous Sirt Formation. The Sirt Shale Formation covers a prospective area of 15,000 mi2, with depth ranging from 9,000 to 11,000 feet. The interval thickness ranges from 1,000 to 3,000 feet, with an average organically rich thickness of 200 ft, Figure VIII-8 7.The TOC of the Sirt Shale ranges from 0.5% to 8%, averaging 2.8%.7 Measured thermal maturities in the shallower portion of the Upper Cretaceous strata indicate that the Sirt Shale is in the oil generation window (Ro of 0.7% to 1.0%). In the deeper, condensate/gas prospective area of the basin, the thermal maturity is higher, with an Ro of 1.1%. 8 Upper Cretaceous Etel Formation. The Etel Shale covers a prospective area of

15,000 mi2 at a depth of 11,000 to 13,000 feet. Gross shale thickness ranges from 200 to 1,000 feet, with an average organically rich net thickness of 120 feet. The average TOC of the Etel Shale is 3.6%. In the prospective area, the shale is in the condensate/gas generation window with a thermal maturity of 1.1 % Ro7.

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Figure VIII-6. Structure and Cross Section of Northern Sirt Basin 9

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Figure VIII-7. Sirt Basin Stratigraphic Column7

Figure VIII-8. Net Shale Isopach of Sirt and Rachmat Formations7

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Re s o u rc e s
Because the prospective shale gas formations in Libyas Sirt Basin lie in the deep subsided troughs, they are extremely lightly explored. Most of the identified conventional oil and gas fields are on the uplifted carbonate blocks, Figure VIII-6. The Sirt Shale has a moderate resource concentration of 61 Bcf/mi2. Given a 70,800 mi2 prospective area, the risked shale gas in-place is 647 Tcf. Based on reservoir properties and mineralogy, we estimate a risked technically recoverable resource of 162 Tcf, Table VIII-1. The Etel Shale has a low-moderate resource concentration of 42 Bcf/mi2. Given a 70,800 mi2 prospective area, the risked shale gas in-place is 443 Tcf, with a risked technically recoverable resource of 111 Tcf, Table VIII-1.

Ac tivity
There is no publically reported shale gas production or shale gas exploration activity underway in the Sirt Basin.

ALGERIA
Algeria is the sixth largest gas producer in the world, with marketed production of 8.2 Bcf per day and reserves of 159 Tcf, as of 2009. Gas production has been increasing over the recent decade, though at a slower rate than proved reserves. The countrys natural gas infrastructure is well developed and includes one existing plus one planned LNG liquefaction plant and a regional natural gas pipeline system 10. We estimate that northern Algeria has 653 Tcf of risked shale gas in-place with 428 Tcf in the Silurian Tannezuft Shale and 225 Tcf in the Middle Devonian Frasnian Hot Shale of the Ghadamas Basin. We estimate a risked technically recoverable resource of 196 Tcf. Additionally, the Tindouf Basin of southwestern Algeria, discussed in Chapter IX, contains 159 Tcf of risked gas in-place in the Tindouf basin, of which 35 Tcf are technically recoverable. Once developed, this would represent a very large increase over the current proved natural gas reserves of Algeria. At the recent World Energy Congress (September 2010), the Oil Minister of Algeria announced interest in assessing the natural gas resources of its shales and tight gas sands.

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LIBYA
Libya is also a major hydrocarbon supplier, with 1.5 Bcfd of natural gas production from reserves of 50 Tcf and 1.7 million barrels per day of oil production from reserves of 41 billion barrels, in 200810. Libyas natural gas production has more than doubled since 2004, when the Greenstream pipeline came online, linking Libyas previously unconnected productive capacity to European markets. We estimate that Libya has 1,147 Tcf of risked shale gas in-place, with 49 Tcf in the Silurian Tannezuft Shale and 8 Tcf in the Middle Devonian Frasnian Shale of the Ghadames Basin. An estimated 647 Tcf is in the Sirt Shale and 443 Tcf is in the Etel Shale of the Sirt Basin. We estimate a risked technically recoverable resource of 290 Tcf, representing a major increase over current proved natural gas reserves. No public announcements of shale gas activity are reported for Libya.

TUNIS IA
Though it shares many of the same geologic features with Algeria and Libya, Tunisia has a much smaller land mass than either of its neighbors, and thus much lower oil and gas production. In 2008, with gas consumption of 0.4 Bcfd and gas production of 0.3 Bcfd (from reserves of 2 Tcf), the country was a net natural gas importer. However, because of its favorable oil and gas investment incentives, Tunisia has attracted many international E&P countries, and it is the only country in North Central Africa where unconventional natural gas potential is being actively explored. Tunisia had the first shale gas well and frac in North Africa in March, 2010 and is actively supporting the pursuit of this resource. We estimate that Tunisia has 61 Tcf of risked shale gas in-place, with 43 Tcf in the Silurian Tannezuft shale and 18 Tcf in the Frasnian Hot Shales of the Ghadames Basin. We estimate a risked technically recoverable resource of 18 Tcf, representing a major increase over current proved natural gas reserves.

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REFERENCES
1

U.S. Geological Survey Digital Data Series 60, 2000. World Petroleum Assessment 2000.

2 Yahi, N., Schaefer, R.G., Littke, R., 2001. Petroleum Generation and Accumulation in the Berkine Basin, Eastern Algeria. American Association of Petroleum Geologists, vol. 85, no. 8, p. 1439-1467. 3 Klett, T.R., 2000. Total Petroleum Systems of the Trias/Ghadames Province, ALgeria, Tunisia, and Libya-The Tannezuft-Oued Mya, Tannezuft-Melhir, and Tannezuft-Ghadames. U.S. Geological Survey, Bulletin 2202-C, 118 p.

Acheche, M.H., MRabet, A., Ghariani, H., Ouahchi, A., and Montgomery, S.L., 2001. Ghadames Basin, Southern Tunisia: A Reappraisal of Triassic Reservoirs and Future Prospectivity. American Association of Petroleum Geologists, vol. 85, no. 5, p. 765-780.
4 5 6 7

Cygam Energy, Incorporated, 2010. Chinook Energy, Incorporated, 2010.

Rusk, D.C., 2001. Libya: Petroleum Potential of the Underexplored Basin Centers A Twenty-first-century challenge. In Downey, M.W., Threet, J.C., and Morgan, W.A. (Eds.), Petroleum Provinces of the Twenty-first Century. American Association of Petroleum Geologists, Memoir 74, p. 429-452.

Gumati, Y.D. and Schamel, S., 1988. Thermal Maturation History of the Sirte Basin, Libya. Journal of Petroleum Geology, vol. 11, no. 2, p. 205-217.

Gumati, Y.D., Kanes, W.H., Schamel, S., 1996. An Evaluation of the Hydrocarbon Potential of the Sedimentary Basins of Libya. Journal of Petroleum Geology, vol. 19, no. 1, p. 95-112.
9 10

EIA Energy Profile and Oil and Gas Journal 2010 Reserves and Production Report

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IX. WES TERN NORTH AFRICA

INTRODUCTION
Morocco has large accumulations of Late-Cretaceous immature oil shale (kerogen), at depths suitable for surface mining 1. San Leon and Petrobras are beginning operations in this area and estimate their potential at over 50 billion barrels. However, Morocco also possesses organically rich Silurian- and Devonian-age shale gas potential in the Tindouf and Tadla basins, Figure IX-1. Mapping and resource characterization of these shales is difficult because regional deformation, erosion, and subsidence of Moroccos shale deposits resulted in their discontinuous and complex present day distribution. Figure IX-1. Shale Gas Basins of Morocco

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Accurately identifying promising shale basins and estimating their resource potential in such a geologically complex area requires significant amounts of data, which are not widely available in Morocco because of limited well drilling and data confidentiality. This report assesses the two basins which appear to have the highest potential for shale gas resource based on available data -- the Tindouf (Zag) Basin in the south, (extending into Algeria, Western Sahara, and Mauritania), and the central Morrocan Tadla Basin. ARI estimates that these two shale basins contain a risked shale gas in-place of 267 Tcf, of which 53 Tcf is technically recoverable, Table IX-1. Additional shale gas potential may exist in the Doukkala, Essaouira and Souss basins, but a lack of data prevents their assessment at this time.

Table IX-1. Reservoir Properties and Resources of Morocco

Basic Data
Basin/Gross Area Shale Formation Geologic Age
2

Tindouf Basin (89,267 mi) Lower Silurian Silurian

Tadla Basin (2,794 mi) Lower Silurian Silurian

Prospective Area (mi ) 55,340 1,670 Interval 0 - 2,500 0 - 820 Thickness (ft) Organically Rich N/A 328 Net 50 197 Interval 3,280 - 15,000 3,280 - 9,840 Depth (ft) Average 9,000 6,560 Reservoir Pressure Underpressured Underpressured Average TOC (wt. %) 5.0% 2.0% Thermal Maturity (%Ro) 3.50% 2.25% Clay Content Medium Medium
2 GIP Concentration (Bcf/mi ) Risked GIP (Tcf) Risked Recoverable (Tcf)

Resource

Reservoir Properties

Physical Extent

18 251 50

49 16 3

The countrys primary shale target, the lower Silurian Hot Shale, was deposited during the late Ordovician to early Silurian when glacial melting across the African super continent lead to a large sea-level rise across much of what is now North Africa. During the early Silurian, sediments from the glacial melt settled in regional lows and precipitated thin, but very organically rich layers of marine organic matter during a regional anoxic event, Figure IX-2. Data from wells drilled across the country confirms the presence of organic rich Silurian shales,
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though these areas do not always correspond to currently recognized hydrocarbon basins. The presence of thick Silurian sections, observed in many Moroccan hydrocarbon basins, does not guarantee the presence of organically rich shale, as areas that were regional highs during the early Silurian did not receive organically rich sediments 2.

Figure IX-2. Simplified History of Moroccos Depositional Environment, Ordovician-Devonian2

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World Shale Gas Resources: An Initial Assessment

TINDOUF BAS IN
Ge o lo g ic Ch a ra c te riza tio n
The Tindouf Basin is the westernmost of the major North African Paleozoic basins, covering 77,200 mi2 . It is bounded by the Anti-Atlas Mountains and Ougarta Arch to the north and the Reguibate Massif in the south, Figure IX-3. Although once covered unconformably by a blanket of Mesozoic to early Tertiary sediments, the Paleozoic now crops out over much of the region, preserved in an asymmetric depression with a broad gentle southern flank and steeply dipping more structurally complex northern margin, Figure IX-4. Figure IX-3. Tindouf Shale Prospective Area, SE Anatolian Basin, Morocco

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World Shale Gas Resources: An Initial Assessment

The basin was a large depocenter from late Ordovician to Carboniferous time and accumulated layers of organic rich Silurian, Devonian (Frasnian) and Carboniferous (Visean) shales, Figure IX-4. However, due to the Hercynian orogeny, the prospectively of these shale formations is uncertain. Heavy heat flow through the basin from igneous intrusion caused the Tindouf Basin shales to reach high maturity through the Carboniferous. Uplifting and erosion of these shales may have caused significant underpressuring, as the shales were not buried deep enough to replenish hydrocarbons dissipated during the orogeny. This report will focus on the Silurian Hot Shale because of greater data availability for this shale package. We have identified a 53,340 mi2 prospective area in the Tindouf Basin, based on depth and thermal maturity data. The northern boundary of the prospective area is formed by the 1,000 meter depth contour line. The southern boundary is formed by the 1% Ro thermal maturity contour line. While drilling density in the basin is extremely low, with an average of only one well for every 5,000 mi2, the data suggest that organic rich, basal Silurian shales were deposited throughout the basin2. It appears that additional well and seismic data has been collected by various international companies in partnership with Moroccan oil company ONHYM, but these data are not in the public domain.

Re s e rvo ir P ro p e rtie s (P ro s p e c tive Are a )

Silurian. Within the prospective area, depth to the base of the Silurian Hot Shale ranges from 3,300 feet to 15,000 feet, Figure IX-5 3. Present day TOC content ranges from 0.5% to 7%. It is likely that the TOC was much higher during the time of hydrocarbon generation, due to the basins very high thermal maturity 4. ARI assumes an average TOC content of 5%. Thermal maturity decreases southward through the basin, ranging from 1% to over 3% Ro. Organically rich net thickness is assumed to be 50 feet, based on data from a well drilled in the southern flank of the basin 5.

Re s o u rc e s
We estimate that the Silurian Hot Shale in the Tindouf Basin contains a low resource concentration of 18 Bcf/mi2. While the shale formation is organically rich and inside the gas window, it is very thin, thus limiting its resource potential. Over the 55,340 mi2 prospective area of the basin, we estimate a risked shale gas in-place of 251 Tcf, with 50 Tcf technically recoverable.

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World Shale Gas Resources: An Initial Assessment

Figure IX-4. Tindouf Basin Stratigraphic Column 6

Figure IX-5. Tindouf Basin Cross Section3

Silurian

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World Shale Gas Resources: An Initial Assessment

Ac tivity
The Moroccan national oil and gas company ONHYM has been studying shale gas potential in the country since mid-2010 and plans to collect seismic data in the beginning of 2011 and drill its first shale gas exploration well in the second half of 2011. The well will be drilled in partnership with San Leon Energy (Ireland) and Longreach Oil and Gas (Canada), on the Zag exploration license, Figure IX-6 7. Figure IX-6. Tindouf Basin Exploration Acreage

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World Shale Gas Resources: An Initial Assessment

TADLA BAS IN
Ge o lo g ic Ch a ra c te riza tio n
The Talda Basin is a 3,100 mi2 intracratonic basin located in Central Morocco, within the Moroccan Mesta. The basin fill contains approximately 16,500 feet of Paleozoic through

Cenozoic sedimentary strata, Figure IX-7. Paleozoic rocks dominate the basin, except in areas where uplift caused their erosion. The basin is bounded by the Central Massif in the north, the Atlas Mountains in the east, the Jebiliet Massif in the south and Rehamna Massif in the west. The Fkih Ben Salah Fault divides the basin into a southeast section, characterized by complex tectonics, heavy folding and faulting, and a northwest section, with thick carboniferous strata and minor, infrequent faulting. 8 As in the Tindouf Basin, regional uplifting during the Hercynian and Alpine eroginies exposed the Silurian, Devonian and Ordovician shales after they had matured and begun to generate hydrocarbons, Figure IX-8. Though they were subsequently buried on the western edge of the basin by approximately 6,500 feet of Cretaceous and Tertiary sediments, it is unlikely the shales generated additional gas after reburial, Figure IX-98. As such, this basin is at high risk for underpressuring, though data is not available to confirm this assumption. The 1,670 mi2 prospective area of the Tadla Basin is bounded by the 1,000 meter depth contour line, various faults and the boundary with the Atlas Mountain range to the east. Little data is available in the southern portion of the basin. The southern boundary of the prospective area is assumed at the location of a well which did not encounter any organically-rich Silurian strata.

Re s e rvo ir P ro p e rtie s (P ro s p e c tive Are a )

Silurian. The lower Silurian Hot Shale is at its deepest west of the Fkih Ben Salah Fault, where they average 6,500 feet to 9,800 feet deep8. To the east, it becomes more shallow, rarely reaching lower than 6,500 feet, Figure IX-9. Average depth in the prospective area is assumed to be 6,5608. Where it has not been eroded, the Silurian section can reach up to 800 feet thick, with an approximately 300 feet of organically rich material, of which 200 feet are net shale. 9 Though TOC data from outcrops suggest organic content reaching as high as 10% to 12% 10, well data from inside the prospective area shows TOC values closer to 2%, which have been used in this analysis. The Silurian Hot Shale is highly mature over the

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World Shale Gas Resources: An Initial Assessment

prospective area, with Ro values between 1.5% and 3%.8 Figure IX-7. Talda Basin Prospective Area, Morocco

Re s o u rc e s
Based on the reservoir characteristics discussed above, we calculate a moderate 49 Bcf/mi resource concentration for the Silurian Hot Shale of the Tadla Basin. Using the 1,670 mi2 prospective area, we estimate the basin contains 16 Tcf of risked gas in-place, with 3 Tcf technically recoverable.
2

Ac tivity
As of yet, there is no reported shale gas exploration activity underway in the Tadla Basin.

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World Shale Gas Resources: An Initial Assessment

Figure IX-8. Tadla Basin Stratigraphic Column8

Figure IX-9. Tadla Basin Cross Sections

Lower Silurian

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World Shale Gas Resources: An Initial Assessment

MOROCCO
Morocco is heavily dependent on natural gas imports to meet its consumption needs. In 2009, the country consumed 0.05 Bcfd of natural gas, of which 0.049 Bcfd were imported 11. The countrys natural gas reserves are too small to be reported by the EIA. ARI estimates that Morocco possesses 68 Tcf of risked shale gas in-place, of which 11 Tcf is technically recoverable.

WES TERN ALGERIA

Algeria is the sixth largest gas producer in the world, with marketed production of 8.2 Bcf per day and reserves of 159 Tcf, as of 2009. The country is also the eighth largest oil producer in OPEC, producing 2.1 million barrels of oil per day from reserves of 12.2 billion barrels. Gas production has been increasing over the recent decade, though at a slower rate than proved reserves. ARI estimates that southwestern Algeria possesses 160 Tcf of risked shale gas inplace, of which 35 Tcf is technically recoverable. The Ghadames basin in northern Algeria contains an additional 653 Tcf of risked gas in-place, of which 196 Tcf is technically recoverable.

WES TERN S AHARA

The EIA does not carry natural gas production or consumption data for Western Sahara. ARI estimates that there is 37 Tcf of risked shale gas in-place in Western Sahara, of which 7 is technically recoverable.

MAURITANIA
The EIA does not carry natural gas production or consumption data for Mauritania. ARI estimates that there is 2 Tcf of risked shale gas in-place in Mauritania, of which 0.4 Tcf is technically recoverable.

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World Shale Gas Resources: An Initial Assessment

REFERENCES
1

Kolonic, S., J. S. Sinninghe Damste, M. E. Bottcher, M. M. M. Kuypers, W Kuhnt, B. Beckmann, G. Scheeder, and T. Wagner, 2002. Geochemical Characterization of Cenomanian/Turonian Black Shales From the Tarfaya Basin (SW Morocco). Relationships Between Paleoenvironmental Conditions and Early Sulphurization of Sedimentary Organic Matter. Journal of Petroleum Geology, vol. 25, no. 3, p. 325-350. Lning, S., J. Craig, D. K. Loydell, P. Storch, and B. Fitches, 2000. Lower Silurian `hot shales' in North Africa and Arabia: regional distribution and depositional model. Earth-Science Reviews, vol. 49, no. 1-4, p. 121-200. Boote, David R. D., Daniel D. Clark-Lowes, and Marc W. Traut, 1998. Palaeozoic petroleum systems of North Africa. Geological Society, London, Special Publications 132, no. 1, p. 7-68. Zag-Bas Draa Basin. Opportunities for Hydrocarbon E & P in Morocco. ONHYM, 2010. http://www.onhym.com/en/HYDROCARBURES/Prospectivit%C3%A9sdesBassins/ExplorationR%C3%A9gionale/Onshore/BasDr aaBasin/tabid/353/language/en-US/Default.aspx?Cat=27. Lning, S., D. K. Loydell, O. Sutcliffe, A. Ait Salem, E. Zanella, J. Craig, and D. A. T. Harpel, 2008. Silurian - Lower Devonian Black Shales in Morocco: Which are the Organically Richest Horizons? Journal of Petroleum Geology, vol. 23, no. 3, p. 293311. Longreach Petroleum Corporate Presentation, 2010. San Leon Energy Corporate Presentation, 2010.

6 7 8

Haddou Jabour, and Kazuo Nakayama, 1998. Basin Modeling of Tadla Basin, Morocco, for Hydrocarbon Potential. American Association of Petroleum Geologists, vol. 72, no. 9, p. 1059-1073.
9

Morabet, Al Moundir, Rabah Bouchta, and Haddou Jabour, 1998. An overview of the petroleum systems of Morocco. Geological Society, London, Special Publications 132, no. 1, p. 283-296.

10 Tadla-Haouz Basin. Opportunities for Hydrocarbon E & P in Morocco. ONHYM, 2010. http://www.onhym.com/en/HYDROCARBURES/Prospectivit%C3%A9sdesBassins/ExplorationR%C3%A9gionale/Onshore/Haou zTadlaBasin/tabid/347/language/en-US/Default.aspx?Cat=27. 11

EIA Country Energy Profiles.

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World Shale Gas Resources: An Initial Assessment

X.

SOUTH AFRICA

INTRODUCTION
South Africa has one major sedimentary basin that contains thick, organic-rich shales - the Karoo Basin in central and southern South Africa, Figure X-1. The Karoo Basin is large (236,000 mi2), extending across nearly two-thirds of the country, with the southern portion of the basin potentially favorable for shale gas. However, the basin contains significant areas of

volcanic (sill) intrusions that may impact the quality of the shale gas resources, limit the use of seismic imaging, and increase the risks of shale gas exploration. Figure X-1: Outline of Karoo Basin and Prospective Shale Gas Area of South Africa 1,2,3

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World Shale Gas Resources: An Initial Assessment

The Permian-age Ecca Group, particularly the organically rich source rocks in the Lower Ecca Formation, is the shale gas resources targeted by this resource assessment. Of particular interest are the organically rich, thermally mature black shales of the Whitehill Formation. This unit is regionally persistent in composition and thickness and can be traced across most of the Karoo Basin. 4 Based on limited preliminary data extracted from a variety of geological studies, ARI believes that the Karoo Basin holds significant volumes of shale gas resources. We estimate that the Lower Ecca Group shales in this basin contain 1,834 Tcf of risked gas in-place, with risked recoverable shale gas resources of 485 Tcf, Table X-1.
Table X-1: Shale Gas Reservoir Properties and Resources of the Karoo Basin

Basic Data

Basin/Gross Area Shale Formation Geologic Age Prince Albert Fm Lower Permian

Karoo Basin
(236,400 mi) Whitehill Fm Lower Permian 70,800 100 - 300 200 100 5,500 - 10,000 8,000 Overpressured 6.0% 3.00% Low 59 995 298 Collingham Fm Lower Permian 70,800 100 - 300 200 80 5,200 - 9,700 7,800 Overpressured 4.0% 3.00% Low 36 386 96

Prospective Area (mi2) 70,800 Interval 200 - 800 Thickness (ft) Organically Rich 400 Net 120 Interval 6,000 - 10,500 Depth (ft) Average 8,500 Reservoir Pressure Overpressured Average TOC (wt. %) 2.5% Thermal Maturity (%Ro) 3.00% Clay Content Low GIP Concentration (Bcf/mi2) Risked GIP (Tcf) Risked Recoverable (Tcf) 43 453 91

Resource

Permits (TCPs) to pursue shale gas in the Karoo Basin, including Royal Dutch Shell, Falcon Oil and Gas, the Sasol/Chesapeake/Statoil joint venture, Sunset Energy Ltd. of Australia and Anglo Coal of South Africa.

February 17, 2011

Reservoir Properties

Physical Extent

A number of major and independent companies have signed Technical Cooperation

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World Shale Gas Resources: An Initial Assessment

The Ecca Group Shales of the Karoo Basin

The Karoo foreland basin is filled by over 5 kilometers of Carboniferous to Early Jurassic sedimentary strata. The Early Permian-age Ecca Group shales underlie much of the 236,000mi2 Karoo Basin, cropping out along the southern and western basin margins, Figure X-1. The Ecca Group consists of a sequence of mudstone, siltstone, sandstone and minor conglomerates. 5 The larger Ecca Group, encompassing an interval up to 10,000 feet thick in the southern portion of the basin, is further divided into the Upper Ecca (containing the less thick but organically rich Fort Brown and Waterford Formations) and the Lower Ecca (containing the Prince Albert, Whitehill and Collingham Formations), Figure X-2. The three Lower Ecca shale units are the exploration targets of this resource assessment. A regional southwest to northeast cross-section illustrates the tectonics of the Cape Fold Belt that limits the Ecca Group on the south, establishing the oil-gas thermal maturity boundary within the Ecca Group on the north, Figure X-3. The prospective area for the Lower Ecca shales is estimated at 70,800 mi2 (unrisked). The boundaries of the prospective area are defined by the outcrop of the Upper Ecca Group on the east, south and west/northwest and the pinch-out of the Lower Ecca Shales on the northeast. The dry gas window is south of the approximately 30o latitude line, Figure X-1. Major portions of the prospective area have volcanic (sill) intrusions and complex geology, with the most extensive and thickest sills located within the Ecca Group. 6 This unusual condition creates significant exploration risk in pursuing the Lower Ecca shale gas resources in the Karoo Basin, Figure X-4.

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World Shale Gas Resources: An Initial Assessment

Figure X-2. Stratigraphic Column of the Karoo Basin of South Africa

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World Shale Gas Resources: An Initial Assessment

Figure X-3. Schematic Cross-Section of Southern Karoo Basin and Ecca Group Shales 7

Figure X-4. Volcanic Intrusions in the Karoo Basin, South Africa 8

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World Shale Gas Resources: An Initial Assessment

Lo we r Ec c a Gro u p S h a le s
The Lower Ecca Group comprises the thick basal Prince Albert Formation, overlain by the thinner Whitehill and Collingham Formations. Each of these sedimentary units has been individually assessed and is discussed below. Prince Albert Shales. The Lower Permian Prince Albert Formation offers a thick,

thermally mature shale gas area in the Karoo Basin. The drilling depths to the Prince Albert Shale range from 6,000 to over 10,000 feet, averaging about 8,500 feet in the deeper prospective area on the south, Figure X-5. The Prince Albert shale has a gross thickness that ranges from 200 to 800 feet, averaging 400 feet, with a net organically rich thickness of about 120 feet. Figure X-5. Lower Ecca Group Structure Map, Karoo Basin, South Africa1,2,3

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World Shale Gas Resources: An Initial Assessment

The total organic content (TOC) in the Prince Albert shale prospective area and within the organically rich net pay interval generally ranges from 1.5 to 5.5%, averaging 2.5%, Figure X-6. Local TOC values of up to 12% have been recorded. 9 However, in areas near volcanic intrusions, much of the organic content may have been lost or converted to graphite. Figure X-6. Total Organic Content of Prince Albert and Whitehill Formations

Because of the presence of volcanics, the thermal maturity of the Prince Albert shale is high, estimated at 2% to 4% Ro, placing the shale well into the dry gas window. In areas locally influenced by volcanics the formation is over-mature, with vitrinite reflectance (Ro) values reaching 8%, indicating that the organic content has been transformed into graphite and CO 2 , Figure X-7. The Prince Albert shale was deposited as a deep marine sediment and is inferred to have mineralogy favorable for shale gas stimulation.
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World Shale Gas Resources: An Initial Assessment

Figure X-7. Carbon Loss in Lower Ecca Group Metamorphic Shale

Based on limited well data, primarily from the Cranemere CR 1/68 well completed in the Upper Ecca interval, the Prince Albert shale appears overpressured and has a high geothermal thermal gradient. Whitehill Shale. The highly organically rich Lower Permian Whitehill Formation

contains one of the main shale gas targets in the Karoo Basin of South Africa. The drilling depth to the Whitehill Shale ranges from 5,500 to 10,000 feet, averaging 8,000 feet for the prospective area. The Whitehill Shale has an estimated gross organic thickness of 100 to 300 feet, 10 with an average net thickness of 100 feet within the prospective area, as shown by the isopach map on Figure X-8. 11 The total organic content (TOC) in the prospective area (and within the net shale thickness) ranges from 3% to 14%, averaging a highly rich 6%, Figure X-6. Local areas show TOC contents up to 15%. In areas near volcanic intrusions, the remaining organic content may range from 2% to 4%, with portions of the organics converted to graphite, Figure X-7. The main minerals in the Whitehill Formation are quartz, pyrite, calcite and chlorite making the shale favorable for hydraulic fracturing. The Whitehill Shale is assumed to be overpressured. The thermal maturity (Ro) of the Whitehill Shale in the prospective area ranges from 2% to 4%, placing the shale well into the dry gas window.

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World Shale Gas Resources: An Initial Assessment

Figure X-8. Preliminary Isopach Map of the Whitehill Formation2,3,11

The hydrogen and oxygen indexes of the Whitehill Formation indicate a mixture of Type I and Type II kerogen.9 The Whitehill carbon-rich shales were deposited in deep marine, anoxic algae-rich conditions and contain minor sandy interbeds from distal turbidites and storm deposits. 12,13 Collingham Shale. The Lower Permian Collingham Formation (often grouped with the Whitehill Formation) is the third shale gas exploration target in the Karoo Basin. The

Collingham Shale has an upward transition from deep-water submarine to shallow-water deltaic deposits.9 The drilling depth to the Collingham Shale averages 7,800 feet for the prospective area. Except for total organic content, the shale has reservoir properties similar to the Whitehill Shale. It has an estimated gross organic thickness of 200 feet; a net thickness of 80 feet; and TOC of 2% to 8%, averaging 4% for the net thickness investigated. Thermal maturity is high, estimated at 3% Ro, influenced by volcanic intrusions. overpressured based on data from the Upper Ecca Group.
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The shale is assumed to be

World Shale Gas Resources: An Initial Assessment

Shale Gas Resources

Prince Albert Shale. The prospective area of the Prince Albert Shale is estimated at 70,800 mi2. Within the prospective area, the Prince Albert Shale has a resource concentration of about 43 Bcf/mi2. Given the volcanic intrusives and the limited exploration data, the risked shale gas in-place is estimated at 453 Tcf. Based on favorable TOC and reservoir mineralogy, balanced by complex geology and volcanic intrusions in the prospective area, ARI estimates a risked technically recoverable resource of 91 Tcf for the Prince Albert Shale in the Karoo Basin. Whitehill Shale. The prospective area for the Whitehill Shale is estimated at 70,800 mi2. Within this prospective area, the shale has a moderate resource concentration of about 59 Bcf/mi2. While somewhat more defined than the Prince Albert Shale, the exploration risk is still substantial, leading to a risked shale gas in-place of 995 Tcf. Based on favorable reservoir mineralogy but complex geology, ARI estimates a risked technically recoverable shale gas resource of 298 Tcf for the Whitehill Shale in the Karoo Basin. Collingham Shale. With a prospective area of 70,800 mi2 and a resource concentration of 36 Bcf/mi2, the risked gas in-place for the Collingham Shale is estimated to be 386 Tcf, with a risked technically recoverable resource of approximately 96 Tcf.

Up p e r Ec c a S h a le s
The Upper Ecca Formation extends over a particularly thick, 1,500 meter (~5,000 foot) vertical interval in the southern Karoo Basin. It contains two shale sequences of interest - - the Waterford and the Fort Brown Formations. These shales were interpreted by some investigators to have been deposited in a shallow marine environment,2 although others 14 categorize them as lacustrine. The organic content and thermal maturity of the Upper Ecca shale is considerably less than for the Lower Ecca shale, having a total organic content (TOC) ranging from less than 1% to about 2% and a thermal maturity ranging from 0.9% to 1.1% Ro. The reported thermal maturity places the Upper Ecca shale in the oil to wet gas window. 15 The Fort Brown Formation shale, as evaluated in the Cranemere CR 1/68 well, was described as dark gray to black and carbonaceous with occasional siltstone stringers. These shales exist over a gross interval of nearly 5,000 feet. One interval of the Fort Brown shale, from 8,154 to 8,312 feet (2,563 to 2,612 m) tested 1.84 million cubic feet per day at a flowing
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World Shale Gas Resources: An Initial Assessment

pressure of 2,072 psig, with pressure depleting rapidly, indicating the depletion of gas in fractures and secondary porosity. Because little additional information is publically available on the reservoir properties of the Fort Brown and Waterford Formations, and because these shales may be oil prone, no further assessment was conducted for the Upper Ecca shales.

The Role of the Karoo Basin on Early Jurassic (Toarcian) Global Warming and Extinction
A most interesting aspect of the Karoo Basin is its potential role in triggering Early Jurassic (Toarcian) global warming approximately 180 million years ago. The triggering

mechanism for the global warming, as presented by Svensen et al. (2006), was the rapid formation and transport of greenhouse gases from the deep sedimentary Permian-age reservoirs in the Karoo Basin. This event lasted 200,000 years and was manifested by global warming of ~6oC, anoxic conditions in the oceans and extinction of marine species. Large volumes of mafic magma intruded the basin in the Early Jurassic. These

magmatic sills and dykes were emplaced as part of the large Karoo-Ferrer igneous province, which originally extended across all of current southern Africa. The magma intrusions in the western Karoo Basin created numerous breccia pipes which are sub-vertical cylindrical intrusions generally 20 to 150 meters in diameter, filled with brecciated and metamorphic shale. Based on areal photography, several thousand of these breccia pipes may exist in the Karoo Basin. The associated sills and contact metamorphism resulted in venting of natural gas and CO 2 created by the thermal conversion of the organics in the Ecca Group. This massive intrusion to the organic-rich sedimentary host rocks of the Ecca Group caused release of up to 1,800 Gt of CO 2 from organic matter in the western Karoo Basin. (Potentially 15 times this amount of CO 2 (27,400 Gt) may have formed in the entire basin during the intrusive event.)8 In addition, the sills heated shallow sedimentary strata, leading to metamorphic reactions and the formation of hundreds of hydrothermal vent complexes in the central part of the Karoo Basin.8

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World Shale Gas Resources: An Initial Assessment

EXPLORATION AND DEVELOPMENT Activity

Falcon Oil and Gas Ltd. was an early entrant into the shale gas play of South Africa, obtaining an 11,600-mi2 (30,000-km2) Technical Cooperation Permit (TCP) along the southern edge of the Karoo Basin. Shell obtained a larger 71,400-mi2 (185,000-km2) TCP surrounding the Falcon area, while Sunset Energy holds a 1,780 mi2 (4,600-km2) TCP to the west of Falcon. The Sasol/Chesapeake/Statoil JV TCP area of 34,000-mi2 (88,000-km2) and the Anglo Coal TCP application area of 19,300 mi2 (50,000-km2) is to the north and east of Shells TPC, Figure X-9. Figure X-9. Map Showing Operator Permits in the Karoo Basin, South Africa3.16

Five older (pre-1970) wells have penetrated the Ecca Shale interval. Each of the wells had gas shows, while one of the wells - - the Cranemere CR 1/68 well - - flowed 1.84 MMcfd from the test zone at 8,154 to 8,312 feet. The gas production, judged to be from fractures and secondary porosity in the shales, depleted relatively rapidly during the 24-hour test. The CR 1/68 well was drilled to 15,282 feet into the underlying Table Mountain quartzite and had gas
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World Shale Gas Resources: An Initial Assessment

shows from six intervals, starting at 6,700 to 8,700 feet and ending at 14,350 to 14,650 feet. These shows indicate that the South African shales may be gas saturated.

Natural Gas Profile

Southern Africa produced 115 Bcf of natural gas in 2008. With annual consumption that year of 228 Bcf, South Africa is a net importer, primarily from neighboring Mozambique and Namibia. The natural gas is used primarily for electricity production and as feedstock for the Mossel Bay gas-to-liquids (GTL) plant. (New natural gas production is expected from the

Jabulani field in 2012 and the Ibhubesi field in 2013.) Natural gas from Mozambique is imported via a 535-mile pipeline, with current peak capacity of 524 MMcfd. Assuming access to new natural gas reserves, a variety of plans have been set forth to expand the natural gas pipeline system of South Africa, Figure X-10. The technically recoverable shale gas resource for South Africa is estimated at 485 Tcf. Figure X-10. Natural Gas Pipeline System Map of South Africa3,17

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World Shale Gas Resources: An Initial Assessment

REFERENCES
1 2

McLachlan, I. and A. Davis, Petroleum Exploration In The Karoo Basins, South Africa, Petroleum Agency SA, 2006.

Catuneanu, O, et al., The Karoo Basins of South-Central Africa, Elsevier, Journal of African Earth Sciences 43 (2005) 211253. U.S. Geological Survey Digital Data Series 60, World Petroleum Assessment 2000, http://pubs.usgs.gov/dds/dds-060/.

3
4

Branch, T., et al., The Whitehill Formation A High Conductivity Marker Horizon in the Karoo Basin, South African Journal of Geology, 2007, Volume 110, Page 465-476.
5

Johnson, M.R., et al, 1997, The Foreland Karoo Basin, South Africa, In: Selley, R.C., (Ed.), African Basins Sedimentary Basins of the World, Elsevier, Amsterdam, pp. 269-137. Chevallier, L. and Woodford, A.C., Morpho-Tectonics and Mechanisms of Emplacement of the Dolerite Rings and Sills of the Western Karoo, South Africa, S. Africa Journal Geology 102 (1999) 43-54. McLachlan, I. and A. Davis, Petroleum Exploration In The Karoo Basins, South Africa, Petroleum Agency SA, 2006 Svensen, H., et al., Hydrothermal Venting of Greenhouse Gases Triggering Early Jurassic Global Warming, Elsevier, Earth and Planetary Science Letters 256 (2007) 554-566

7 8

Faure, K. and Cole, D.,1999, Geochemical Evidence for Lacustrine Microbial Blooms in the Vast Permian Main Karoo, Parana, Falkland Islands and Haub Basins of Southwestern Gondwana, Palaeogeogr, Palaeocl., 152 (3-4): 189-213. Visser, J.N.J., 1992b, Deposition of the Early to Late Permian Whitehill Formation During Sea-Level Highstand in a Juvenile Foreland Basin, S. Afr. Geol. 95, 181-193.

10

11

Visser J.N.J, 1994, A Permian Argillaceous Syn- to Post-Glacial Foreland Sequence in the Karoo Basin, South Africa, In: Deynoux, M., Miller, J.M.G., Domack, E.W., Eyles, N., Fairchild, I.J., Young G.M. (Eds.), Earths Glacial Record: International Geological Correlation Project 260. Cambridge University Press, Cambridge, pp. 193-203.

Smith, R.M.H., 1990, A Review of the Stratigraphy and Sedimentary Environments of the Karoo Basin of South Africa, J. Afr. Earth Sci. 10, 117-137.
12 13

Cole, D.I. and McLachlan, I.R., Oil Shale Potential and Depositional Environment of the Whitehill Formation in the Main Karoo Basin, Council for Geoscience (South Africa) Report, vol. 1994-0213, 1994.

14

Horsfeld, B. et al, Shale Gas: An Unconventional Resource in South Africa? Some Preliminary Observations, 11th SAGA Biennial Technical Meeting and Exhibition, Swaziland, 16-18 September 2009, page 546. Raseroka, A.L., Natural Gas and Conventional Oil Potential in South Africas Karoo Basin, 2009 AAPG International Conference and Exhibition, 15-18 November 2009 Rio de Janeiro, Brazil.

15

16

Petroleum Exploration and Production Activities in South Africa, Petroleum Agency South Africa, September 2010, http://www.petroleumagencysa.com/files/Hubmap_09-10.pdf.
17

Surridge, T., 2006. Gas in South Africa. Department of Minerals and Energy, South Africa.

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XI.

CHINA

INTRODUCTION
China has two large sedimentary basins that contain thick, organic-rich shales with excellent potential for shale gas development, Figure XI-1. These two basins, the Sichuan and the Tarim, contain marine-deposited shales with potentially favorable reservoir quality, including prospective thickness, depth, TOC, thermal maturity, and brittle mineralogical composition. The basins are assessed in detail in this chapter. In addition, China has five sizeable but less prospective shale gas basins with non-marine shales that are only introduced in this chapter. Figure XI-1. Major Shale Gas Basins and Pipeline System of China

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With shale exploration drilling just now being initiated, public information on shale formations in China is quite limited. Reservoir quality remains uncertain, while in-country shale drilling and completion services are still nascent. The future of shale gas development in China is promising, but it seems likely that five to ten years will be needed before production will be at material levels. The two large marine shale basins of China - - the Sichuan and Tarim - - contain an estimated 25,000 Tcf of total unrisked gas in place with 5,100 Tcf as the risked gas in place, Table XI-1. These estimates are comparable with estimates of prospective gas resources (inplace) published by PetroChina. 1,2 Our estimated risked recoverable resources from these two basins is 1,275 Tcf. Table XI-1. Shale Gas Reservoir Properties and Resources - - Sichuan and Tarim Basins, China
Basic Data
Basin/Gross Area Shale Formation Geologic Age Prospective Area (mi2) Interval Thickness (ft) Organically Rich Net Interval Depth (ft) Average Reservoir Pressure Average TOC (wt. %) Thermal Maturity (%Ro) Clay Content GIP Concentration (Bcf/mi ) Risked GIP (Tcf) Risked Recoverable (Tcf)
2

Sichuan Basin
(81,500 mi) Longmaxi Silurian 56,875 300 - 1,600 560 280 7,900 - 13,500 10,700 Normal 3.0% 2.30% Low/Medium 80 1,373 343 Qiongzhusi Cambrian 81,500 200 - 1,400 390 195 8,500 - 15,000 11,500 Normal 3.0% 2.50% Low/Medium 57 1,394 349

Tarim Basin
(234,200 mi) O1/O2/O3 Shales Cambrian Shales Ordovician Cambrian 55,042 0 - 5,200 520 260 6,500 - 19,700 13,000 Normal 2.0% 2.00% Low/Medium 102 897 224 63,560 0 - 1,500 808 404 7,500 - 21,000 14,000 Normal 2.0% 2.50% Low/Medium 141 1,437 359

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Reservoir Properties

Physical Extent

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S ICHUAN BAS IN / YANGTZE P LATFORM Ge o lo g ic Ch a ra c te riza tio n

The Paleozoic shales in the Yangtze Platform underlie a vast area of some 900,000 km2 in the mid to lower reaches of the Yangtze River drainage area in south-central China, including portions of Sichuan, Yunnan, Guizhou, Hubei, and western Hunan Provinces. A total 6 to 12 km of sedimentary rock is present in this region, including thick, laterally widespread shales of both marine and non-marine origin within Pre-Cambrian, Cambrian, Ordovician, Silurian, Devonian, Permian, Triassic, and Eocene formations. The Paleozoic shales in the Yangtze Platform are mainly of marine origin and generally considered prospective for shale gas development. In contrast, the Triassic and younger shales were deposited primarily in freshwater lacustrine environments. Our work, consistent with

published information by PetroChina and industry, indicates that the Cambrian and Silurian shales offer the most promise for shale gas development. The Sichuan Basin in south-central China covers a large 81,500-mi2 area. This cratonic to foreland-style basin contains four tectonic zones: a Northwest Depression, a Central Uplift, and the East and South Fold Belts. The Central Uplift, characterized by simple structure and relatively few faults, appears the most attractive region for shale gas development. In contrast, the East and South Fold Belts are structurally more complex, with numerous tight folds and large faults, less conducive to shale gas development. Two promising shale horizons have been identified in the Sichuan Basin. These are thick, organic-rich, thermally mature Lower Cambrian and Lower Silurian marine shales, Figures XI-2 and XI-3. Preliminary data indicate that these shales are low in clay and thus potentially favorable for hydraulic stimulation. However, the Sichuan Basins considerable structural

complexity, with extensive folding and faulting, appears to be a significant risk for shale gas development.

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Figure XI-2. Prospective Lower Silurian Shale Gas Areas, Sichuan Basin, Sichuan Province

Figure XI-3. Prospective Lower Cambrian Shales Gas Area, Sichuan Basin, Sichuan Province

The Cambrian- and Silurian-age shales are the main targets for shale gas exploration in the Sichuan Basin, Figure XI-4. These two shale horizons have provided gas shows in

exploration wells and appear to have low-clay mineralogical composition owing to their deepwater marine depositional environment. Conventional and tight gas reservoirs of Upper Paleozoic- and Triassic-age in the Sichuan Basin were sourced primarily by these Cambrian and Silurian black shales.
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Figure XI-4. Stratigraphic Column for Cambrian- and Silurian-Age Shales, Sichuan Basin

Source: Modified from X.M. Xiao et al. / International Journal of Coal Geology 70 (2007) 264-276
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The Cambrian and Silurian shales are thick, grey to black, carbon-rich (TOC of 3%), thermally mature (R o of 2.3% to 2.5%), and currently buried at moderate depths. Although freshwater lacustrine shales may locally be present, most shales of this age were deposited in a marine environment. In addition, many of these shales are silty and could have retained modest levels of porosity. ARI mapped Cambrian and Silurian shales to establish the prospective areas with favorable reservoir characteristics for shale gas resources.

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Re s e rvo ir P ro p e rtie s (P ro s p e c tive Are a )

Conventional gas fields in the Sichuan Basin frequently have high levels of nonhydrocarbon gases. ARI assumed the following values for shale gas composition: H 2 S levels often are hazardously high (1% or more), while CO 2 (5%) and N 2 (7.5%) also can be significant. For example, the Sinian (late Pre-Cambrian) natural gas reservoirs at Weiyuan gas field in southwestern Sichuan Basin have high H 2 S content of 0.8% to 1.4%, while Chuangdongbei field reaches 15% H 2 S. 3 psi/foot). Silurian Longmaxi Formation. Best developed in the southern and eastern The reservoir pressure gradient at Weiyuan is close to hydrostatic (0.44

Sichuan Basin, the Longmaxi Fm is mainly a grey-black silty shale. The thickness of the organic-rich shale ranges from 100 m to 500 m, averaging about 170 m (560 ft). Depth in the prospective region ranges from about 2,400 m to 4,100 m, averaging about 3,250 m deep (10,660 ft). TOC ranges from 1.5 to 6%, averaging about 3%. Vitrinite reflectance ranges from 1.8% to over 4.0% (average 2.3%), placing the Longmaxi Shale fully in the dry gas window. Porosity is not known but estimated at 4% based on lithologic description. PetroChina has logged strong gas shows from the Longmaxi Fm in seven conventional exploration wells across the southern Sichuan Basin. Overall, the Silurian shales appear prospective, with high TOC,

moderate depth, albeit with significant levels of non-hydrocarbon constituents (H 2 S, CO 2 , N 2 ). Cambrian Qiongzhusi Formation. The Cambrian Qiongzhusi Formation has fairly consistent thickness across the Sichuan Basin, averaging about 120 m with a maximum of 423 m. At Weiyuan gas field the Cambrian is 230 m to 400 m thick. The Cambrian organic-rich shale averages about 120 m (390 ft) thick and 2,800 m (9,180 ft) deep. TOC at Weiyuan is 2% to 4%, mainly sapropelic, and the shale is thermally mature with R o above 2.5%, well within the dry gas window. Porosity is estimated at 4%. CO 2 content at this field is approximately 5%, while N 2 averages 7.5% and H 2 S is assumed to be 1%. In 1966, a PetroChina well flowed nearly 1 MMcfd from an unstimulated carbonaceous shale at a depth of 2,800 m within the Qiongzhusi interval.

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S h a le Ga s Re s o u rc e s
Sichuan is a large natural gas producing basin with 1.5 Bcfd productive capacity. A total of 112 individual natural gas fields have been discovered with estimated 25 Tcf recoverable resources. A significant proportion of these fields have challenging low-permeability reservoirs and H 2 S levels often are high. The Silurian Longmaxi organic-rich shale has an estimated average resource concentration of 80 Bcf/mi2. These shales are at suitable depth and thermal maturity over about 70% of the Sichuan Basin, providing a prospective area of 56,875 mi2. However, a significant portion of the prospective area was screened out (risked) due to structural complexity. ARI estimates 343 Tcf of risked recoverable resources from the Silurian Shale based on 1,373 Tcf of total risked gas in place, Table I-1. The Cambrian Qiongzhusi shale has an average estimated 57 Bcf/mi2 resource concentration. These shales are present essentially across the entire Sichuan Basin area, though they are somewhat thinner than the Silurian shales. Structural complexity sterilizes an estimated 70% of the basin area. ARI estimates 349 Tcf of risked recoverable resources from the Cambrian Shale, out of a total 1,394 Tcf of risked gas in-place, Table XI-1.

Exp lo ra tio n Ac tivity

As Chinas earliest natural gas producing region, the Sichuan basin has a welldeveloped network of natural gas pipelines. Large cities (Chongqing, Chengdu) and industrial gas consumers (fertilizer, ceramics manufacturers) offer a ready market for the gas. Well

drilling services are available, including horizontal drilling and hydraulic fracturing. The Sichuan Basin hosts numerous large operators (PetroChina, Shell, Chevron, ConocoPhillips, EOG) who are evaluating and testing the shale- and tight-gas resources in the basin. However,

ConocoPhillips is the only operator in the Sichuan Basin to have selected its block based on shale gas exploration quality. The other PSCs in Sichuan were previously signed based on tight gas sand and carbonate gas potential and are being opportunistically re-evaluated for shale gas. These exploration programs are at an early data-gathering stage, with no commercial shale gas production reported yet.

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PetroChina. Chinas most active shale gas explorer, PetroChina, is partnered with several foreign companies in the Sichuan Basin and also operates its own exploration program. PetroChina has noted that seven of the companys

conventional exploration wells in the basin experienced gas kicks while penetrating shales, including one well that flowed 1 MMcfd from an unstimulated shale. The company reportedly spud its first dedicated shale gas test well in September 2010. In December 2010, Sinopec reported that its first shale well (Yuanba-1), a vertical test in the northeast part of the basin completed in shale at depths of 4,035-4,110 m, flowed an encouraging 406 Mcfd after stimulation. PetroChina and Sinopec plans to drill several more test wells and install several horizontal production pilots in various locations during 2011. PetroChinas production target for Sichuan shale gas is 100 MMcfd by 2015. Chevron. In 2008, Chevron assumed operation and 49% ownership (CNPC 51%) of the 1,969-km2 Chuandongbei block in the Sichuan Basin, in Dazhou, Wanyuan and Chongqing-Kaixian districts. The block, originally acquired for tight gas

development, has extremely high H 2 S levels of up to 15%. Chevron is evaluating the shale gas potential but no drilling has been announced yet. Further west of Sichuan, Chevron reported in September 2010 that it is negotiating with Sinopec for a shale gas exploration block near Guiyang. Shell. In March 2010, Shell announced it and CNPC had jointly submitted a 30-year PSC application to the government for approval in the Sichuan basin, targeting tight gas and shale gas resources within the 4,000-km2 Jinqiu region. In September

2010, Shell announced that, assuming its two planned exploration wells reveal good potential, the companys investment for this project could reach $1 billion annually for each of the next five to seven years. EOG Resources. EOG holds a tight gas PSC in the Sichuan Basin that may also be prospective for shale gas. EOG currently is evaluating the shale gas potential and expects to decide sometime late 2010 whether or not to test the PSC with a shale gas exploration well. Newfield Exploration. In 2006 Newfield reportedly evaluated shale gas at Weiyuan gas field, where PetroChina had flowed 868 Mcfd from Cambrian Jiulaodong
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Formation in an unstimulated conventional vertical exploration well. Newfield decided not to further pursue this shale gas opportunity.

However,

ConocoPhillips. The company reportedly is evaluating a 3,000-km2 block in the Sichuan Basin for shale gas development and may sign a PSC later in 2010.

TARIM BAS IN Ge o lo g ic Ch a ra c te riza tio n

The Tarim basin in western Chinas Xinjiang Uyghur Autonomous Region is one of the worlds largest frontier petroleum sedimentary basins, covering a total area of 234,200 mi2. The primary shale gas targets within the Tarim Basin are the lower Paleozoic sediments, particularly the extensive shale source rocks of Cambrian and Ordovician age. 4 These shales have

sourced major oil and gas resources in conventional reservoirs of Cambrian, Ordovician, Carboniferous, and Triassic age, including over 5 billion barrels of oil equivalent hydrocarbons in Ordovician carbonate rocks. The Tarim Basin is sub-divided by fault systems into a series of distinct structural zones including: (1) the Manjiaer Depression in the north; (2) the Tangguzibasi Depression in the south; (3) the Awati Sag in the west; and (4) the Tadong Sag in the east, Figures XI-5 and XI-6. The west-to-east cross-section A-C, Figure XI-7, shows deep, organic-rich shales of Ordovician and Cambrian age at favorable depth and thermal maturity over the eastern Tarim Basin. The south-to-north cross-section D-E, Figure XI-8, shows similar prospective targets for the northern Tarim Basin. In the center of the Tarim Basin, the Tazhong and Tabei Uplifts a west-plunging large-scale nose, where the Mid-Upper Ordovician section has been removed by erosion during the Hercynian Orogeny the shales have low R o and are not prospective for development. 5

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Figure XI-5. Tarim Basins Organic-rich Ordovician Shales. (Note location of cross sections A-B-C- and D-E.)

Figure XI-6. Tarim Basins Cambrian Shales. (Note location of cross sections A-B-C- and D-E.)

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Figure XI-7. Tarim Basin West-To-East Cross-Section A-C for Ordovician- and Cambrian-Age Shales. (See Figures XI-6 and XI-7 for Cross Section Location.)
B C

Modified from Cai, C., et al., Organic Geochemistry 40 (2009) 755768

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Figure XI-8. Tarim Basin South-To-North Cross-Section D-E for Ordovician- and Cambrian-Age Shales. (See Figures XI-6 and XI-7 for Cross Section Location.)
D E

Modified from Cai, C., et al., Organic Geochemistry 40 (2009) 755768

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Ordovician black shales are the most important petroleum source rocks in the Tarim Basin, Figure XI-9. Conventional oil reservoirs in the Tazhong Uplift are mainly found within Mid-Upper Ordovician carbonates. Shale source rocks in the Heituao, Yijianfang, and

Lianglitage Formations grade from black and dark grey mudstone, to silty mudstone, to argillaceous limestone. TOC ranges from 0.3% to 2.5%, averaging about 2.0% in the richer sequences. Organics consist of kerogen, vitrinite-like macerals, as well as bitumen. Shale depths range from 2,000 m to over 6,000 m (6,500 to 20,000 feet).
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Figure XI-9. Tarim Basin Stratigraphy Showing Organic-Rich Upper Ordovician and Lower Cambrian Shales.

Source: Modified from S. Li et al. / Organic Geochemistry 41 (2010) 531553

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The Lower Ordovician Heituao (O 1-2 ) shales appear to be the most prospective. These shales range from 48 to 63 m thick, extend over the entire Manjiaer Depression, and consist of carbonaceous, siliceous mudstone with radiolarian shale that are likely to be quite brittle. The Middle Ordovician Yijianfang (O 2 ) Saergan Formation shales, present in the Keping Uplift and Awati Depression, are marine black mudstones some 10 m to 30 m thick, with TOC of 0.56% to 2.86% (average 1.56%). Upper Ordovician Lianglitage (O 3 ) shales occur in the Central Tarim, Bachu, and Tabei areas, where they are 20 m to 80 thick, carbonate-rich, but with relatively low TOC (average 0.93%). The Cambrian organic-rich shales, consisting of abyssal to bathyal facies mudstones, occur in the Manjiaer Depression and the eastern Tarim and Keping Uplifts. TOC is reasonably high (1.2% to 3.3%) in the Low (C 1 ) and Middle (C 2 ) Cambrian Formations and exceeds 1% over about two-thirds of the Cambrian sequence. Evaporitic dolomites occur in the middle Cambrian, with extensive salt and anhydrite beds totaling 400 to 1,400 m thick. Net organicallyrich shale thickness ranges from 120 m to 415 m, averaging about 120 m (400 ft). Thermal maturity is well into the dry gas window (R o = 2.5%).

S h a le Ga s Re s o u rc e s
Ordovician organic-rich shales were mapped to define thickness, depth, TOC, and thermal maturity. The thickest shale deposits occur in the Manjiaer Depression, reaching an incredible 1,600 m of net organic-rich source rock. A second slightly thinner but still very

substantial deposit occurs in the Awati Depression, where organic-rich shales reach maximum 400 m thick. Both of these deposits are within the dry gas window (average R o approximately 2%). However, shale thickness and thermal maturity both decline markedly westward into the Central Tarim and Bachu Uplifts (R o = 0.6% to 0.7%). TOC is moderately high, about 2% on average with higher values indicated on well logs. Porosity is unknown but speculated to be fairly high (6%) based on the marine, clay-poor environment of deposition. Much of the organic-rich shale in the Tarim is too deep for shale development (>15,000 ft). Thus, the thickness in the Ordovician was reduced to an estimated average net 80 m (260 ft) at an average depth of approximately 3,960 m (13,000 ft). Based on these assumptions, ARI estimates that the 55,042 mi2 of prospective Ordovician shales in the Tarim Basin contain a total 897 Tcf of risked gas in place and 224 Tcf of risked recoverable resources, Table XI-1. Average resource concentration is estimated at 102 Bcf/mi2, likely higher in sweet spots.
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Cambrian organic-rich shales appear to have even more gas potential than the Ordovician shales. Cambrian shales reach more than 1 km thick in the Awati Depression and over 1.4 km thick in the Manjiaer Depression, but are thin and become thermally immature further to the west. Due to excessive depth (>15,000 ft), net organic-rich shale thickness was reduced to about 404 ft at an average depth of 14,000 ft. Both of these deposits are well into the dry gas window (average R o approximately 2.5%). TOC also is moderately high, about 2.0% on average and reaching higher levels in well logs. Porosity is unknown but speculated to be about 5% based on a favorable marine, clay-poor environment of deposition. Based on these assumptions, ARI estimates that Cambrian shales in the Tarim Basin contain a total 1,437 Tcf of risked gas in place and approximately 359 Tcf of risked recoverable resources, Table XI-1. Average resource concentration is estimated at 141 Bcf/mi2, likely higher in sweet spots.

Exp lo ra tio n Ac tivity

The Tarim Basin in remote western China holds the Kuche-Tabei, Bachu-Taxinan and Tadong natural gas complexes, where 15 gas fields have been discovered with estimated recoverable resources of about 21 Tcf. The Kela-2, Dina-2, Yaha and Hetianhe gas fields have been developed. With productive capacity of close to 2 Bcfd, the Tarim Basin is Chinas largest gas-producing basin and a major source for the West-East Gas Pipeline. To date no shale gas exploration or evaluation activity has been announced for the Tarim Basin.

CHINAS OTHER S HALE GAS BAS INS

China has five other large sedimentary basins that contain shales deposited in mainly non-marine environments, most often in ancient lakes (lacustrine) or fluvial settings that were close to terrigenous sediment sources. These non-marine shale basins are likely to be clay-rich and thus less prospective. In addition, many shale targets in these basins are thermally

immature and oil-prone. Chinas five major non-marine basins include the Ordos, the Junggar, the North China (Huabei), the Turpan-Hami, and the Songliao, shown on Figure XI-10.

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Figure XI-10. Chinas Other Shale Gas Basins.

Ord o s Ba s in
The Ordos basin, a large (320,000-km2) coal-, petroleum- and CBM-productive sedimentary basin is located in Shaanxi, Shanxi, Ningxia, and Inner Mongolia in north-central China, Figure XI-11. Apart from its overthrusted western margin, the basin is structurally simple with gently dipping flanks. Significant natural gas, nearly 2 Bcfd, is produced from lowThe sedimentary sequence

permeability carbonate reservoirs in the central Ordos Basin.

comprises Paleozoic and Mesozoic clastic rocks, along with extensive coal deposits that were deposited in mainly fluvial and lacustrine environments. The shales in the Ordos Basin exist in the Triassic, Carboniferous and Permian.

The Triassic Tongchuan Formation shales in the Ordos Basin do not appear to have viable shale gas potential. These shales were deposited in fluvial or lacustrine environments,
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World Shale Gas Resources: An Initial Assessment

are low in TOC, and are very high in clay (80%; mainly illite and chlorite), with very low quartz (15%) and feldspar (5%) content. Likewise, Triassic Hujiachun Fm shales are lean, dominantly clay (75%, mainly illite and chlorite), with low quartz (15%) and feldspar (10%). Potentially higher quality shales occur in Carboniferous and Permian mudstones. 6 The Carboniferous Taiyuan Formation contains black shales and limestones, but the formation is interbedded with coal seams and other dominantly non-marine clastic sediments. The overlying fluvial-dominated Permian Shanxi Fm contains thinner coal seams as well as thick non-marine clastic rocks, Figure XI-12. Ordos Basin, Figure XI-13. 7,8 Figure XI-11. Ordos Basins Overthrusted Western Margin and Simple Central Deep Shangbei Slope. Figure XI-12. Ordos Basin (Permian Shanxi Fm) NonMarine, Mainly Lacustrine Shales Gas isotope data indicate that these coal seams, rather than

interbedded shales, were the main source rocks for the Ordovician gas fields in the central

Modified from Z. Zhang et al./Sedimentary Geology 112 (1997) 123-136

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Source:Y. Yuan et al. / Journal of Geodynamics 44 (2007) 3346

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Figure XI-13. Cross-Section of Paleozoic Formations in the Ordos Basin, Showing Organic-Rich Source Rocks in the Carboniferous Taiyuan and Permian Shanxi Formations.

Yuan et al., 2007

J u n g g a r Ba s in
The Junggar Basin, a large (130,000-km2) petroliferous basin in western Chinas Xinjiang Autonomous Region, contains oil-prone and non-marine shales of Carboniferous to Jurassic age. The Junggar is an asymmetric foreland basin containing a thick segment of Paleozoic and Mesozoic sedimentary rocks, Figure XI-14. The Wulungu and Central

Depression contain thermally immature source-rock shales. Only the North Tianshan Foreland Depression is deep enough for gas-mature shales, Figures XI-15 and XI-16. The Lower Carboniferous sequence is 2 to 3 miles thick, holding mainly marine volcaniclastics that are high in clay and low in TOC. Overlying Mesozoic rocks, up to 4 miles thick, are mainly non-marine clastic rocks. The primary target for shale gas exploration appears to be the thick mudstones of Permian age, the main petroleum source rock in the basin, Figure 15. TOC can be high, averaging 4.3% in one 1,000 foot thick interval of dark gray Upper Permian Lucaogou Fm mudstone and often reaching 20%, making this shale one of the worlds richest petroleum source rocks. 9

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The shales in the Junggar Basin were deposited primarily in lacustrine and fluvial environments, resulting in clay-rich shales. Moreover, the Junggar is a thermally immature basin with abnormally low heat flow. Gas window maturities (R o > 1%) are attained only in the North Tianshan foreland region at depths of greater than about 5,000 m, thus excluded from our definition of prospective areas. 10 Figure XI-14. The Junggar Basins Organic-Rich Jurassic and Permian Source Rocks.

Source: Modified from Xiao et al., AAPG Bulletin, v. 94, no. 7 (JULY 2010), pp. 937955
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Figure XI-15. Junggar Basin Structural Elements showing Wulungu, Central, and North Tianshan Foreland Depressions. (Note location of cross-section line A-A.)

Figure XI-16. Junggar Basin Source-Rock Shales in the Jurassic and Permian

Modified from Wang et al., 2001

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No rth Ch in a (Hu a b e i) Ba s in
East-central Chinas North China Basin (Huabei) is a conventional oil and gas producing region and includes the Shengli Oilfield, Chinas second largest. The North China Basin, which covers portions of Hebei, Henan, and adjoining provinces, contains extensive Carboniferous and Permian source rock shales that are stratigraphically and lithologically similar to those in the Ordos Basin, Figure XI-17. 11 The Carboniferous Taiyuan and Permian Shanxi Formations contain organic-rich but non-marine deposited shales that are associated with coal seams. These shales are likely to be clay-rich and ductile. In addition, the North China Basin is structurally complex with numerous small grabens defined by northeast-southwest trending normal faults, active tectonics and seismicity, and ongoing regional subsidence. 12 Until additional data are obtained, the non-

marine nature of the shales and their structural complexity make the North China Basin nonprospective for shale gas. Figure XI-17. Cross-Section of the North China Basin with Active Normal and Strike-Slip Faults.

Pu and Qing, 2001

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Tu rp a n -Ha m i Ba s in
The Turpan-Hami Basin, a medium-sized (54,000-km2) intermontane basin, is located in Xinjiang, western China, midway between the Tarim and Junggar basins, Figure XI-18. Much as in the Junggar basin, with which it was connected prior to early Mesozoic tectonic uplift, the Turpan-Hami basin contains late Paleozoic to Mesozoic lacustrine-deposited shales that are thermally immature for gas. 13 Figure XI-18. The Turpan-Hami Basin Source Rocks Include Upper Permian And Middle Jurassic Mudstones with High TOC.

TURPAN-HAMI BASIN

Modified from Greene, T.J., et al., AAPG Bulletin, v. 88, no. 4 (April 2004), pp. 447481
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Upper Permian source rock mudstones in this basin correlate with similar-aged, low-rank lacustrine deposits in the adjacent Junggar Basin, Figure XI-19. For example, the Permian Tarlong Formation mudstones can have high TOC (3.6% to 8.2%), but are thermally immature (R o = 0.5%), even in the deep Tainan depression where shales reach 5,000 m depth. Middle Jurassic Qiketai Formation lacustrine shales are not yet gas mature (R o = 0.76%) in the Taibei depression. The shallower Lower to Middle Jurassic coal-rich mudstones appear to be clay-rich and are even less thermally mature (maximum R o = 0.56%). The Turpan-Hami Basin does not appear to be prospective for shale gas.

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Figure XI-19. Turpan-Hami Basin Stratigraphic Column.

Key

Modified from Greene, T.J., et al., AAPG Bulletin, v. 88, no. 4 (April 2004), pp. 447481
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S o n g lia o Ba s in
The Songliao Basin, a large (150,000-km2) petroliferous basin in northeastern China hosts the Daqing Oilfield (Chinas largest), also contains Mesozoic non-marine shale source rocks, Figure XI-20. Located in Heilongjiang and Jilin Provinces, the Songliao, along with the nearby Hailar and Erlian basins, consist of dozens of small pull-apart half-grabens which formed during Late Jurassic to Cretaceous time as India collided with the Asian continent, Figure XI21. 14

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Figure XI-20. The Songliao, Hailar, and Erlian Rift Basins in Northeast China.

Modified from Wei, et al., AAPG Bulletin, v. 94, no. 4 (April 2010), pp. 533566

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The main organic-rich shales are the Lower Cretaceous Shahezi and Yingcheng Formations, comprising 2,000 feet of dark mudstone with TOC ranging from 0.46% to 2.46%. In addition, high TOC shales exist in the Cretaceous Jiufotang Formation, up to 2,400 feet thick with 2.5% to 3.5% TOC. These shales were formed in lakes with no significant deepwater marine influence. Because these shales are deep, exceeding 5,000 m, thermally immature, and rich in clay they are classified as non-prospective.

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Figure XI-21. The Songliao Basins Numerous Small Pull-Apart Grabens.

Na tu ra l Ga s P ro file
China produced 2,929 Bcf of natural gas in 2009 15, up 8 percent from 2008, with consumption slightly higher at 3,075 Bcf. Approximately 45 percent of the consumed gas was utilized for industrial purposes. As of January 2010, Chinas proven natural gas reserves stand at 107 Tcf.

Exp lo ra tio n Ac tivity

The level of industry interest in China shale gas is increasingly rapidly. Chinas Ministry of Land and Resources (MLR) established a National Gas Shale Research Center in August 2010. PetroChina, Sinochem and CNOOC are initiating exploration in China, as are several foreign oil companies. MLR recently (October 28, 2010) announced plans to offer six shale gas exploration blocks within the next month. Bidding will be limited to four Chinese companies (PetroChina, Sinopec, CNOOC, and Shanxi Yanchang Petroleum Group). Foreign companies would be allowed to cooperate with bid winners. MLR envisions opening blocks to foreign bidding eventually, but no timetable has been announced.

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As Chinas earliest natural gas producing region, the 230,000-km2 Sichuan Basin has a well-developed network of natural gas pipelines. Large cities (Chongqing, Chengdu) and

industrial gas consumers (fertilizer, ceramics manufacturers) are present. PetroChina, Shell, Chevron, ConocoPhillips, BP, as well as EOG Resources are investigating the shale gas potential in Sichuan and further southwest in Guizhou Province.

REFERENCES
1

Zou, C.N, Tao, S.Z., Tang, P., Gao, X.H., Yang, Z., Guo, Q.L., Dong, D.Z., and Li, X.J., 2010. Geological Features and Exploration for Tight Sand Gas, Shale Gas and Other Unconventional Oil/Gas Resources in China. AAPG Search and Discovery Article #90108, 2010 AAPG International Convention and Exhibition, September 12-15, 2010 Calgary, Alberta, Canada. Wang, H.Y., Wang, G.J., Liu, H.L., Zhao, Q., and Liu, D.X., 2009. Development Trend of Unconventional Gas Resources in China. International Gas Union, 24th World Gas Conference, Buenos Aires, Argentina, October 5-9.

Zhu, G.Y., Zhang, S.C., Liang, Y.B., and Li, Q.R., 2007. The Genesis of H2S in the Weiyuan Gas Field, Sichuan Basin and Its Evidence. Chinese Science Bulletin, vol. 52, no. 10, p. 1394-1404.
3 4

Cai, C.F., Li, K.K., Ma, A.L., Zhang, C.M., Xu, Z.M., Worden, R.H., Wu, G.H., Zhang, B.S.,and Chen, L.X., 2009. Distinguishing Cambrian from Lower Ordovician Source Rocks : Evidence from Sulfur Isotopes and Biomarkers in the Tarim Basin. Organic Geochemistry, vol. 40, p. 755-768. Li, S.M., Pang, X.Q., Jin, Z.J., Yang, H.J., Xiao, A.Y., Gu, Q.Y., and Zhang, B.S., 2010. Petroleum Source in the Tazhong Uplift, Tarim Basin: New Insights from Geochemical and Fluid Inclusion Data. Organic Geochemistry, vol. 41, p. 531-553.

Yuan, Y.S., Hu, S.B., Wang, H.J., and Sun, F.J., 2007. Meso-Cenozoic Tectonothermal Evolution of the Ordos Basin, central China: Insights from Newly Acquired Vitrinite Reflectance Data and a Revision of Existing Paleothermal Indicator Data. Journal of Geodynamics, vol. 44, p. 33-46. Hu, G.Y., Li, J., Shan, H.Q., and Han, Z.X., 2010. The Origin of Natural Gas and the Hydrocarbon Charging History of the Yulin Gas Field in the Ordos Basin, China. International Journal of Coal Geology, vol. 81, p. 381-391. Cai, C.F., Hu, G.Y., He, H., Li, J., Li, J.F., and Wu, Y.S., 2005. Geochemical Characteristics and Origin of Natural Gas and Thermochemical Sulphate Reduction in Ordovician Carbonates in the Ordos Basin, China. Journal of Petroleum Science & Engineering, vol. 48, p. 209-226. Carroll, A.R., 1998. Upper Permian Lacustrine Organic Facies Evolution, Southern Junggar Basin, NW China. Organic Geochemistry, vol. 28, no. 1, p. 649-667. Wang, S.J., He, L.J., and Wang, J.Y., 2001. Thermal Regime and Petroleum Systems in Junggar Basin, Northwest China. Physics of the Earth and Planetary Interiors, vol., 126, p. 237-248.

10

11 Pu, R.H. and Qing, H.R., 2001. Integrative Reservoir Prediction in Duzhai Sub-Depression, Bohaiwan Basin, North China. Canadian Society of Petroleum Geologists, June 18-22, 2001. 12

Tang, Z., 1982. Tectonic Features of Oil and Gas Basins in Eastern Part of China. American Association of Petroleum Geologists, AAPG Bulletin, vol. 66, no. 5, p. 509-521. Greene, T.J., Zinniker, D., Moldowan, J.M., Cheng, K.M., and Su, A.G., 2004. Controls of Oil Family Distribution and Composition in Nonmarine Petroleum Systems: A Case Study from the Turpan-Hami basin, Northwest China. American Association of Petroleum Geologists, AAPG Bulletin, vol. 88, no. 4, p. 447-481. February 17, 2011 XI-25

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14

Wei, H.H., Liu, J.L., and Meng, Q.R., 2010. Structural and Sedimentary Evolution of the Southern Songliao Basin, Northeast China, and Implications for Hydrocarbon Prospectivity. American Association of Petroleum Geologists, AAPG Bulletin, vol. 94, no. 4, p. 533-566. U.S. Department of Energy, Energy Information Administration, accessed January 21, 2010.

15

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XII. INDIA/PAKISTAN
INTRODUCTION
India and Pakistan contain a number of basins with organic-rich shales. For India, the study assessed four priority basins: Cambay, Krishna Godavari, Cauvery and the Damodar Valley sub-basins such as Raniganj, Jharia and Bokaro. The study also screened several other basins of India, such as the Upper Assam, Vindhyan, Pranhita-Godavari and South Rewa, but found that either the shales were thermally too immature for gas or the data with which to conduct a resource assessment were not available. For Pakistan, the study addressed one priority shale gas basin - - Southern Indus, Figure XII-1. Figure XII-1. Shale Gas Basins and Natural Gas Pipelines of India/Pakistan

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Shale basins in India and Pakistan are geologically highly complex. Many of the basins, such as the Cambay and the Cauvery, have horst and graben structures and are extensively faulted. The prospective area for shale gas in these basins is restricted to a series of isolated basin depressions (sub-basins). While the shales in these basins are thick, considerable

uncertainty exists as to whether (and what interval) of the shale is sufficiently mature for gas generation. Recently, ONGC drilled and completed the Indias first shale gas well, RNSG-1, northwest of Calcutta in West Bengal. The well was drilled to a depth of 2,000 meters and reportedly had gas shows at the base of the Permian-age Barren Measure Shale. Two vertical wells (Well D-A and D-B) were previously tested in the Cambay Basin and had modest oil and shale gas production in the shallower, 4,300-foot thick intervals of the Cambay Black Shale. 1 Overall, ARI estimates a total of 496 Tcf of risked shale gas in-place for India/Pakistan, 290 Tcf in India and 206 Tcf in Pakistan, Table XII-1. The technically recoverable shale gas resource is estimated at 114 Tcf, with 63 Tcf in India and 51 Tcf in Pakistan. These estimates could increase with collection of additional reservoir information.
Table XII-1. Shale Gas Reservoir Properties and Resources of India/Pakistan
Basin/Gross Area Cambay Basin (20,000 mi) Cambay Shale Damodar Valley KrishnaCauvery Basin Basin Godavari Basin (9,100 mi) (1,410 mi) (7,800 mi) Barren Measure Kommugudem Shale Permian 4,340 3,100 - 3,500 1,000 300 6,200 - 13,900 11,500 Normal 6.0% 1.60% High 156 136 27 Andimadam Formation Cretaceous 1,005 600 - 1,200 800 400 7,000 - 13,000 10,000 Normal 2.0% 1.15% High 143 43 9 Southern Indus Basin (67,000 mi) Sembar Formation Early Cretaceous 4,000 1,500 - 2,500 1,000 300 13,000 - 15,000 14,000 Normal 2.0% 1.25% Low 100 80 20 Ranikot Formation Paleocene 4,000 2,000 - 4,000 1,500 450 10,000 - 13,000 11,500 Normal 2.0% 1.15% Low 157 126 31

Basic Data

Shale Formation Geologic Age Prospective Area (mi2) Interval Thickness (ft) Organically Rich Net Interval Depth (ft) Average Reservoir Pressure Average TOC (wt. %) Thermal Maturity (%Ro) Clay Content GIP Concentration (Bcf/mi2) Risked GIP (Tcf) Risked Recoverable (Tcf)

Upper Permian-Triassic Cretaceous/Tertiary 940 1,600 - 4,900 1,500 500 11,500 - 16,400 13,000 Moderatly Overpressured 3.0% 1.10% Medium 231 78 20 1,080 0 - 2,100 1,050 368 3,280 - 6,560 4,920 Moderatly Overpressured 4.5% 1.20% HIgh 123 33 7

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Reservoir Properties

Physical Extent

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Cambay BASIN, INDIA

The Cambay Basin is an elongated, intra-cratonic rift basin (graben) of Late Cretaceous to Tertiary-age located in the State of Gujarat in northwestern India. The basin covers an onshore area of about 20,000 mi2. The basin is bounded on its eastern and western sides by basin-margin faults. It extends south into the offshore Gulf of Cambay, limiting its onshore area, and north into Rajasthan 2, Figure XII-2.

Ge o lo g ic Ch a ra c te riza tio n (Ca m b a y Bla c k S h a le )

The Deccan Trap Group, composed of horizontal lava flows, forms the basement of the Cambay Basin. Above the Deccan Trap, separated by the Olpad Formation, is the late Paleocene and early Eocene Cambay Black Shale, Figure XII-3 3. The Cambay Black Shale represents the marine transgressive episode in the basin. The organic matter, ranging from 2.0% to over 4.0%, averages 3% and is primarily Type III (humic) with some Type II, Figure XII4. With a thermal maturity ranging from about 0.6% to 2%, the shale is in the oil to dry gas window. 4 However, considerable uncertainty exists as to the specific location of the top of the gas window in the depression areas of this basin. For purposes of this study, we have assumed that the gas window is generally below 10,000 feet, Figures XII-5 and XII-6 The depth to the top of the Cambay Black Shale ranges from about 6,000 feet in the north to greater than 13,000 feet in the lows of the southern fault blocks, Figure XII-7. The Black Shale interval ranges from 1,500 feet thick to more than 5,000 feet thick. 5 In the

northern Mehsana-Ahmedabad Block, the Kadi Formation forms an intervening 1,000-foot thick non-marine clastic wedge within the Black Shale interval. In this block, the organic-rich shale thickness varies from 300 to 3,000 feet, with the net completable gas bearing shale thickness located in the lower portion of the Cambay Black Shale interval, averaging about 500 feet, Figure XII-8. Thermal gradients are high, estimated at 3oF per 100 feet, contributing to accelerated thermal maturity of the organics. 6

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Figure XII-2. Cambay Basin Study Area.

Figure XII-3. Generalized Stratigraphic Column of the Cambay Basin.

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Figure XII-4. Organic Content of Cambay Black Shale, Cambay Basin

Figure XII-5. Cross Section of Cambay Black Shale System

Figure XII-6. N-S Geological Cross-Section Across Cambay Basin

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Figure XII-7. Depth and Thermal Maturity of Cambay Black Shale, Cambay Basin

Figure XII-8. Gross Isopac of Cambay Black Shale, Cambay Basin

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The Cambay Basin contains five distinct fault blocks, from north to south: (1) Sanchor Patan; (2) Mehsana-Ahmedabad; (3) Tarapur; (4) Broach; and (5) Narmada (Sivan et al., 2008), Figure XII-2. Each of these blocks is characterized by local lows, some of which appear to have sufficient thermal maturity to be prospective for shale gas, Table XII-2. 7 Table XII-2. Prospective Areas For Black Shale of Cambay Basin

Fault Blocks 1. 2. 3. 4. 5.

Depocenter Area (mi2) 240 290 320 330 120

Comments Too Shallow for Shale Gas One Prospective Area One Prospective Area One Prospective Area Insufficient Data

Sanchor Patan Mehsana-Ahmedabad Tarapur Broach Narmada

Mehsana-Ahmedabad Block. Three major deep gas areas (depressions) exist in the Mehsana-Ahmedabad Block - - the Patan, Worosan and Wamji. A deep well, Well-A, was drilled in the eastern flank of the Wamji Low to a depth of nearly 15,000 feet, terminating below the Black Shale. In addition, a few wells were recently drilled to the Cambay Shale in the axial part of the graben low. A high pressure gas zone was encountered in the Upper Olpad section next to the Cambay Shale, with methane shows increasing with depth. Geochemical modeling indicates an oil window at 6,600 feet, a wet gas window at 11,400 feet and a dry gas window at 13,400 feet respectively. 8

Broach and Tarapur Blocks. The deeper Tankari low in the Broach Block and the low in the Tarapur Block appear to have a similar thermal history as the Mehsana-Ahmedabad Block depression and thus also may have shale gas potential, particularly in the lower interval of the Cambay Black Shale in the Broach and Tarapur depocenters.

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Re s o u rc e s (Ca m b a y Bla c k S h a le )
Using the criteria of vitrinite reflectance (Ro) greater than 1.0% and formation depth between 10,000 and 16,500 feet, we calculate a prospective area of 1,940 mi2 for the Black Shale of the Cambay Basin, Figure XII-9. 9 Based on the estimated prospective area of 1,940 mi2 and an average value of 500 feet for net shale, ARI estimates a risked gas in-place for the Cambay Black Shale of 79 Tcf, approximately 20 Tcf of which may be technically recoverable.

Ac tivity
Although the shales in the Cambay Basin have been identified as a priority area by ONGC, no plans for exploring these shales have yet been publically announced. However, two shallower conventional exploration wells (targeting the oil-bearing intervals in the basin) penetrated and tested the Cambay Black Shale. Well D-A, a vertical well, had gas shows while drilling the Cambay Black Shale in a 90-foot section at a depth of about 4,300 feet. After hydraulic stimulation, Well D-A produced 13 B/D of oil and 11 Mcfd of gas. Well D-B, an older vertical well drilled in 1989 to a depth of 6,030 feet, had also encountered the Cambay Shale at about 4,300 feet. The well was subsequently hydrofractured and produced 13 B/D of oil and 21 Mcfd of gas.

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Figure XII-9. Prospective Areas of the Cambay Black Shale, Cambay Shale Basin

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KRISHNA GODAVARI BASIN, INDIA

The Krishna Godavari Basin extends over a 7,800 mi2 area onshore (plus additional area in the offshore) in eastern India. The basin consists of a series of horsts and grabens, as shown on Figure XII-10 10. The basin contains a series of organically rich shales, including the deeper Permian-age Kommugudem Shale, which is gas prone (Type III organics) and appears to be in the gas window in the basin grabens. The Upper Cretaceous Raghavapuram Shale and the shallower Paleocene- and Eocene-age shales are in the oil window and thus were not assessed by this study. Figure XII-10. Krishna Godavari Basins Horsts and Grabens

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Ge o lo g ic Ch a ra c te riza tio n (Ko m m u g u d e m S h a le )

The Kommugudem Shale is a thick Permian-age rock interval containing alternating sequences of carbonaceous shale, claystone, sand and coal, Figure XII-11. The Mandapeta Graben, the most extensively explored area of the Krishna Godavari Basin, provides much of the geologic characterization data for this basin. The shale interval in this graben ranges from 945 to 1,065 m in thickness. 11 Figure XII-11. Stratigraphic Column, Mandapeta Area, Krishna Godavari Basin11

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An average continuous organic-rich area of 140 m was tested in 10 wells. The data show that the TOC of the Kommugudem Shale ranges up to 11% with a more typical range of 3% to 9%, averaging 6%, for ten rock samples at various depths, Table XII-3. Table XII-3. Analysis of Ten Rock Samples, Kommugudem Shale 12

Well AA-1 AA-2 AA-9 AA-10 AA-11 BW-1A BW-2 BW-2 BW-9 DE-1

Depth (m) 3,320-3,880 3,585-3,630 3,330-3,360 3,880-3,920 2,890-3,150 3,915-4,250 2,970-3,085 3,100-3,175 2,800-3,040 1,900-2,040
550oC,

TOC (%) 10.4 4.2 7.1 3.1 7.0 5.6 8.8 7.8 11.2 8.9

S2 * 7.0 2.9 6.4 0.6 7.9 0.8 5.5 6.0 6.9 13.9

Shale Interval Tested (m) 110 45 30 40 260 335 115 75 315 120

*Volume of hydrocarbon cracked from kerogen by heating to

measured in terms of mg hydrocarbon/g rock.

The Kommugudem Shale was deposited in fluvial, lower deltaic, and lacustrine environments. While an effective source rock with excellent organic matter richness, analysis of the shale indicates hydrogen-deficient organic matter (based on low S 2 values from pyrolysis) and high levels of primary inertinite. The average depth of the shale is 11,500 feet in the graben structures. The organically rich shale interval is estimated at 1,000 feet, with a completable net pay of 300 feet. Vitrinite reflectance of the Kommugudem Shale in the deep graben structures ranges from 1.2% to 2% Ro, placing the shale inside the wet to dry gas window. Figure XII-12 provides a useful illustration of the relationship of the depth and geologic age of the deposition in the Krishna Godavari Basin to the thermal maturity (Ro) for two of the graben structures, Kommugudem (KMG) and Mandapeta (MDP).

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Figure XII-12. Cross Section for the Krishna Godavari Basin 11

The shale appears to be normally overpressured. Given the fluvial lacustrine deposition, we anticipate the clay content of the shale to be moderately high.

Re s o u rc e s (Ko m m u g u d e m S h a le )
The 4,340 mi2 prospective area of the Kommugudem Shale in the Krishna Godavari Basin is limited to the four grabens (sub-basins) where the thermal maturity is sufficiently high for wet to dry gas generation, Figure XII-13. Based on an average resource concentration of 156 Bcf/mi2 for the four graben areas, we estimate a risked shale gas in-place of 136 Tcf, with a risked technically recoverable resource of 27 Tcf.

Ac tivity
The technical literature discusses 16 wells that have been drilled at the Mandapeta graben into or through the Kommugudem Shale in search for hydrocarbons in the Mandapeta and Gollapalli sandstone reservoirs. The information from these 16 wells has provided valuable data for this study.

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Figure XII-13. Prospective Areas for Shale Gas in the Krishna Godavari Basin

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CAUVERY Basin, India

The Cauvery Basin covers an onshore area of about 9,100 mi2 on the east coast of India, plus an additional area of about 9,000 mi2 in the offshore, Figure XII-14. The basin comprises numerous horsts and rifted grabens. The basin contains a thick interval of organicrich source rocks in Lower Cretaceous Andimadam and Sattapadi shale formations which overly the Archaean basement. Figure XII-14. Cauvery Basin Horsts and Grabens

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Ge o lo g ic Ch a ra c te riza tio n
The gas prone source rocks in the Cauvery Basin are the Lower Cretaceous Andimadam Formation and the Sattapadi Shale, Figure XII-15 and Figure XII-16. The source rock is generally Type III with some Type II. The thermally mature source rocks are limited to the deeper Andimadam Formation which contain thermogenic natural gas. The oldest rocks in the Cauvery Basin are the shallow marine, late Jurassic sediments and early Cretaceous deposits. The thickness of the Lower Cretaceous interval is 3,000 to 5,000 feet, with the Andimadam/Sattapadi Shale accounting for the bulk of the gross interval. The TOC of the Andimadam/Sattapadi Shale is estimated at 2% to 2.5%. The Cauvery Basin contains a series of depressions (sub-basins) that hold potential for shale gas, with two of these - - Ariyalur-Pondicherry and Thanjavur - - containing thick, thermally mature shales, Figure XII-17. Ariyalur-Pondicherry Sub-Basin. The Ariyalur-Pondicherry Depression (sub-basin) is in the northern portion of the Cauvery Basin. The Lower Cretaceous Andimadam/ Sattapadi Shale encompasses a 5,000 foot thick interval at a depth of 6,600 to 11,600 feet. Organicrich gross pay ranges from 600 to 1,200 feet thick, with an average completable net pay of about 450 feet, Figure XII-16. The organic richness (TOC) ranges from 0.3 to 2.8%, averaging about 2%. The thermal maturity of 1.15% Ro places the shale in the wet gas window at 10,000 feet deep. The onshore prospective area with thick organic-rich shale is rather small, estimated at 620 mi2, Figure XII-18. Thanjavur Sub-Basin. The Thanjavur Depression (sub-basin), in the center of the Cauvery Basin, has a thick section of Andimadam and Sattapadi shale encompassing an over 8,000 foot thick interval at a depth of 5,000 feet (top of Sattapadi Shale) to 13,000 feet (base of Andimadam Fm), averaging 9,000 feet deep. The organic-rich interval is 600 feet thick, with an average completable net pay of about 300 feet, Figure XII-19. Given limited data, we assume the TOC and thermal maturity for the shale in this sub-basin to be similar to the Ariyalur-Pondicherry sub-basin. The onshore prospective area with thick organic-rich shale is small, estimated at 385 mi2, Figure XII-18.

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Figure XII-15. Generalized Straigraphy of the Cauvery Basin

Figure XII-16. Generalized Straigraphy of the Cauvery Basin

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Figure XII-17. Shale Isopach and Presence of Organics, Cauvery Basin

Figure XII-18. Prospective Areas for Shale Gas, Cauvery Basin

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Figure XII-19. Thanjavur Sub-Basin and Geological Section Across Cauvery Basin.

Re s o u rc e s
With a combined prospective area of 1005 mi2 and an average resource concentration of 143 Bcf/mi2, we estimate a risked shale gas in-place of 43 Tcf, of which 9 Tcf are considered technically recoverable.

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Damodar Valley Basin, India

The Damodar Valley Basin is part of a group of basins collectively named the Gondwanas, owing to their similar dispositional environment and Permo-Carboniferious through Triassic stratigraphic fill. The Godwanas, comprising the Satpura, Pranhita-Godavari, Son-Mahanadi and Damodar basins, were part of a system of rift channels in the Northeast of the Gondwana super continent. Tectonic activity formed the major structural boundaries of many of the Gondwana basins, notably the Damodar Valley Basin, Figure XII-20. Figure XII-20. Damodar Valley Basin and Prospectivity for Shale Gas

Sedimentation in the Early Permian Gondwana basins was primarily glacial-fluvial and lacustrine, resulting in significant deposits of coal. As such, the majority of the exploration activities have focused on the basins coal resource potential, which accounts for essentially all of Indias coal reserves (about half of which are in the Damodar Valley Basin). However, a marine incursion took place between periods of continental deposition, depositing a layer of early Permian shale, called the Barren Measure Shale Formation, Figure XII-2113. This
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formation, called the Ironstone Shale in the Raniganj sub-basin is the target of Indias first shale gas exploration well in the eastern Damodar Valley. Though present in other Gondwanan basins, such as the Rewa Basin in the state of Orissa, data suggest that the shale is only thermally mature to the east, probably only within the Damodar Valley Basin 14. Figure XII-21. Regional Stratigraphic Column of the Damodar Valley Basin, India 15.

1 Kilometer Depth Line

Barren Measure

The Damodar Valley Basin comprises of a series of sub-basins (from west to east, the Hutar, Daltonganj, Auranga, Karanpura, Ramgarh, Bokaro, Jharia and Raniganj). Though these sub-basins share a simalar geologic history, tectonic events and erosion since the early Triassic have caused extensive variability in the depth and thickness of the Barren Measure Shale formation. Because exploration has focused on the coal deposits within the Damodar Valley basin, relatively little geologic data is available on the Barren Measure Shale. Thermal maturity data on coals surrounding the Barren Measure Shale suggest that it is within the gas window, and regional studies have shown favorable TOC. Shallower burial depth is the main limitation for the shale gas prospectively of the Barren Measure Shale in the Damodar Valley Basin. In some sub-basins, regional erosion has removed up to 3 kilometers of overlying sediments. Based on regional stratigraphic columns, such as that shown in Figure XII-22, and operator data, the prospective area for the Barren Measure Shale was limited to the Bokaro, Karanpura and Raniguj sub-basins. The small prospective area within the Bokaro (110 mi2) and Raniganj (650
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mi2) basins was limited by surface outcrops of formations underlying the Barren Measure to the west and north, respectively. We have estimated a moderate size prospective area for the northern half of the Karanpura Basin (320 mi2), based on statements by Schlumberger and ONGC. 16 Figure XII-22. Generalized Stratigraphic Column of the Gondwana Basin.

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Ge o lo g ic Ch a ra c te riza tio n (Ba rre n Me a s u re Fo rm a tio n )

Absent specific data on thermal maturity and organic content in each of the sub-basins, We assigned average published values for the region. TOC is assumed to range between 3% and 6%, based on information from INOC and ESSAR 17,18. Thermal maturity was estimated from the coal formations surrounding the Barren Measure Shale, indicating values between 1.1% to 1.3% Ro, placing the shale within the wet gas window 19. Depth to the Barren Measure Shale averages about 5,000 feet, based on reports from the shale gas well drilled into the Raniganj sub-basin and regional cross sections, Figure XII-23. Using regional stratigraphic columns, we estimate a weighted average gross interval thickness in the three prospective sub basins of 2,100 feet, of which about 1,050 feet are organically rich and 368 feet are net shale, Figure XXII-22 20. Figure XII-23. Raniganj Sub-Basin Cross Section. 21

Barren Measure Shale

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Re s o u rc e s
Using the geologic characteristics discussed above, we estimate that the Damodar Valley Basin contains a favorable resource concentration of 123 Bcf/mi2. Risked gas in-place is 33 Tcf, reduced for the significant faulting present in the basin, Figure XII-20. We estimate approximately 7 Tcf of shale gas may be technically recoverable from the Barren Measure shale in this basin.

Ac tivity
Along with the Cambay Basin, the Damodar Valley Basin is a priority basin for shale gas exploration by the Indian government. In late September 2010, Indian National Oil and Gas Company (ONGC) spudded the countrys first shale gas well, RNSG-1 in the Raniganj subbasin. The well was completed mid-January 2011, having reportedly encountered gas flows from the Barren Measures Shale at approximately 5,600 feet. Detailed well test or production results are not publicly available. This well was the first of a 4 well R&D program in the basin. The plan calls for an additional well in the Raniganj sub-basin and an additional two wells in the Karanpura sub-basin by March 2012.

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UPPER ASSAM BASIN, INDIA

The Upper Assam Basin is an important onshore petroleum province in northeast India. The basin has produced oil and some associated gas, mainly from the Upper Eocene-Oligocene Barail Group of coals and shales. In general, the TOC in the lower source rocks ranges from 1% to 2% but reaches 10% in the Barail Group. These source rocks are in the early thermal maturity stage (beginning of the oil window) in the shallower parts of the Upper Assam Basin and may have sufficient thermal maturity for peak oil and onset of gas generation in the deeper parts of the basin toward the south and southwest. 22 The thermal maturity values range from Ro of 0.5 to 0.7% for the Sylhet and Kopili formations and range from Ro of 0.45% to 0.7% for the Barail Group, placing these shales in the early oil window. 23 While the shales may reach the wet gas window in the deepest portion of the basin, the measured vitrinite reflectance is still at only 0.7% (oil window) down to a depth of 14,800 feet. 24

PRANHITA-GODAVARI BASIN, INDIA

The Pranhita-Godavari Basin, located in eastern India, contains thick, organically rich shales in Permian-age (Lower Gondwana) Jai Puram and Khanapur formations. While the kerogen is Type III (humic) and thus favorable for gas generation, the 0.67% Ro indicated the shales are thermally immature for shale gas production.

VINDHYAN BASIN, INDIA

The Vindhyan Basin, located in north central India, contains a series of Proterozoic-age shales. While certain of these shales, such as the Hinota and Pulkovar, appear to have

sufficient organic richness, no public data exists on their thermal maturity.

RAJASTHAN BASIN, INDIA

The Rajasthan Basin covers a large onshore area in northwest India. The basin is structurally complex and characterized by numerous small fault blocks. The Permian-age

Karampur Formation is the primary source rock in this basin. While the source rock is Type III and classified as mature, only limited data are available on the reservoir properties of this shale.

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SOUTHERN INDUS BASIN, PAKISTAN

The Southern Indus Basin is located in southern Pakistan adjacent to the border with India. The basin is bounded by the Indian Shield in the east and highly folded and thrust mountains on the west. On the north, the Jacobabad Arch separates the Southern Indus Basin from the Central Indus Basin. Within the basin, the shales in the deeper portions of the Karachi Trough appear to have reached the wet to dry gas window, Figure XII-24. 25 The Southern Indus Basin has five commercial oil discoveries and one gas discovery in the conventional Cretaceous-age Goru Fm sands and three gas discoveries and one gascondensate discovery in shallower formations. While oil and gas shows have been recorded in the Sembar Shale on the Thar Platform, no productive oil or gas wells have been drilled into the Sembar Shale. 26 Figure XII-24. Basin Outline and Karachi Trough, Southern Indus Basin

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Ge o lo g ic Ch a ra c te riza tio n (S e m b a r S h a le )
The Lower Cretaceous Sembar Formation is considered to be the main source rock in the Southern Indus Basin due to its organic richness and thermal maturity. The formation contains of shale, silty shale and marl in the western and northwestern portion of the basin and becomes sandy in the eastern part of the basin. While the reported log porosities in a

previously drilled well were high, ranging from 9% to 30%, a drill stem test showed water with only a small volume of gas. The Sembar Formation was deposited under open-marine conditions. In the shale gas prospective area of the Karachi Trough, the thickness of the Sembar Shale ranges from 1,500 to 2,500 feet, Figure XII-25. We identified an organically rich interval 1,000 feet thick and a completable net shale thickness 300 feet thick. We estimate TOC of approximately 2% and an Ro of 1.0% to 1.5%, with low clay content. The bulk of the sediments in the basin appear to be primarily in the oil window with the lower limit of the oil window at about 10,000 feet in the Karachi Trough. In the deeper portions of the Karachi Trough, the Sembar Shale enters the wet gas window. The thermal gradients in the basin increase from east to west, from 1.31oF/100 ft on the Thar Slope in the east to 2.39oF/100 ft in the Karachi offshore in the west. The thermal gradient in the Karachi Trough is about 2.1oF/100 ft.

Re s o u rc e s (S e m b a r Fo rm a tio n )
Based on an estimated prospective area of 4,000 mi2 and a resource concentration of 100 Bcf/mi2, we estimate the risked shale gas in-place for the Sembar Formation at 80 Tcf, with 20 Tcf as technically recoverable.

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Figure XII-25. Isopach of Sembar Shale, Southern Indus Basin, Pakistan25

Figure XII-26. Isopachs and Facies of Paleocene Ranikot Formation , Southern Indus Basin, Pakistan

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Ge o lo g ic Ch a ra c te riza tio n (Ra n iko t Fo rm a tio n )

The Paleocene Ranikot Formation contains three gas fields in the Karachi Trough. The shales in the Ranikot Formation are primarily in the upper carbonate unit which consists of fossiliferous limestone, interbedded with dolomitic shale, calcareous sandstone and abundant bituminous material. The upper unit was deposited in a restricted marine environment. West of the Karachi Trough axis, the upper (and lower) Ranikot Formation becomes dominantly shale (Korara Shale) of deep marine depositional environment. ARI estimates an interval thickness of 2,000 to 4,000 feet for the Randikot Formation in the center of the Karachi Trough, with an organic-rich section of 1,500 feet and a net completable shale thickness of 450 feet with low clay content, Figure XII-26. We assume 2% TOC and thermal maturity of 1.0% to 1.3%, placing the shale in the wet gas window.

Re s o u rc e s (Ra n iko t Fo rm a tio n )

Based on an estimated prospective area of 4,000 mi2, and a resource concentration of 157 Bcf/Mi2, we estimate the risked shale gas in-place for the Ranikot Formation at 126 Tcf, with 31 Tcf as technically recoverable.

Ac tivity
No publically available data was found on shale gas exploration or development in the Southern Indus Basin of Pakistan.

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India
Though India possess significant reserves of natural gas, 38 Tcf in 2009, it still relys on imports to satisfy domestic consumption. In 2009, the country consumed 5.1 Bcfd of natural gas, while producing 3.9 Bcfd. Were India to develop the technically recoverable shale gas resources identified in this report, it may add an additional 63 Tcf of natural gas to its domestic reserve base 27.

Pakistan
At present, Pakistans natural gas production and consumption are in equilibrium, each at 3.7 Bcfd in 2009. The country possesses 28 Tcf of natural gas reserves, and has added to its reserve base each year for the past decade. The technically recoverable shale gas resource identified in this report could add an additional 51 Tcf to Pakistans reserve base, allowing it to continue to satisfy domestic into the foreseeable future.

REFERENCES
1

Sharma, Shyam, P. Kulkarni, A. Kulmar, P. Pankaj, V. Ramanathan, and P. Susanta. Successful Hydrofracking Leads to Opening of New Frontiers in Shale Gas Production in the Cambay Basin in Gujarat, India presented at the IADC/SPE Asia Pacific Drilling Technology Confrence and Exhibition, Ho Chi Mihn City, Vietnam, November 3, 2010. Mathur and Rao 1968 Tectonic framework of Cambay Basin. India. Bull. ONGC V 5(1)

2 3

Sivan et al., Aromatic Biomarkers as Indicators of Source, Depositional Environment, Maturity and Secondary Migration in the Oils of Cambay Basin, India, Organic Geochemistry 39 (2008) 160-1630. Cambay Petroleum Investor Presentation. 2008. Accessed at: http://www.infraline.com/nelp-vii/InfraLine.pdf.

4 5

Bhandari, L.L. and Chowdhary, L.R., (1975) Analysis of Kadi and Kalol Formations, Cambay Basin, India, AAPG Bulletin 59, 856-871.

6 Wandrey, C.J., 2004, Sylhet-Kopili/Barail-Tipam composite petroleum systems, Assam Geologic Province, India: US Geological Survey Bulletin 2208-D. 7

Shishir Kant Saxena, et al., Predicting the Temperature of Hydrocarbon Expulsion from Oil Asphaltene Kinetics and Oil Source Correlation: A Case Study of South Cambay Basin, India, AAPG Annual Convention, Long Beach, California, April 1-4, 2007.

Mohan, R. Deep Gas Exploration in Cambay Basin, India - A Case Study. Presentation presented at the SPE India 6th Annual Confrence, Calcutta, India, 2006. http://www.spgindia.org/conference/6thconf_kolkata06/320.pdf. P.K. Bhowmick and Ravi Misra, Indian Oil and Gas Potential, Glimpses of Geoscience Research in India.

10

M. V. K. Murthy, et al., Mesozoic hydrogeologic systems and hydrocarbon habitat, Mandapeta-Endamuru area, Krishna Godavari Basin, India, AAPG Bulletin, v. 95, no. 1 (January 2011), pp. 147167. XII-30

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11

Kahn, et al., Generation and Hydrocarbon Entrapment within Gondwana Sediments of the Mandapeta Area, Krishna Godavari Basin, Organic Geochemistry 31 (2000) 1495-1507.

12

Murthy, M., P. Padhy, and D. Prasad. Mesozoic hydrogeologic systems and hydrocarbonhabitat, Mandapeta-Endamuru area, Krishna Godavari Basin, India. AAPG Bulletin 95, no. 1 (2011): 147-167.

13 Goswami, Shreerup. Marine influence and incursion in the Gondwana basins of Orissa, India: A review. Palaeoworld 17, no. 1 (March 2008): 21-32.

Rao, V. Potential Shale Gas Basins of India: Possibilities and Evaluations. Presentation presented at the India Unconventional Gas Forum, New Delhi, India, November 26, 2010. http://oilnmaritime.com%2FIUGF%2520presentation%2FIUGF_presentation_FINAL.pdf&rct=j&q=potential%20shale%20gas%20 basins%20of%20intia%20possibilities%20&ei=oUVITYOnAcKt8Aado5CNBw&usg=AFQjCNEX2KZ0oPUQTc5laPypQ_BnGaGiv g&cad=rja.
14 15

Chakraborty, Chandan, Nibir Mandal, and Sanjoy Kumar Ghosh. Kinematics of the Gondwana basins of peninsular India. Tectonophysics 377, no. 3-4 (December 31, 2003): 299-324.

16

ONGC chases shale gas in West Bengal. Oil and Gas Journal, September 26, 2010. http://www.ogj.com/index/articledisplay/6840666202/articles/oil-gas-journal/exploration-development-2/2010/09/ongc-chases_shale.html.

17 Chawla, Sanjay. Pre-Confrence on Shale Gas. Presentation presented at the Petrotech 2010, New Delhi, India, October 30, 2010. http://www.petrotech.in/pre-conference-shale-gas-tapping-india%E2%80%99s-shale-gas-potential. 18 Sawhney, Prem. The State of Domestic Resources - Non Conventional. Plenary Session presented at the India Energy Forum 9th Petro Summit, New Delhi, India, January 11, 2011. ttp://www.indiaenergyforum.org%2F9thpetrosummit%2Fpresentations%2FPlenary-1%2FPrem-Sawhney.pdf&rct=j&q=the%20state%20of%20domestic%20resources%20%20non%20conventional&ei=JEdITbGFHsT48Aa-ncj_Bg&usg=AFQjCNF5lzKOM5dDxB2SH3bkEhCvGdiuFw&cad=rja. 19 Mishra, H.K., and A.C. Cook. Petrology and thermal maturity of coals in the Jharia Basin: Implications for oil and gas origins. International Journal of Coal Geology 20, no. 3-4 (April 1992): 277-313. 20 Veevers, J. J., and R. C. Tewari. Gondwana master basin of Peninsular India between Tethys and the interior of the Gondwanaland Province of Pangea. Geological Society of America Memoirs 187 (January 1, 1995): 1 -73. 21

Ghosh, S. C. The Raniganj Coal Basin: an example of an Indian Gondwana rift. Sedimentary Geology 147, no. 1-2 (March 1, 2002): 155-176. Mathur, N., Raju, S.V. and Kulkarni, T.G., 2001, Improved identification of pay zones through integration of geochemical and log dataA case study from Upper Assam basin, India: American Association of Petroleum Geologists Bulletin, v. 85, no. 2. Wandrey, C. Bombay Geologic Province Eocene to Miocene Composite Total Petroleum System, India. USGS Bulletin 2208F (2004): 1-26. Mallick, R.K. and S.V. Raju, Thermal Maturity Evaluation by Sonic Log and Seismic Velocity Analysis in Parts of Upper Assam Basin, India, Org. Geochem. Vol 23, No. 10, pp. 871-879, 1995.

22

23

24

Viqar-Un-Nisa Quadri and S.M. Shuaib, Hydrocarbon Prospects of the Southern Indus Basin, Pakistan, AAPG Bulletin, v. 70, no. 6 (June 1986), pp. 730-747.
25

Quadri, Viqar-Un-Nisa, and S. Shuaib. Hydrocarbon Prospects of Southern Indus Basin, Pakistan. AAPG Bulletin 70, no. 6 (June 1968): 730-747.
26 27

EIA Country Energy Analysis.

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XIII. TURKEY
INTRODUCTION
This report assesses the two shale gas basins in Turkey - - the Thrace Basin in western Turkey and the Southeast Anatolia Basin along the border with Iraq and Syria, Figure XIII-1. These two basins are under active shale and conventional gas exploration by the Turkish national petroleum company, TPAO, and international exploration companies. Turkey may also have shale gas potential in the interior Blacklake and Taurus basins, as well as the onshore portion of the Black Sea Basin. However, because detailed reservoir data on shale formations in these basins is not readily available, their shale gas resource potential has not been assessed. Figure XIII-1. Shale Gas Basins of Turkey

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ARI estimates that the Thrace and SE Anatolian basins contain 64 Tcf of risked gas inplace from three prospective shale formations. These formations contain an estimated 15 Tcf of technically recoverable shale gas resource, Table XIII-1.

Table XIII-1. Shale Gas Reservoir Properties and Resources of Turkey

Basic Data
Basin/Gross Area Shale Formation Geologic Age Prospective Area (mi ) Interval Thickness (ft) Organically Rich Net Interval Depth (ft) Average Reservoir Pressure Average TOC (wt. %) Thermal Maturity (%Ro) Clay Content GIP Concentration (Bcf/mi ) Risked GIP (Tcf) Risked Recoverable (Tcf)
2 2

SE Anatolia Basin (32,450 mi) Dadas Shale 2,950 328 - 1,300 500 150 6,560 - 9,840 8,200 Normal 5.5% 1.10% Medium 61 43 9

Thrace Basin (8,586 mi) Hamitabat 312 3,280 - 8,200 1,722 344 12,136 - 16,400 14,268 Normal 3.9% 1.75% Medium 128 14 4 Mezardere 303 1,640 - 8,200 1,476 295 8,200 - 10,168 9,184 Normal 2.5% 1.10% Medium 74 7 2

Devonian-Silurian Mid-Lower Eocene Lower Oligocene

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Resource

Reservoir Properties

Physical Extent

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S OUTHEAS T ANATOLIAN BAS IN

Ge o lo g ic Ch a ra c te riza tio n
The SE Anatolian Basin encompasses a large, 32,450 mi2 area of the Arabian plate inside the Turkish border, Figure XIII-2. The basin is bounded on the north by the Zagros suture zone, which marks the juncture of the Arabian and Eurasian tectonic plates. In the early Paleozoic, Silurian-age shale formations were deposited throughout the northern Godwana super continent (present day North Africa and the Middle East) after major sea level rise caused by melting Ordovician-age glaciers. Regional lows and offshore deltas with anoxic conditions received layers of organically rich sediments that now represent promising shale targets. The SE Anatolian Basin was part of the northern edge of the Godwana super continent, which later separated to form the Arabian plate. As such, the basin shares similar geology with the oil-producing regions of Saudi Arabia and Iraq, though it exhibits greater faulting and thrusting caused by the collision with the Eurasian plate. This basin is the primary source of Turkish oil production. The most promising source rock within the SE Anatolian Basin is the Silurian-Devonian Dadas Shale, Figure XIII-3. The basin covers an area the size of the Barnett Shale along the Zagros suture margin. The basal member of the Dadas Shale has long been recognized as the regional oil source rock, but the formation was recently discovered to be gas-prone in its northern areas. Using available reservoir data, ARI mapped a 2,950 mi2 area of the Dadas Shale as prospective for shale gas development. The Dadas Shale is present over approximately 20% of north central SE Anatolian Basin, but is only inside the gas window in the most northern areas. Detailed thermal maturity data for the formation was not available, but guidance provided by TPAO in corporate presentations enables us to establish the prospective area for shale gas development.

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Figure XIII-2. Dadas Shale Prospective Area, SE Anatolian Basin, Turkey

Re s e rvo ir P ro p e rtie s (P ro s p e c tive Are a )

The Dadas Shale deepens and thickens to the north, where it enters the gas generation window, Figure XIII-4. Within the prospective area, essentially the northern half of the shales areal extent in the SW Anatolian Basin, the depth of the Dadas Shale ranges from 6,560 feet to 9,840 feet deep, averaging 8,200 feet. The shale comprises three members, which together can reach a gross thickness of up to 1,300 feet, Figure XIII-3. However, organically rich pay is primarily concentrated in the basal Dadas member (Dadas I), which has a net shale thickness of approximately 150 feet. 1 Organic content within this horizon ranges from 2% to 16%, averaging 5.5%, and increasing to the north. 2 The prospective area is within the wet-gas generation window, with a thermal maturity between 1% and 1.2% Ro.

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Re s o u rc e s
Using the Dadas Shale reservoir characteristics discussed above, ARI calculated a moderate gas in-place resource concentration of 61 Bcf/mi2. Within the 2,950 mi2 prospective area, we estimate the shale formation contains a risked gas in-place of 43 Tcf, of which 9 Tcf is estimated to be technically recoverable. However, while the formation exhibits favorable

properties for shale gas development, the prospective area exhibits heavy faulting, which could pose significant development risks, Figure XIII-4. Additional data on the maturity and organic thickness of the Dadas Shale throughout its depositional area would help refine the prospective area and improve the reliability of this resource estimation, Table XIII-1.

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Figure XIII-3. SW Anatolia Basin Stratigraphic Column2

Figure XIII-4. SW Anatolian Basin Cross-Section1

Dadas

Dadas Shale

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Ac tivity
As an area of active oil production and exploration, the SE Anatolian Basin has been largely leased for conventional crude oil exploration. The Turkish National Petroleum Company (TPAO) holds the majority of the leases in this area, but small international petroleum exploration companies, such as Aladdin, Perenco and others are also active. At present, TPAOs ability to explore its unconventional potential is limited by the lack of horizontal drilling and fracturing equipment in country and personnel experience. Shale gas exploration is proceeding through a partnership between TPAO and Canadian-based exploration firm Transatlantic Petroleum. The former has brought in well drilling and completion equipment suited for shale gas drilling and personnel with experience in unconventional gas development. As part of this partnership, Transatlantic Petroleum will reenter and fracture stimulate existing conventional wells drilled by TPAO in the Dadas Shale and overlying sandstone reservoirs. The first test will be performed in the Abdul Aziz well on TPAOs lease 3165, Figure XIII-5. TPAO holds acreage within the Dadas Shale prospective area and has been evaluating shale formations throughout Turkey. However, the company has yet to report specific plans to independently develop or explore its shale gas resource potential.

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Figure XIII-5: Exploration Leases for Dadas Shale, SE Anatolian Basin, Turkey

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THRACE BAS IN
Ge o lo g ic Ch a ra c te riza tio n
The Thrace Basin covers an 8,600 mi2 area in European Turkey. The Basin is bordered on the north by the Istranca Massif, by the Rhodope Massif on the west and the Sakarya Massif on the south, Figure XIII-6. Tertiary-age (Eocene through Miocene) basin fill is extremely thick in the Thrace Basin, nearly 30,000 feet in its center including a number of petroleum source rocks and reservoirs. Following the discovery of the Hamitabat Gas Field in 1970, the basin quickly became Turkeys most important gas producing basin, accounting for approximately 85% of the countrys total gas production. About 350 wells have been drilled in the basin in thirteen gas fields (one offshore in the Marmara Sea) and three oil fields. These assets are mainly operated by TPAO. The Thrace Basin contains two source rock formations with shale gas potential, the Lower-Mid Eocene Hamitabat Formation and the Lower Oligocene Mezardere Formation, Figure XIII-7. The Hamitabat Formation is a very thick sequence of sandstone, shale and marl deposited in a molasse or turbiditie shallow marine environment. The Mezardere Formation was deposited in a deltaic environment, and also contains interbedded layers of sandstone, shale and marl3. In the deeper central-southern areas of the basin, these shales have sufficient thermal maturity to be in the gas window. Additional data may help identify further areas with organically rich shales. The prospective area for the Mezardere and Hamitabat sections depends on settings with sufficiently thick net shale sequences and adequate thermal maturity. Because of their complex depositional environments, accurately locating packages of prospective shale intervals within the Mezardere or Hamitabat formations requires detailed geologic data, which were not available for this report. The prospective areas ARI identified for the Mezardere and Hamitabat formations are based primarily on thermal maturity data. Because these formations are relatively young, they only reach the gas window at great depth, often deeper than the 5,000 m threshold used in this analysis. The 312 mi2 prospective area of the Hamitabat Shale was constructed based on work by Gurkey, who used well data and laboratory analysis to establish the area inside the gas window 4. The 303 mi2 prospective area of the Mezardere Formation is based on analysis by Karahanoglu et al., which identified a gas-prone area of the shale based on mathematical
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modeling of the basins thermal history, 5 Figure XIII-6.

Re s e rvo ir P ro p e rtie s (P ro s p e c tive Are a )

Hamitabat Shale. The deepest and oldest shale formation in the Thrace Basin, the Hamitabat Shale, is also the most thermally mature. The shale is in the gas window at depths of 12,100 feet to 16,400 feet in the center of the basin, Figure XIII-8,4 with Ro ranging from 1% to 2.5%.Error!
Bookmark not defined.

Organic content is highly variable throughout the formation,

ranging from fractions of a percent to above 6%. 6 Within the prospective area, TOC ranges from 1.5% to 6.4%, averaging 3.9% 7. The gross interval of the Hamitabat Shale ranges from 3,280 feet to 8,200 feet thick, Figure XIII-7. Because data on net shale thickness is not widely available, one-third of the average shale interval, 1,722 feet, is assumed to be organically rich. Applying a net to gross ratio of 20%, the net shale thickness is estimated to be 344 feet. 8 Mezardere Shale. The Mezardere Shale is another very thick, regionally extensive shale interval in the Thrace Basin. However, its prospectivity is limited by low organic content and thermal maturity. (Some of the available literature suggests that the entire Mezardere Shale is outside the gas window.Error! Bookmark not defined.) Within the formations prospective area, the target shale interval ranges from 8,200 to 10,168 feet deep, Figure XIII-8. Total organic content ranges from 1% to 4%, with an average of 2.5%.2 Thermal maturity is assumed to be in the wet-gas window, ranging from 1% to 1.2% Ro.Error! Bookmark not defined. The gross interval of the Mezardere Shale ranges from 1,640 feet to 8,200 feet thick, Figure XIII-7. Net organically rich shale was determined by the same methodology used for the Hamitabat Shale, resulting in an assumed organically-rich thickness of 1,476 feet and a net shale thickness of 295 feet.

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Figure XIII-6. Prospective Shale Formations of the Thrace Basin, NW Turkey

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Figure XIII-7. Thrace Basin Stratigraphic Column3

Figure XIII-8. Thrace Basin Cross SectionError! Bookmark not defined.

Mezardere Hamitabat

Mezardere

Hamitabat

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Re s o u rc e s
Based on reservoir characteristics discussed above, ARI calculates a shale gas resource concentration of 128 Bcf/mi2 for the Hamitabat Shale and 74 Bcf/mi2 for the Mezardere Shale. Within their prospective areas, the Hamitabat and Mezardere shales contain a risked gas in place of 14 Tcf and 7 Tcf, respectively. Of this, an estimated 4 Tcf could be technically recoverable in the Hamitabat Shale and 2 Tcf could be technically recoverable in the Mezardere Shale, Table XIII-1. Additional data on these shale formations net thickness will help to provide a more accurate estimate of their resource potential.

Ac tivity
Though the Thrace Basin is under active conventional gas development by a number of domestic and international firms, its shale gas potential is only being targeted by Transatlantic Petroleum. As in the SE Anatolia Basin, Transatlantic has entered into an agreement with TPAO to recomplete and test wells in prospective shale formations. Transatlantics current agreement calls for the company to recomplete three wells on a centrally located lease in the Thrace Basin and drill an additional three to four wells over the coming year, Figure XIII-9. Transatlantic also has been acquiring additional acreage in the Thrace Basin. On

November 8, 2010, the company entered into an option agreement to acquire Thrace Basin Natural Gas Turkiye Corp and Pinnacle Turkey (TBNG) in a combination cash/stock transaction. TBNG currently produces 25 MMcfd in the Basin and holds interests in approximately 600,000 net onshore acres in Turkey.

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Figure XIII-9: Shale Gas Exploratory Leases , Thrace Basin, Turkey

TURKEY
Turkey is highly dependent on imports to meet its natural gas consumption needs. In 2009, the country consumed 3.4 Bcfd of natural gas, of which only 0.07 Bcfd was produced domestically. The countrys current natural gas reserves are very limited. With estimated

technically recoverable shale gas resources of 15 Tcf, successful development could contribute to Turkeys energy independence.

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REFERENCES
1

Aytac, Eren. Lower Palezoic Oil Potential of SE Turkey, Districts X & XI presented at the Petform Panels, Ankara, January 11, 2010. http://www.petform.org.tr/images/yayinlar/sunum_ve_konusmalar/aytac_eren.pdf.

Aydmir, Atilla. Potential Shale Gas Resources In Turkey: Evaluating Ecological Prospects, Geochemical Properties, Surface Access & Infrastructure presented at the Global Shale Gas Summit 2010, Warsaw, Poland, July 19, 2010. http://www.globalshale-gas-summit-2010.com/index.asp Grgey, Kadir, R. Paul Philp, Chris Clayton, Hasan Emiroglu, and Muzaffer Siyako. Geochemical and isotopic approach to maturity/source/mixing estimations for natural gas and associated condensates in the Thrace Basin, NW Turkey. Applied Geochemistry 20, no. 11 (November 2005): 2017-2037. Grgey, K. Geochemical overview and undiscovered gas resources generated from Hamitabat petroleum system in the Thrace Basin, Turkey. Marine and Petroleum Geology 26, no. 7 (August 2009): 1240-1254.

Karahanoglu, N., A. Eder, and H. I. Illeez. Mathematical approach to hydrocarbon generation history and source rock potential in the Thrace Basin, Turkey. Marine and Petroleum Geology 12, no. 6 (1995): 587-596 Hosgrmez, Hakan, and M. NamIk YalIn. Gas-source rock correlation in Thrace basin, Turkey. Marine and Petroleum Geology 22, no. 8 (September 2005): 901-916.

Aydmir, Atilla. Potential Unconventional Reservoirs in Different Basins of Turkey presented at the AAPG European Region Annual Confrence, Kiev, Ukraine, October 17, 2010. http://www.searchanddiscovery.net/abstracts/pdf/2010/kiev/abstracts/ndx_Aydemir.pdf.
7 8

Sari, A., and A. S. Kars. Source Rock Characterization of the Tertiary Units in Havsa-Edirne Area: Thrace Basin/Turkey. Energy Sources, Part A: Recovery, Utilization, and Environmental Effects 30, no. 10 (2008): 891.

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XIV. AUSTRALIA
INTRODUCTION
Australia has major gas shale potential in four main assessed basins. Additional

potential may exist in other basins that were not assessed due to budget and data limitations. With geologic and industry conditions resembling those of the USA and Canada, the country appears poised to commercialize its gas shale resources on a large scale. The Cooper Basin, Australias main -onshore gas-producing basin, could be the first to develop, although its Permian-age shales have a non-marine (lacustrine) depositional origin and the gas has elevated CO 2 concentrations. Santos and Beach Energy testing the shale reservoirs in this basin, with reservoir core wells being drilled and initial frac production test wells planned for later in 2011. Other prospective shale basins in Australia include the small, scarcely explored Maryborough Basin in coastal Queensland, which contains prospective Cretaceous-age marine shales that are over-pressured and appear gas saturated. The Perth Basin in Western

Australia, undergoing initial testing by AWE and Norwest Energy, has prospective marine shale targets of Triassic and Permian age. Finally, the large Canning Basin in Western Australia has deep, Ordovician-age marine shale that is roughly correlative with the Bakken, Michigan, and Baltic basins. Figure XIV-1 shows the main prospective gas shale basins of Australia. These basins hold an estimated total 396 Tcf of technically recoverable shale gas resources, Table XIV-1.

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Figure XIV-1. Australias Prospective Gas Shale Basins, Gas Pipelines, and LNG Infrastructure

Table XIV-1. Shale Gas Reservoir Properties and Resources of Australia

Basic Data
Basin/Gross Area Shale Formation Geologic Age Prospective Area (mi2) Interval Thickness (ft) Organically Rich Net Interval Depth (ft) Average Reservoir Pressure Average TOC (wt. %) Thermal Maturity (%Ro) Clay Content GIP Concentration (Bcf/mi ) Risked GIP (Tcf) Risked Recoverable (Tcf)
2

Cooper Basin (46,900 mi)

Maryborough Basin (4,290 mi)

Perth Basin (12,560 mi)

Canning Basin (181,000 mi)

Roseneath-Epsilon-Murteree Goodwood/Cherwell Mudstone Carynginia Shale Kockatea Fm Goldwyer Fm Permian 5,810 0 - 1,800 500 300 6,000 - 13,000 8,500 Moderately Overpressured 2.5% 2.00% Low 105 342 85 Cretaceous 1,555 300 - 3,000 1,250 250 5,000 - 16,500 9,500 Slightly Overpressured 2.0% 1.50% Low 110 77 23 Upper Permian Lower Triassic M. Ordovician 2,180 300 - 1,500 950 250 4,000 - 16,500 10,700 Normal 4.0% 1.40% Low 107 98 29 2,180 48,100 300 - 3,000 300 - 2,414 2,300 1,300 230 250 3,300 - 16,500 3,300 - 16,500 10,000 12,000 Normal Normal 5.6% 3.0% 1.30% 1.40% Low Low 110 100 30 106 764 229

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Resource

Reservoir Properties

Physical Extent

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World Shale Gas Resources: An Initial Assessment

Given budget limitations for this study, other less promising basins in Australia were rapidly screened out as non-prospective for gas shale development. These include the Sydney Basin (where Permian coal measures are mature but appear ductile); Lorne Basin (no apparent potential source rocks); the Clarence-Moreton, Ipswich, Surat, Eromanga basins (Jurassic Walloon Coal Measures are mature but appear ductile); Gippsland Basin (coaly shale appears ductile); and Amadeus Basin (thin shale in a mostly sandstone unit). However, these and other basins warrant further evaluation at a future time. COOP ER BAS IN (S OUTH AUS TRALIA AND QUEENS LAND) Straddling the South Australia and Queensland border, the Cooper Basin has been the Australias main onshore gas supply region for the past several decades. Current production from the basin is about 0.5 Bcfd of natural gas from conventional and low-permeability reservoirs. Within the basin, the Nappamerri Trough contains thick, overpressured and organicrich shales at prospective depth, as well as extensive deep coal deposits. Gas pipelines

connect the basin to Sydney and other urban markets in eastern Australia. With extensive tight sandstone gas production, the basin has service industry capability for advanced hydraulic fracturing that could be adapted for developing gas shale reservoirs. However, while overall the Cooper Basin appears favorable for shale gas development, a key risk remains that the shales were deposited in a lacustrine (not marine) environment. In addition, high CO 2 occurs in the deeper more mature troughs, though concentrations may be lower in shallower settings. Geologic Characterization. The Cooper Basin is a Gondwana intracratonic basin

containing about 2.5 km of entirely non-marine Late Carboniferous to Middle Triassic strata, which include prospective Permian-age shales. Following an episode of regional uplift and erosion during the late Triassic, the Cooper Basin continued to gently subside and the Paleozoic sequence was unconformably overlain by up to 1.3 km of Jurassic to Tertiary deltaic deposits of the Eromanga Basin, which contain the basins conventional sandstone reservoirs. 1 Extending over a total area of about 130,000 km2, the Cooper Basin contains four major deep troughs with shale gas potential (Nappamerri, Patchawarra, Tenappera, and Arrabury; Figure XIV-2). These troughs are separated by faulted anticlinal structural highs, from which the Permian shale-bearing strata largely have been eroded. 2
February 17, 2011 XIV-3

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World Shale Gas Resources: An Initial Assessment

generated by the organic-rich shales and coals within the Nappamerri, Tenappera and other deep hydrocarbon kitchens accumulated along the Murteree and other uplifted ridges. Figure XIV-2. Major Structural Elements of the Cooper Basin.

The Nappamerri Trough is particularly large (15,000 km2), deep (>10,000 feet), thermally mature, and overpressured, and thus appears to be the most prospective portion of the Cooper basin for gas shale development. The top Permian horizon reaches maximum depths of over 9,000 feet in the center of the Nappamerri Trough and over 10,000 feet in the Patchawarra Trough. Prospective Permian shales, approximately 2,000 feet below the top Permian, occur at depths of 10,000 to 14,000 feet. Nearly the entire extent of the two troughs appears to be depth-prospective for shale development. Furthermore, relatively little faulting occurs within these troughs, Figure XIV-3, as structural deformation is confined largely to the uplifted ridges.

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World Shale Gas Resources: An Initial Assessment

Figure XIV-3. Seismic Reflection Line Showing Permian REM Sequence In The Cooper Basin And Location Of Beach Energys Planned Holdfast-1 Test Well, Scheduled For January 2011.

Source: Beach Energy, 2010

The stratigraphy of the Cooper Basin is shown in Figure XIV-4. Conventional and tight sandstone oil & gas reservoirs are found in the Patchawarra and Toolachee formations, interbedded with coal deposits. These were sourced by two organic-rich complexes: the Late Carboniferous to Late Permian Gidgealpa Group and the Late Permian to Middle Triassic Nappamerri Group, both of which were deposited in non-marine settings. Of the two source rock groups, the Gidgealpa Group appears the more prospective. Most of the gas generated by the Nappamerri Group likely came from its multiple, thin, discontinuous coal seams; shales in this unit are low in TOC, humic, and often oxidized. Although deposited in lacustrine environments, the best shale exploration targets within the Gidgealpa Group appear to be the Early Permian Roseneath and Murteree shales. 3 Figure XIV-5 shows a stratigraphic cross-section of the Roseneath, Epsilon, and Murteree (collectively termed REM) sequence in the Nappamerri Trough.

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World Shale Gas Resources: An Initial Assessment

Figure XIV-4. Stratigraphy of the Cooper Basin, Showing Permian-Age Shale Targets (Roseneath, Epsilon, Murteree)

Source: South Australia DMER, 2010

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World Shale Gas Resources: An Initial Assessment

Figure XIV-5. Stratigraphic Cross-Section In The Cooper Basin Showing The Laterally Continuous REM Section.

ale Sh ath ne se m Ro nF ilo le ps E ha eS re rta Mu

Source: DrillSearch Energy, 2010

The Murteree Shale (Artinskian) is a widespread, primarily shaley formation typically 50 m thick across the Cooper Basin, becoming as thick as 80 m in the Nappamerri Trough. The Murteree consists of dark organic-rich shale, siltstone and fine-grained sandstone, becoming sandier to the south. TOC of the Murteree Shale averages approximately 2.5%, about 84% of which is inertinite, based on analyses from seven wells. The Roseneath Shale, less widespread than the Murteree due to erosion on uplifts, averages 37 m thick, reaching up to 100 m thick in the Nappamerri Trough. The Roseneath is somewhat leaner than the Murteree, with TOC averaging just over 1.0%. The intervening Epsilon Fm consists primarily of low-permeability (0.1 to 10 mD) quartzose sandstone with carbonaceous shale and coal. The Epsilon, averaging about 53 m thick in drill cores, was deposited in a fluvial-deltaic environment. 4

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World Shale Gas Resources: An Initial Assessment

The total thickness of the REM sequence in the western Nappamerri Trough averages about 1,000 feet. 5 The unit becomes generally thicker to the east and north, where it reaches a maximum of about 1,800 feet. The REM sequence appears to have prospective shale

thickness across the entire western Nappamerri Trough. The REM source rocks are dominated by Type III kerogens derived from plant assemblages. They have generated medium to light (30-60 API gravity) oil rich in paraffin. Initial mineralogical data indicate that these shales consist mainly of quartz and feldspar (50%) and carbonate (30%; mainly iron-rich siderite). predominately illite).
6

Clay content is relatively low (20%;

In spite of the lacustrine depositional origin, this lithology appears brittle

and could respond well to hydraulic fracturing. Temperature gradients in the Cooper Basin are high, averaging 2.55F/100 ft. Bottomhole temperature at depths of 9,000 feet average about 300F. The Nappamerri Trough is even hotter, with a gradient of up to 3.42F/100 ft, due to its radioactive granite basement. The Patchawarra Trough, which has a sedimentary-metamorphic basement, has a lower but still elevated 2.02F/100 ft temperature gradient. The thermal maturity of the Permian REM section in the Nappamerri Trough is gas prone (R o = 3% to 4%), whereas the Patchawarra Trough has lower thermal maturity (Ro = 1%). Hydrostatic regional pressure gradients occur in most of the Cooper Basin, but locally in the Nappamerri Trough can become overpressured at depths of 2,800 to 3,700 m. 7 Pressure gradients of up to 0.7 psi/ft have been recorded in the deepest portions of the Nappamerri Trough. High levels of carbon dioxide are common in the Cooper Basin. Gas produced from tight sandstones in the Epsilon Formation (central portion of the REM sequence) contains elevated CO 2 , typically ranging from 8% to 24% (average 15%). Gas produced from the Patchawarra sandstone, which underlies the REM shale sequence, contains even higher levels of CO 2 (840%). 8 Resources (REM Sequence). ARI evaluated the area that could be prospective for shale gas development in the Cooper Basin, using standard minimum depth (6,000 feet) and vitrinite reflectance (R o > 1.0%) cutoffs, Figure XIV-6. Completable shale intervals in the

Rosemead, Epsilon, and Murteree (REM) formations have an estimated resource concentration of 105 Bcf/mi2, benefitting from favorable thickness, moderate TOC, high thermal maturity, and

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World Shale Gas Resources: An Initial Assessment

overpressuring, but reduced for 15% average CO 2 content.

The prospective area for this

Permian shale-bearing sequence is estimated to be approximately 5,500 mi2, covering portions of the Nappamerri, Arrabury, and Tenappera troughs. Net of 15% CO 2 content, the estimated risked completable shale gas-in-place for the REM sequence is approximately 342 Tcf, while risked recoverable resources are approximately 85 Tcf, Table XIV-1. Figure XIV-6. Western Portion Of The Cooper Basin Showing Approximate Prospective Shale Gas Area.

Activity. The Cooper Basin is Australias largest onshore oil and gas production region. Oil and gas development began in the basin during the 1960s, while hydraulic fracturing of lowpermeability formations began in 1968 and has been extensively used since. More than 400 wells have been hydraulically stimulated in the Cooper basin to date, though the jobs were much smaller (typically 50,000 lbs sand with 50,000 gal fluid) than used in modern horizontal shale wells. Nevertheless, the Cooper basin has Australias best capabilities for fracking shale reservoirs. Current production from conventional and tight formations in the basin totals nearly 600 Mcfd from 700 gas wells and 2,500 bopd from 50 oil wells.
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World Shale Gas Resources: An Initial Assessment

The Cooper Basin also has been Australias most active area for gas shale leasing and testing. Santos, Beach Energy, and DrillSearch Energy have active shale evaluation programs, though only Beach is known to have drilled a test well. Starting in October 2010 Beach drilled and completed a vertical shale test well in the eastern Nappamerri Trough, thought to be Australias first dedicated shale test well. Drilled to a total depth of 3,612 m, the well penetrated 393 m of REM shale formation with continuous gas shows. The company is analyzing five REM cores for gas content and mechanical properties. Beach plans to conduct an 8-stage frac of the Encounter-1 test well during 2Q-2011. MARYBOROUGH BAS IN (QUEENS LAND) This small basin in coastal southern Queensland, located about 250 km north of Brisbane, has two potential gas shale targets within the Cretaceous Maryborough Formation. Only five conventional oil & gas exploration wells have been drilled in the Maryborough Basin. No shale activity has been reported. Geologic Characterization. The Maryborough Basin is a half-graben bounded on the west by the major Electra Fault, Figure XIV-7. Extending over an area of 4,300-mi2 in the onshore northern portion of the basin, where geologic data exist, it is filled with up to about 5 km of Late Triassic to Recent sedimentary rocks that were deposited in a trans-tensional back-arc rift basin. Major folding and faulting, along with significant erosion, occurred during the

Cretaceous-Palaeogene. Three main anticlines occur onshore within the basin, all of which have been drilled but without conventional discoveries. 9 Two main depositional sequences are present, Figure XIV-8. 10 The Duckinwilla Group comprises Late Triassic to mid-Jurassic non-marine sediments and is not considered a prospective shale gas target. Overlying the Duckinwilla is the Grahams Creek Formation, which contains Late Jurassic to Cretaceous (Neocomian) strata, including the marine-deposited Maryborough Formation and the fluvial-lacustrine Burrum Coal Measures.

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World Shale Gas Resources: An Initial Assessment

Figure XIV-7. Location And Shale-Prospective Area Map For Maryborough Formation, Maryborough Basin.

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World Shale Gas Resources: An Initial Assessment

Figure XIV-8. Stratigraphy Of The Maryborough Basin Showing Marine Organic-Rich Shale In The Maryborough Formation

Source: Hill 1994

The Maryborough Formation (Neocomian-Aptian) appears the most prospective shale gas target in the Maryborough Basin. Up to 2.6 km thick, it is the only definitely marine unit in the basin. The unit consists primarily of mudstones, siltstone, and sandstone, with minor

conglomerate, limestone, and coal. Within the Maryborough Fm, the most prospective sub-units are the Goodwood Mudstone, Woodgate Siltstone, and Cherwell Mudstone members, Figure XIV-9. These have been described as a monotonous series of mudstones with minor shales and siltstones that characterize the marine portion of the Maryborough Formation. The mudstones are light to dark grey, slightly calcitic and pyritic, and slightly silty. Calcite veins are common in the lower section. 11 The Goodwood Mudstone is approximately 800 m thick (gross), with TOC averaging 1.5%, and is within the dry gas maturity window (Ro of 2.0 to 3.0%). The Cherwell Mudstone consists mainly of black shale about 230 m thick, but no TOC data are available. The Cherwell ranges from 8,000 feet deep on anticlines to a projected 17,000 feet deep in the troughs. TOC averages 1.5% and is thermally mature (Ro of 2.0 to 3.5%). Mineralogy is uncertain.

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World Shale Gas Resources: An Initial Assessment

Figure XIV- 9. Cross-Section Of The Maryborough Basin Showing The Cherwell And Goodwood Mudstone Members Of The Cretaceous Maryborough Formation.

Source: Eyles et al., 2001

Resources (REM Sequence).

ARI evaluated only the northern portion of the

Maryborough Basin where geologic data exist. Approximately 1,540 mi2 could be prospective for shale gas development, using standard minimum depth (6,000 feet) and vitrinite reflectance (R o > 1.0%) cutoffs. Additional area in the poorly constrained southern half of the basin may be prospective. Completable shale intervals in the basal shales of the Maryborough Formation (Cherwell and Goodwood mudstones) have an estimated resource concentration of approximately 110 Bcf/mi2. Risked completable gas in-place for the REM sequence is

estimated to be 77 Tcf, with risked technically recoverable resource of 23 Tcf, Table XIV-1. P ERTH BAS IN (WES TERN AUS TRALIA) The Perth Basin is a petroleum producing region that extends on- and offshore in the southwest of Western Australia. It contains two main organic-rich shale formations with gas development potential: the Permian Carynginia and Triassic Kockatea shales, portions of which already produce oil and gas from conventional reservoirs. Local operator AWE is evaluating the shale potential over approximately 1 million gross acres. AWE and partner Norwest Energy have cored these shale targets and may fracture stimulate a shale well in the basin during 2011.
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World Shale Gas Resources: An Initial Assessment

Geologic Characterization. The Perth Basin is a north-northwest trending half-graben with relatively simple structure that generally appears favorable for shale gas development. About half of the basin is onshore, covering an area of approximately 20,000 mi2. The onshore portion of the basin contains two large deep sedimentary sub-basins, the Dandaragan and Bunbury troughs, which are separated by the Harvey Ridge structural high, Figure XIV-10. 12 Further south, across the Harvey Ridge, is the Bunbury Trough with an estimated 10 km of Permian to Cretaceous sediments but limited reservoir data. Figure XIV-10 : Location And Shale-Prospective Area Map Of The Perth Basin

The Dandaragan Trough, a large syncline in the northern Perth Basin, contains the deepest, thickest, and most prospective gas shale formations. Some 500 km long and up to 45 km wide, the Dandaragan contains as much as 15 km of Silurian to early Cretaceous sedimentary rocks. Some of the Dandaragan is too deep for shale development, but its

northern extent and the adjoining Beagle Ridge appear to be within the shale depth window. The area is not structurally complex but does have some significant faulting, Figure XIV-11. 13

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World Shale Gas Resources: An Initial Assessment

Figure XIV-11. Perth Basin Operator AWEs Woodada Deep 1 Well Cored the Organic-Rich Carynginia Shale

Source: AWE 2010

Approximately 100 petroleum exploration wells have been drilled in the onshore Perth Basin, resulting in the discovery of six conventional natural gas fields, all located within the Dandaragan Trough in the north. Proved reserves to date total about 600 Bcf with small

amounts of associated oil, found in the main conventional reservoirs (Upper Permian Dongara Sandstone and Beekeeper Formation). Natural gas recovered from the deeper Permo-Triassic reservoirs (Dongara, Mondarra, Yardarino, Woodada and Whicher Range) tends to be dry, reflecting higher thermal maturity and the higher proportion of gas-prone organic matter in the Permian TOC. CO 2 is generally low, generally nil, apart from isolated readings of 4.11% in the Woodada-1 well and 3.92% in the Mondarra-1 well. Tight sandstone reservoirs, still undeveloped, include the Eneabba and Yarragadee formations and the Cattamarra Coal Measures. These reservoirs were sourced by the Triassic and Permian source rock shales and coals, which modeling indicates are within the oilmaturation window in the far north of the Perth basin, entering the gas window to the southeast into the deep Dandaragan Trough.

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World Shale Gas Resources: An Initial Assessment

The sedimentary sequence in the Perth basin comprises three successions: a) Lower Permian largely argillaceous glaciomarine to deltaic rocks (including the prospective Carynginia Shale); b) Upper Permian nonmarine and shoreline siliciclastics to shelf carbonates; and c) Triassic to Lower Cretaceous nonmarine to shallow marine siliciclastics (including the prospective Kockatea Shale) deposited in a predominantly regressive phase, Figure XIV-12. 14 Other marine shales in the Perth Basin that were evaluated but rejected as targets include the Triassic Woodada and Jurassic Cadda formations (too lean), the Jurassic Parmelia (Yarragadee) Formation and (lacustrine origin, located only in the offshore), and the Cretaceous South Perth Formation (immature, offshore only). The Lower Triassic Kockatea Shale is considered the primary oil source-rock as well as the main hydrocarbon flow seal in the basin. It consists of dark shale, micaceous siltstone, and minor sandstone and limestone. The Kockatea thickens to the south within the Perth basin, reaching maximum 1,060 m thickness in the Woolmulla-1 well, but more typically averaging about 700 m thick (Figure XIV-13). The most organic-rich portion of this unit (Hovea Member) is a thin (15-38 m), basal shale that averages 2.0% TOC, well above the overall formation average of about 0.8% TOC. This basal unit contains abundant phytoplankton, suggesting that terrigenous clay is low. The dominantly Type II organic kerogen in this unit is rich in sapropel and finely divided exinite. 15 Core samples from the Hovea Member of the Late Permian to lower Triassic Kockatea Shale cut from the Hovea-3 petroleum exploration well provide data on reservoir quality. 16 The base of this unit, from a depth of about 1,980 m, is a distinct organic-rich zone of fossiliferous dark grey mudstone, sandy siltstone, and shelly storm beds. These sediments were deposited at a relatively low paleo-latitude in a shallow marine environment during the earliest stage of a marine transgression. TOC of the Kockatea Shale sampled from this well ranged from 2.31% to 7.65% (average 5.6%) over a 30-cm interval, consisting of inertinite-rich (Type III) kerogen. 17 The clay content from the Hovea Member of the Kockatea Shale in the Hovea-3 well ranged from 24% to 42% (average 33%). Separately, AWE cored the high-TOC, 50-m thick Hovea section of the lower Kockatea in the conventional Redback-2 exploration well on EP-320 during 2010, but reported discouragingly high clay content. The Kockatea is thermally mature in the Dongara Trough, but less mature and possibly oil-prone on the Dongara Saddle and the flanks of the Beagle Ridge. CO 2 and N 2 contents tested quite low (0.5% and 0.4%, respectively) from a 1,448-m deep Kockatea Shale zone in the Dongara-24 well. 18
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World Shale Gas Resources: An Initial Assessment

Figure XIV-12. Stratigraphy of the Perth Basin Showing the Prospective Lower Triassic Kockatea and Permian Carynginia Shales

Source: Cadman et al., 1994

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World Shale Gas Resources: An Initial Assessment

Figure XIV-13. Structural Cross-Section of the Perth Basin Showing 700-m Thick Kockatea and 250-m Thick Carynginia Shales at Prospective 1500-2800 m Depth.
WEST Beagle Ridge EAST Dandaragan Trough

Source: Norwest Energy, 2010

The Permian Carynginia Shale is a restricted-marine deposit present over a wide area of the northern Perth Basin. The Carynginia conformably underlies the Kockatea Shale.

Although considered a less important source rock than the overlying Kockatea Shale, AWE recently reported encouraging organic-shale characteristics for this 240- to 330-m thick unit. Deposited in a shallow-marine environment under proglacial conditions, the Carynginia overlies the Irwin River Coal Measures. A deeper water shale member occurs near the base of the Carynginia Shale, including thin interbeds of siltstone, sandstone, and limestone. Overlying the basal shale is a shallow-water, shelf limestone unit. It contains

conventional gas reservoirs, such as at Dongara field, thin, discontinuous sandstones sealed by intraformational shales and limestones. Primary porosity in this limestone was filled by clays and calcite during diagenesis, thus porosity is secondary dissolution or fracture porosity. Conventional Gas is produced from the Carynginia Limestone at Woodada field, sealed by the overlying Kockatea Shale as well as updip shaling out of the limestone facies. CO 2 and N 2 tested fairly low (2.23% and 2.54%, respectively) from a 2,437-m deep Caryngia Fm zone in the Elegans-1 well.
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World Shale Gas Resources: An Initial Assessment

TOC values of up to 11.4% have been recorded in the Carynginia Shale, dominated by inertinite derived from land plants. Gas-prone, the Carynginia Shale is overmature and in the dry gas window over most of the Perth basin. Sapropelic organic material was found in one well, indicating that the unit may have some potential as an oil source. Source rocks are less mature on the Dongara Saddle and the flanks of the Beagle Ridge, where the shale facies is partly replaced by shallow-water, limestone facies. Geothermal gradients in the Perth Basin can be elevated, ranging from 2.0C to 5.5C/100 m, but the gradient in the Dandaragan Trough less extreme (2to 2.5C/100 m). Vitrinite reflectance data show poor relationship with depth, with extreme data scatter probably caused by subertinite and bitumen suppression. Triassic and Permian strata are in the mature gas window over large portions of the basins center. The Kockatea Shale source rocks appear to be mature for gas generation in large tracts of the northern Perth Basin, due to the relatively high geothermal gradient and burial depth. Resources (Carynginia and Kockatea Shales). ARI identified the prospective portions of the Beagle Ridge and Dandaragan Trough in the northern portion of the Perth basin, where the Carynginia and Kockatea Shale source rocks are thick, deep, and thermally mature. An estimated 2,180-mi2 area could be prospective for shale gas development, using standard minimum and maximum depths (6,000-16,500 ft) and vitrinite reflectance (R o > 1.0%) cutoffs. Additional area in the poorly constrained southern half of the basin also may be prospective but was not evaluated. Completable shale intervals in the Permian Carynginia Shale have an estimated resource concentration of approximately 107 Bcf/mi2, risked completable gas in-place of 98 Tcf, and risked recoverable resources of approximately 29 Tcf. For the Triassic Kockatea Shale, the prospective area has 110 Bcf/mi2, risked completable gas in-place of 100 Tcf, and risked technically recoverable resources of approximately 30 Tcf, Table XIV-1. Activity. In April 2010, AWE cut five cores in the 280-m thick shale in its Woodada Deep exploration well in the northern Perth Basin. The company found the upper and lower zones to have high clay content. However, the middle zone was considered more prospective, with lower clay (value not reported), 1-4% TOC, estimated 3-6% porosity, and depths of 1,600 to 3,200 m. AWE estimated a total 13 to 20 Tcf of gas in-place at its permit within the middle portion of the Carynginia Shale. 19

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World Shale Gas Resources: An Initial Assessment

AWE plans to drill a second core well (Arrowsmith-2) to basement at about 3,200 m depth, coring the Kockatea and Caryginia shales and the Irwin Coal Measures. The company may fracture stimulate a shale well sometime during 2011. Australian independent Norwest Energy, which produces oil and gas from conventional fields in the Perth Basin, is partnered with AWE and evaluating the shale potential on EP413. In August 2010, Indian firm Bharat PetroResources agreed to acquire half of Norwests interests in EP413 and TP/15, committing up to A$15 million for exploration and drilling. CANNING BAS IN (WESTERN AUS TRALIA) The large and scarcely explored Canning Basin in northwestern Western Australia has emerging potential in several organic-rich shales, including the Laurel, Lower Anderson, and Goldwyer shales, though their potential remains poorly defined. Several conventional and tight gas discoveries have been made in the basin, though not developed due to lack of gas pipelines, indicating that source rocks here may be mature. Buru Energy (with partner

Mitsubishi) and New Standard Energy hold most of the leases in this area and currently are evaluating the basins shale potential. Geologic Characterization. The 234,000-mi2 Canning Basin (150,000 mi2 of which is onshore) is Western Australias largest sedimentary basin, Figure XIV-14. A broad intracratonic rift basin, the Canning contains up to 18 km of Ordovician to Cretaceous age sedimentary rocks. The basin is separated from the Amadeus basin to the east by a Precambrian arch. A series of northwest-trending, fault-bounded troughs within the basin (Fitzroy Trough, Willara and Kidson sub-basins) may contain deep shale potential. 20 Although petroleum exploration started in the Canning basin in 1922, the first commercial oil discovery was made only in 1981. Conventional exploration in the Canning Basin has focused on the Lennard Shelf, where petroleum occurs in the Hoya Formation (Boundary, Sundown, and West terraces) and in the Anderson Formation. Only about 60 wells have intersected the principal source rocks in the basin, but these have all been on the uplifted terraces; the deeper shale source rocks in the troughs have not yet been penetrated. Although source rock data in the basin are quite limited, the oil fields discovered to date likely were sourced by the Carboniferous Laurel Formation shale.

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World Shale Gas Resources: An Initial Assessment

Figure XIV-14. Structural Elements of the Canning Basin in Northwestern Australia

Figure XIV-15 shows the stratigraphy of the Canning Basin. Initial data suggest that the two primary gas shale targets in the basin are the organic-rich Ordovician Goldwyer Formation and the Carboniferous Laurel Formation. However, the Laurel Formation could not be

rigorously assessed due to insufficient data control. Other marine shales in the Canning Basin, such as the Calytrix Formation, appear to be too lean and have limited petroleum generative potential.

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World Shale Gas Resources: An Initial Assessment

Figure XIV- 15. Stratigraphy Of The Canning Basin Showing Carboniferous Goldwyer And Laurel Fm Shales

Cadman et al., 1993

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World Shale Gas Resources: An Initial Assessment

The Middle Ordovician Goldwyer Formation conformably overlies the Lower Ordovician Willara Formation. The Goldwyer was deposited mainly in open marine to intertidal conditions. Highly fossiliferous, it varies from mudstone-dominated in basinal areas to limestone-dominated in some platform and terrace areas. The Goldwyer Formation averages about 400 m thick, reaching a maximum thickness of 736 m in the Willara-1 well in the Willara Sub-basin. 21 The Goldwyer Formation is dominated by mudstone and carbonate, with ratios of these components varying widely across the basin. The color ranges from grey-green to black,

indicating anoxic reducing conditions. Major carbonate build-ups are present locally, but have low permeability due to secondary mineralization. Coarser siliciclastic rocks generally are

absent or restricted to minor fine-grained sandstone, which becomes more abundant towards the southeastern margin of the basin. Kukersite is locally abundant in the Upper Goldwyer Formation, with lesser abundance in lower parts of the formation. In addition, the Goldwyer locally contains horizons with high

concentrations of the marine alga Gloeocapsomorpha prisca, considered to have excellent source-rock potential. This alga also is abundant in the Amadeus, Baltic, MichiganIllinois, and Williston basins, each of which, including the Canning Basin, lay within 5 of the equator during the Ordovician. 22 Locally, the Goldwyer has undergone significant secondary dolomitization. The Goldwyer Formation is thermally immature and oil prone in most petroleum wells on the uplifted platforms and terraces, but likely mature in the adjacent deep troughs. Figure XIV-16 shows a regional cross-section of the southern Fitzroy Trough and Jones Arch regions of the Canning basin, where the Carboniferous Laurel Shale source rock is about 2 km deep. A more detailed cross-section shows the Laurel to be approximately 500 m thick and 1700 m deep, Figure XIV-17. Selected TOC in the Goldwyer Fm generally ranges from 1% to 5% (mean 3%), with some values in excess of 10%, Figure XIV-18. 23 The upper member of the Goldwyer is

particularly rich, with TOC of 0.46% to 6.40%, nearly all of which originated from cyanobacterium. Rock-Eval pyrolysis indicates that source rocks from the Upper Goldwyer have the capacity to generate 12 kg of hydrocarbon per metric ton. Modeling indicates this source rock is gas-mature in the Fitzroy Trough but within the oil window over much of the southern Canning basin and the mid-basin platform. The Kidson Sub-basin, where the

Goldwyer deepens to over 6 km, also is likely to be in the dry gas window.

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World Shale Gas Resources: An Initial Assessment

Figure XIV-16. Regional Cross-Section Showing Middle Ordovician Goldwyer Shale Is Excessively Deep (>5 Km) In the Central Kidson Sub-Basin, But At Prospective Depth On Its Flanks As Well As Throughout The Southern Fitzroy Trough.

Source: Eyles et al., 2001

Figure XIV-17. Detailed Cross-Section Showing Carboniferous Laurel Shale, The Canning Basins Main Source Rock, Is About 500 M Thick And 1700 M Deep In The Southern Fitzroy Trough Jones Arch Region.

Source: Eyles et al., 2001

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World Shale Gas Resources: An Initial Assessment

Figure XIV-18. TOC In The Goldwyer Fm, Canning Basin Generally Ranges From About 1% To 5% (Mean 3%), With Some Values Over 10%.

Source: Ghori and Haines, 2007

Other potential shale targets in the Canning Basin include the Carboniferous Grant Formation and Fairfield Group, the Devonian Gogo and equivalent formations, and Ordovician Upper Nambeet Formation. However, these all have less than 0.5% TOC and thus are not prospective. Resources (Goldwyer Formations). ARI identified a prospective area in the Fitzroy Trough in the northern portion of the Canning basin, where the Goldwyer Formation source rocks are thick, deep, and thermally mature. An estimated 48,100 mi2 may be prospective for shale gas development in the Fitzroy, Gregory, and Kidson Troughs, although data for these largely undrilled areas had to be extrapolated from the adjoining uplifts. Completable shale intervals in the Goldwyer Formation has an estimated resource concentration of approximately 106 Bcf/mi2, risked completable gas in-place of 764 Tcf, and risked technically recoverable resources of about 229 Tcf (Table 1). Activity. Buru Energy, a new company formed by the de-merger of ARC Energy, The company

controls exploration permits with shale gas potential in the Canning basin.

reported cores of gas-mature, organic-rich shale from the Laurel formation taken from the
February 17, 2011 XIV-25

World Shale Gas Resources: An Initial Assessment

Yulleroo-1 conventional exploration well in permit EP-391. Drilled in 1967, the Yulleroo-1 flowed gas from sandstone and shales within the Laurel Formation. Other potential shale targets

include the Early Permian Noonkanbah, Carboniferous Lower Anderson, Gogo, and Goldwyer Formations. On November 30, 2010 Mitsubishi agreed to fund an A$152.4 million exploration & development program, including 80% (A$40 million) of Burus 2011 unconventional oil & gas exploration budget, to earn a 50% interest in most of Burus permits. New Standard Energy (NSE), the other principal operator in the Canning basin, holds a 45,000 km2 exploration license with Goldwyer Shale potential and additional acreage in EP413 with Laurel Shale potential. NSEs independent consultant has estimated 40-480 Tcf of gas in place within shale formations at the companys leases. Throughout 2010 the company sought a partner for its shale project but has been unsuccessful to date due, it said, to the immaturity of the play and lack of data. NSE currently is evaluating newly acquired gravity data across its position but has not yet announced drilling plans. 24 NATURAL GAS P ROFILE Australia produced 1.5 Tcf of natural gas in 2009, though only consumed 0.94 Tcf 25. Much of the gas in converted into LNG to be distributed domestically and exported to Asian markets. As of January 2010, Australias estimated proven natural gas reserves is

approximately 110 Tcf. REFERENCES

South Australia Department of Mineral and Energy Resources, 2010. Petroleum & Geothermal in South Australia. 17 p.

2 Apak, S.N., Stuart, W.J., Lemon, N.M. and Wood, G., 1997. Structural Evolution of the PermianTriassic Cooper Basin, Australia: Relation to Hydrocarbon Trap Styles. American Association of Petroleum Geologists, Bulletin, vol. 81, p. 533-555.

Lindsay, J., 2000. South Australia Source Rock Potential and Algal-Matter Abundance, Cooper Basin, South Australia. South Australia Department of Primary Industries and Resources, Report Book 2000/00032, 172 p.
3 4

Smith, M., 1983. Nature of Source Materials for Hydrocarbon in Cooper Basin, Australia. American Association of Petroleum Geologists, Bulletin, vol. 67, p. 1422-1428. Beach Energy, presentation, 5-6 October 2010. Beach Energy, 2010.

5 6 7

Reynolds, S.D., Mildren, S.D., Hillis, R.R., and Meyer, J.J., 2006. Constraining Stress Magnitudes Using Petroleum Exploration Data in the Cooper-Eromanga Basins, Australia. Tectonophysics, vol. 415, p. 123-140. McGowan et al., 2007.

9 Stephenson, A.E. and Burch, G.J., 2004. Preliminary Evaluation of the Petroleum Potential of Australias Central Eastern Margin. Geoscience Australia Department Of Industry, Tourism & Resources. Geoscience Australia Record 2004/06, 117 p.

February 17, 2011

XIV-26

World Shale Gas Resources: An Initial Assessment

10 Hill, P.J., 1994. Geology and geophysics of the offshore Maryborough, Capricorn and northern Tasman basins: results of AGSO Survey 91. Canberra, Australian Geological Survey Organization, Record 1994/1. 11 Lane, P.B., 1983. Geology and Petroleum Potential of ATP 229P, Onshore Maryborough Basin, Queensland, Australia. Unpublished report, 30 p. 12

Cadman, S.J. Pain, L. and Vuckovic, V., 1994. Australia. 116 p.

Australian Petroleum Accumulations Report 10: Perth Basin, Western

Cawood, P.A. and Nemchin, A.A., 2000. Provenance Record of a Rift Basin: U/Pb Ages of Detrital Zircons from the Perth Basin, Western Australia. Sedimentary Geology, vol. 134, p. 209-234.
13 14 Mory, A.J. and Iasky, R.P., 1996. Stratigraphy And Structure Of The Onshore Northern Perth Basin Western Australia. Geological Survey of Western Australia, Department of Minerals and Energy, Report 46, 126 p. 15 Thomas, B.M., 1979. Geochemical Analysis of Hydrocarbon Occurrences in Northern Perth Basin, Australia. American Association of Petroleum Geologists, vol. 63, p. 1092-1107. 16

Nabbefeld, B., Grice, K., Schimmelmann, A., Summons, R.E., Troitzsch, U., Twitchett, R.J., 2010. A Comparison of Thermal Maturity Parameters Between Freely Extracted Hydrocarbons (Bitumen I) and a Second Extract (Bitumen II) from Within the Kerogen Matrix of Permian and Triassic Sedimentary Rocks. Organic Geochemistry, vol. 41, p. 78-87.

17

Dawson, D., Grice, K., and Alexander, R., 2005. Effect of Maturation on the Indigenous dD Signatures of Individual Hydrocarbons in Sediments and Crude Oils from the Perth Basin (Western Australia). Organic Geochemistry, vol. 36, p. 95104.

Boreham, C.J. and Edwards, D.S., 2008. Abundance and Carbon Isotopic Composition of Neo-Pentane in Australian Natural Gases. Organic Geochemistry, vol. 39, p. 550-566.
18 19

AWE, announcement, November 9, 2010.

20 Cadman, S.J. Pain, L., Vuckovic, V., and le Poidevin, S.R., 1993. Australian Petroleum Accumulations Report 9: Canning Basin, Western Australia. 88 p.

Haines, P. W., 2004. Depositional Facies And Regional Correlations Of The Ordovician Goldwyer And Nita Formations, Canning Basin, Western Australia, with Implications for Petroleum Exploration. Western Australia Geological Survey, Record 2004/7, 45p.
21

Foster, C. B., OBrien, G. W., and Watson, S. T., 1986, Hydrocarbon Source Potential of the Goldwyer Formation, Barbwire Terrace, Canning Basin, Western Australia. APEA Journal, vol. 26, p. 142155.
22

Ghori, K.A.R. and Haines, P.W., 2007. Paleozoic Petroleum Systems of the Canning Basin, Western Australia: A review. American Association of Petroleum Geologists, Search and Discovery Article No. 10120, 7 p.
23 24 25

New Standard Energy, announcements, December 24, 2010 and January 14, 2011. U.S. Department of Energy, Energy Information Administration, accessed January, 21, 2011.

February 17, 2011

XIV-27

World Shale Gas Resources: An Initial Assessment

APPENDIX A Table A-1. Detailed Tabulation of Shale Gas Resources: 48 Major Basins and 69 Formations
Continent Region Basin
Appalachian Fold Belt Windsor Basin Horn River I. Canada Cordova Liard Deep Basin Colorado Group

Formation
Utica Horton Bluff Muskwa/Otter Park Evie/Klua Muskwa/Otter Park Lower Besa River Montney Shale Diog Phosphate 2WS & Fish Scales Sub-Total Eagle Ford Shale Tithonian Shales Eagle Ford Shale Tithonian La Casita Pimienta Tamaulipas Pimienta U. K Maltrata Sub-Total

Risked Gas InPlace (Tcf)

155 9 378 110 83 125 141 81 408 1,490 1,514 272 218 56 215 25 28 38 2,366 3,856

Technically Recoverable Resource (Tcf)

31 2 132 33 29 31 49 20 61 388 454 82 44 11 65 8 8 9 681 1,069 11 7 12 30 167 240 50 45 84 88 521 1,195 1,225

North America

Burgos Basin Sabinas Basin II. Mexico Tampico Basin Tuxpan Platform Veracruz Basin Total Maracaibo Basin III. Northern South America Catatumbo Sub-Basin Sub-Total Neuquen Basin

La Luna La Luna Capacho Los Molles Vaca Muerta Aguada Bandera Pozo D-129 L. Inoceramus Magnas Verdes San Alfredo Sub-Total

42 29 49 120 478 687 250 180 420 351 2,083 4,449 4,569

South America

San Jorge Basin IV. Southern South America Austral-Magallanes Basin Parana-Chaco Basin Total

February 17, 2011

A-1

World Shale Gas Resources: An Initial Assessment

Continent

Region

Basin
Baltic Basin

Formation
Silurian Shales Silurian Shales Silurian Shales Sub-Total Silurian Shales Visean Shales Silurian Shales Sub-Total Posidonia Shale

Risked Gas InPlace (Tcf)

514 222 56 792 93 48 149 290 26 64 9 303 589 112 305 95 2 1,505 2,587 520 251 647 443 1,861 251 16 267 453 995 386 1,834 3,962

Technically Recoverable Resource (Tcf)

129 44 14 187 23 12 30 65 7 16 2 76 147 28 76 19 1 372 624 156 75 162 111 504 50 3 53 91 298 96 485 1,042

V. Poland

Lublin Basin Podlasie Depression Baltic Basin

VI. Eastern Europe

Dnieper-Donets Basin Lublin Basin

Europe

North Sea-German Basin Paris Basin VII. Western Europe Scandinavia Region South-East French Basin N. U.K. Petroleum System S. U.K. Petroleum System Sub-Total Total Ghadames Basin VIII. Central North Africa Sirt Basin

Namurian Shale Wealden Shale Permo-Carboniferous Shale Alum Shale Terres Niores Liassic Shale Bowland Shale Liassic Shale

Tannezuft Formation Frasnian Formation Sirt-Rachmat Formation Etel Formation Sub-Total Silurian Shales Silurian Shales Sub-Total Prince Albert

Tindouf Basin

Africa

IX. Morocco

Tadla Basin

X. South Africa

Karoo Basin Sub-Total Total

Whitehill Collingham

February 17, 2011

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World Shale Gas Resources: An Initial Assessment

Continent

Region

Basin
Sichuan Basin

Formation
Longmaxi Qiongzhusi O1/O2/O3 Shales Cambrian Shales Sub-Total Cambay Shale Barren Measure Kommugudem Shale Andimadam Formation Sembar Formation Ranikot Formation Sub-Total Hamitabat Mezardere Dudas Shale Sub-Total

Risked Gas InPlace (Tcf)

1,373 1,394 897 1,437 5,101 78 33 136 43 80 126 496 14 7 43 64 5,661 342 77 98 100 764 1,381

Technically Recoverable Resource (Tcf)

343 349 224 359 1,275 20 7 27 9 20 31 114 4 2 9 15 1,404 85 23 29 30 229 396

XI. China

Tarim Basin

Cambay Basin Damodar Valley Basin Krishna-Godavari Basin

Asia

XII. India/Pakistan

Cauvery Basin Southern Indus Basin

Thrace Basin XIII. Turkey SE Anatolian Basin Total Cooper Basin Maryborough Basin Australia XIV. Australia Perth Basin Canning Basin Total

Roseneath-Epsilon-Murteree Goodwood/Cherwell Mudstone Carynginia Shale Kockatea Fm Goldwyer Fm

Grand Total

22,016

5,760

February 17, 2011

A-3

World Shale Gas Resources: An Initial Assessment

APPENDIX B Table B-1. Play Success Probability Factors, Prospective Area Success (Risk) Factors and Composite Success Factors
Continent Country/Region Basin
Appalachian Fold Belt Windsor Basin Horn River I. Canada Cordova Liard Deep Basin

Formation
Utica Horton Bluff Muskwa/Otter Park Evie/Klua Muskwa/Otter Park Lower Besa River Montney Shale Diog Phosphate 2WS & Fish Scales Eagle Ford Shale Tithonian Shales Eagle Ford Shale Tithonian La Casita Pimienta Tamaulipas Pimienta U. K Maltrata La Luna La Luna Capacho Los Molles Vaca Muerta Aguada Bandera Pozo D-129 L. Inoceramus Magnas Verdes San Alfredo Silurian Shales Silurian Shales Silurian Shales Silurian Shales Visean Shales Silurian Shales Posidonia Shale Namurian Shale Wealden Shale Permo-Carboniferous Shale Alum Shale Terres Niores Liassic Shale Bowland Shale Liassic Shale

Play Success Factor 100% 50% 100% 80% 80% 80% 100% 80% 80% 80% 50% 40% 40% 60% 40% 40% 40% 50% 50% 50% 80% 80% 50% 60% 50% 50% 30% 80% 60% 60% 60% 40% 60% 60% 60% 50% 60% 50% 50% 60% 40% 40%

Prospective Composite Area Success Success Factor Factor 40% 40% 75% 75% 60% 50% 75% 50% 50% 50% 50% 40% 20% 40% 50% 50% 40% 50% 60% 60% 50% 60% 40% 40% 50% 50% 40% 50% 40% 50% 50% 40% 40% 50% 50% 40% 60% 40% 50% 50% 50% 60% 40% 20% 75% 60% 48% 40% 75% 40% 40% 40% 25% 16% 8% 24% 20% 20% 16% 25% 30% 30% 40% 48% 20% 24% 25% 25% 12% 40% 24% 30% 30% 16% 24% 30% 30% 20% 36% 20% 25% 30% 20% 24%

North America

Colorado Group Burgos Basin Sabinas Basin II. Mexico Tampico Basin Tuxpan Platform Veracruz Basin III. Northern South America Maracaibo Basin Catatumbo Sub-Basin Neuquen IV. Southern South America San Jorge Austral-Magallanes Parana-Chaco Baltic Basin V. Poland Lublin Basin Podlasie Depression Baltic Basin VI. Eastern Europe Dnieper-Donets Basin Lublin Basin

South America

Europe

North Sea-German Basin Paris Basin VII. Western Europe Scandinavia Region South-East French Basin N. U.K. Petroleum System S. U.K. Petroleum System

February 17, 2011

B-1

World Shale Gas Resources: An Initial Assessment

Continent

Country/Region

Basin
Ghadames Basin

Formation
Tannezuft Formation Frasnian Formation Sirt-Rachmat Formation Etel Formation Silurian Shales Silurian Shales Prince Albert Whitehill Collingham Longmaxi Qiongzhusi O1/O2/O3 Shales Cambrian Shales Cambay Shale Barren Measure Kommugudem Shale Andimadam Formation Sembar Formation Ranikot Formation Hamitabat Mezardere Dudas Shale Roseneath-Epsilon-Murteree Goodwood/Cherwell Mudstone Carynginia Shale Kockatea Fm Goldwyer Fm

Play Success Factor 60% 60% 50% 50% 50% 40% 50% 60% 50% 60% 60% 40% 40% 60% 50% 50% 50% 50% 50% 60% 60% 40% 75% 75% 60% 60% 60%

Prospective Composite Area Success Success Factor Factor 50% 50% 30% 30% 50% 50% 30% 40% 30% 50% 50% 40% 40% 60% 50% 40% 60% 40% 40% 60% 50% 60% 75% 60% 70% 70% 25% 30% 30% 15% 15% 25% 20% 15% 24% 15% 30% 30% 16% 16% 36% 25% 20% 30% 20% 20% 36% 30% 24% 56% 45% 42% 42% 15%

VIII. Central North Africa Sirt Basin

Africa

IX. Morocco

Tindouf Basin Tadla Basin Karoo Basin

X. South Africa

Sichuan Basin XI. China Tarim Basin Cambay Basin Damodar Valley Basin

Asia

XII. India/Pakistan

Krishna-Godavari Basin Cauvery Basin Southern Indus Basin Thrace Basin SE Anatolian Basin Cooper Basin Maryborough Basin

XIII. Turkey

Australia

XIV. Australia Perth Basin Canning Basin

February 17, 2011

B-2

Location NW Eng
Paris; StephanoPermian basins Cheshire Weald Central Graben London-Brabant Massif; West Netherlands; Broad Fourteens NW German Bodensee Trough NE German Polish (ForeSudetic Monocline) NE German Polish (ForeSudetic Monocline)

Denmark S Eng N offshore S on / offshore NW S E S&W

Sweden

France

United Kingdom

Netherlands

Germany

Poland N&E
Baltic Depression; East European Platform Margin; Lublin Trough; Warsaw Trough

Switzerland
Molasse

Austria
Vienna

Geological Province(s)

Fennoscandian Border; NorwegianDanish

Fennoscandian Border; Baltic Depression

Neogene

Paleogene

Cretaceous
Wealden Kim/Oxf Toarcian Lias Rhaetic ? Posidonia Sh Posidonia Sh Posidonia Kimmeridge Cl

U
Mikulov Fm Opalinuston Posidonia

Jurassic

Triassic

U M L U M L
Autunian Bowland Epen Fm Namurian

Permian

U
PermoCarb Visean Kellwasser Kulm

Carboniferous

Devonian

Silurian

Graptolitic shale secondary

Ordovician

Alum Sh

Alum Sh

Cambrian

U M L U M L U M L U M L

Denmark

Sweden

France

United Kingdom

Netherlands

Germany

Poland

Switzerland Austria

Spain

Super-Majors
NW German; NE German - Polish (Fore-Sudetic Monocline) Fennoscandian Border; Baltic Depression (through partnership in BEB with ExxonMobil) East European Platform Margin; Lublin Trough; Warsaw Trough

ExxonMobil

Royal Dutch Shell

Majors and Independents

Lublin Trough Baltic Depression

Chevron ConocoPhillips

Devon

Fennoscandian Border; Norwegian-Danish Baltic Depression; East European Platform Margin Vienna

Marathon

OMV Total

Niche Players
Bodensee Trough Baltic Depression Cheshire; Weald Baltic Depression Cheshire; Weald London-Brabant Massif; West Netherlands Baltic Depression Baltic Depression Baltic Depression Molasse Baltic Depression Campo de Gibraltar Pyrenean Foothills

3Legs Resources AJ Lucas BNK Petroleum

Cuadrilla Resources

EurEnergy Resources

Paris (Lorraine Sub-basin) Weald

RAG San Leon Energy

Schuepbach Energy

Norwegian-Danish

Sorgenia E&P

CBG Players with Potential Acreage

UK acreage Cheshire; North Wales Carboniferous

Composite Energy / BG

Nexen / IGas

Country
Mikulov Fm 525 16,000

Basin

Play

Age

Top Depth Range (ft)

Gross Thickness Net Thickness SiO2 % Total Organic Range (ft) Range (ft) Carbon %
0.2 - 10.0 1.1 - 6.1

Thermal Maturity %

Austria

Vienna

Denmark

Norwegian-Danish

1.12

Germany 115 (avg) 11,500 10 - 3,300; 550 (avg) 10,000 - 13,000 12,500 (max) 7,000 - 12,500 13,000 3,000 - 13,000 100 - 1,000 320 (max) 30- 6,700; 1,475 (avg) 25 - 350; 100 (avg) 500 - 2,500 500 - 1,800

Northwest German

8 (max) 2 - 12 22 (max) 0 - 23; 2.4 (avg) 0.4 - 16.2; 6.0 (avg) 25 - 63 0.1 - 1.3 1.2 - 2.6

Netherlands Epen Namurian

Central Graben

Upper Jurassic (Kimmeridgian) Alum Middle Cambrian Lower Ordovician (Tremadoc) Wealden Lower Cretaceous (Berriasian) Posidonia Shale Lower Jurassic (LowerToarcian) Kimmeridge Clay Upper Jurassic

West Netherlands (Anglo-Dutch) Anglo-Dutch Posidonia Shale Lower Jurassic (LowerToarcian) Graptolitic shale Silurian Silurian Visean

Poland

Baltic Depression

0.7 - 9.9 (typical); 16.5(max) 0.6 - 2.4 siliceous 2.3 (avg); 9.1(max) 25 (max)

1.0 - 5.0

Sweden

Danish-Polish Marginal Silurian Trough Fore-Sudetic Monocline Wielkopolska Kulm Fennoscandian Border Alum Zone Middle Cambrian Lower Ordovician (Tremadoc) Bowland Namurian Kimmeridge Clay Upper Jurassic Upper Jurassic Lower Jurassic 4,300

United Kingdom

Cheshire Weald Oxford Clay Lias

4,000 probably immature 50 - 80 2,000 1.5 - 6.5 (typical); 20(max) 0.6 - 4.3 0.5 - 2.5 (typical); 3.2 (max)

EUCERS STRATEGY PAPER

STRATEGIC PERSPECTIVES OF UNCONVENTIONAL GAS: A GAME CHANGER WITH IMPLICATIONS FOR THE EUS ENERGY SECURITY

Maximilian Kuhn/Frank Umbach

EUCERS Advisory Board

Professor Dr Mervyn Frost, Chairman of the Board, Head of Department of War Studies, King's College London Marco Arcelli, Executive Vice President, Upstream Gas, Enel, Rome Professor Dr Hseyin Bagci, Department Chair of International Relations, Middle East Technical University, Inonu Bulvari, Ankara Andrew Bartlett, Global Head Oil & Gas, Standard Chartered, London Volker Beckers, CEO, RWE npower, London Professor Dr Frank Behrendt, Director, Institute for Energy Technology at the Technische Universitt, Berlin Professor Dr Albert Bressand, Director, Center for Energy, Marine Transportation and Public Policy (CEMTPP), School of International and Public Affairs, Columbia University, New York Professor Dr Iulian Chifu, Director Center for Conflict Prevention and Early Warning, Bucharest Dr John Chipman, Director International Institute for Strategic Studies (IISS), London Professor Dr Dieter Helm, University of Oxford, Oxford Professor Dr Karl Kaiser, Director of the Program on Transatlantic Relations of the Weatherhead Center for International Affairs, Harvard Kennedy School, Cambridge, USA Vladimir Kotenev, Senior Managing Director GAZPROM Germania GmbH, Berlin/Moscow Janusz Luks, CEO Central Europe Energy Partners (CEEP), Brussels/Warsaw Thierry de Montbrial, Founder and President of the Institute Franais des Relations Internationales (IFRI), Paris Chris Mottershead, Vice Principal, King's College London Hildegard Mller, Chairwoman of the Executive Board of the German Federal Association for Energy and Water (BDEW), Berlin Dr Pierre Nol, Director Energy Policy Forum, Judge Business School, University of Cambridge Dr Ligia Noronha, Director Resources, Regulation and Global Security, TERI, New Delhi Janusz Reiter, Center for International Relations, Warsaw Professor Dr Karl Rose, Senior Fellow Scenarios, World Energy Council, Vienna/London Professor Dr Burkhard Schwenker, Chairman of the Supervisory Board, Roland Berger Strategy Consultants GmbH, Hamburg

Media Partners:

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Published by European Centre for Energy and Resource Security (EUCERS)

The European Centre for Energy and Resource Security (EUCERS) at Kings College London is an academic Think-Thank engaged in research on Energy and Resource Security. EUCERS is involved in various lectures, courses and training programs. Additional EUCERS organizes lecture series, seminars, conferences and expert round tables. EUCERS publications and research results are made available through the EUCERS website: www.eucers.eu

IMPRESSUM

EUCERS. All rights reserved. Brief excerpts may be reproduced or translated provided the source is stated. Please direct all enquiries to the publishers. The opinions expressed in this publication are the responsibility of the author.

Editorial
Prof. Dr. Friedbert Pflger Maximilian Kuhn European Centre for Energy and Resource Security (EUCERS) Department of War Studies King's College London Strand London WC2R 2LS info@eucers.eu Tel. 020 7848 1912

ISSN ISSN ISBN ISBN

2047-1041 2047-105X 978-0-9569033-0-3 978-0-9569033-1-0

(Print) (Online) (Paperback) (eBook-PDF)

About EUCERS:
Prof Dr Mervyn Frost (Head Department of War Studies, KCL) Prof Dr Friedbert Pflger (Department of War Studies, KCL) Dr Petra Dolata-Kreutzkamp (Department of War Studies, KCL) Dr Frank Umbach (Centre for European Security Strategies) Carola Gegenbauer Aura Sabadus Maximilian Kuhn Jaroslaw Wisniewski Moses Ekpolomo Adam Lazlop Sebastian Herbstreuth Chair, EUCERS Advisory Board Executive Director Director of Research Associate Director Head of Operations Chief Editor, EUCERS Newsletter Chief Editor, EUCERS Strategy Papers Research Associate Research Associate Research Associate Head EUCERS Undergraduate Summer School

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A EUCERS STRATEGY PAPER

STRATEGIC PERSPECTIVES OF UNCONVENTIONAL GAS: A GAME CHANGER WITH IMPLICATIONS FOR THE EUS ENERGY SECURITY
Volume 01, Number 01, 01 May 2011 Maximilian Kuhn/Frank Umbach

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STRATEGIC PERSPECTIVES OF UNCONVENTIONAL GAS: A GAME CHANGER WITH IMPLICATIONS FOR THE EUS ENERGY SECURITY
Maximilian Kuhn/Frank Umbach
Keywords: Unconventional Gas; Energy supply security (political, economic and technical), Energy policy making, Energy sector analysis, Geopolitics of global gas supply,

Contents Contents ............................................................................................................................................... 5 FOREWORD / PREFACE ..................................................................................................................... 6 EXECUTIVE SUMMARY ..................................................................................................................... 8 INTRODUCTION .............................................................................................................................. 11 UNCONVENTIONAL GAS a primer ................................................................................................... 12 WHAT IS TYPICAL UNCONVENTIONAL GAS? .................................................................................. 13 DEVELOPMENT OF UNCONVENTIONAL / SHALE GAS IN THE U.S. ..................................................... 13 WHAT MAKES SHALE GAS SPECIAL?............................................................................................... 14 FALLING COST NOT A GIVEN? ........................................................................................................ 17 SIMULTANEOUS LNG AND SHALE GAS DEVELOPMENTS HAVE A MAJOR IMPACT ....................... 18 HOW LONG IS THIS GAS BUBBLE EXPECETED TO LAST? ................................................................ 19 THE ENVIRONMENTAL CHALLENGES ............................................................................................. 21 PROSPECTS FOR THE GLOBAL AVAILABILITY OF UNCONVENTIONAL GAS RESOURCES ................ 25 SHALE GAS IN EUROPE: A REVOLUTION IN THE MAKING? ................................................................ 30 FUNDAMENTALS, DIFFERENT MARKET STRUCTURE, AND CORE CHALLENGES ............................. 32 PUBLIC ACCEPTANCE AND THE ENVIRONMENTAL DEBATE........................................................... 33 ITS ECONOMICS, STUPID! .............................................................................................................. 35 HIGHER COST OF DRILLING ............................................................................................................ 38 A TOUGH NUT TO FRAC .................................................................................................................. 40 BUT ROME WASNT BUILT IN ONE DAY . ..................................................................................... 41 UNCERTAINTY IN EU-27 GAS DEMAND by 2020 AND ITS IMPACT ................................................ 43 GEOPOLITICAL IMPLICATIONS OF UNCONVENTIONAL GAS .......................................................... 46 SUMMARY AND PERSPECTIVES: GAME CHANGER, OR NOT? ........................................................ 51 APPENDIX ........................................................................................................................................... 53 ENDNOTES: ......................................................................................................................................... 57

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FOREWORD / PREFACE Dr. phil. Friedbert Pflger Professor and Director of the European Centre for Energy and Resource Security (EUCERS) at the Department of War Studies, Kings College London.
The publication `Strategic Perspectives of Unconventional Gas: A Game Changer with Implications for the EU`s Energy Security could not be timelier. The catastrophic events in Japan -, the earthquake followed by tsunamis, which lead to the nuclear disaster at the Fukushima-Daiichi nuclear power plant as well as the political turmoil in North Africa and the Middle East force politicians to rethink how they are achieving their national energy mix. These events remind us, yet again, of the need for economically viable, ecologically friendly, secure, and publicly acceptable forms of energy. It will shift the discussion, once again, to the focal issues of domestic supply policies and international initiatives to ensure stable and reasonable priced energy supplies. Natural gas as the low-carbon fuel of choice for the consumers is critical in bridging the long-term fuel gap between the present and towards a renewable and sustainable energy future. Coinciding critical economic, political, and technological factors the drop of demand linked to the global recession, an increase in incremental U.S. non-conventional shale gas production, and the arrival of new LNG delivery capacity - together created a sudden global gas glut and, therefore, laid the groundwork for an expanded role of natural gas in the world economy. On the other hand, various obstacles for European unconventional and shale gas development in particular are in place, preventing the seizure of the full potential of this commodity. Important questions about the future market structure, the regulatory environment, political risk, investor confidence, public acceptance and competition with other fuels especially renewables -, need to be answered in the months and years ahead. This EUCERS Strategy Paper tries to answer these demanding questions by helping policymakers to understand the importance and the broad implications of this issue. The national and international debate over the role of unconventional gas in the global economy is in many ways still in its infancy. By providing an insightful and comprehensive introduction to these issues for policy-makers, scholars, industry executives, practitioners, and concerned citizens alike, this non-bias academic EUCERS Strategy Paper aims to shed light on this important but complex subject. Thus far it is clear that unconventional gas has already had a major external impact on the European market. How the prospects for future European unconventional gas developments look now depends upon various critical factors. In this uncertain environment, nevertheless, one thing is certain: unconventional gas is a domestic fuel and energy resource. It is, therefore, the perfect addition to locally developed renewable energies that help increase European energy security. Simply put, unconventional gas volumes in Europe have the potential to stabilize domestic supplies in the face of declining conventional production, and in doing so could reduce dependencies and help diversify the energy mix. From a global perspective, unconventional gas has far-reaching geopolitical implications. It has the potential to balance the EUs energy equation by breaking a market dominated by a few suppliers from EURASIA (i.e. Russia) and the Middle East, where the vast majority of the conventional gas reserves are concentrated. Now, with local unconventional gas availability enabling gasto-gas competition, negotiating power is shifting from a hitherto sellers market into a more balanced and favorable market for buyers, by enabling gas-to-gas competition. Moreover, the abundance of natural gas, in combination with relatively low development cost as demonstrated in the U.S. incentivizes the switch from coal to gas and, therefore, would help to bring down emissions and mitigate climate change.

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`Strategic Perspectives of Unconventional Gas is an important piece in addressing these and other strategic issues connected to the development of unconventional gas. It elaborates on U.S. unconventional gas development, draws analogies (including by highlighting the differences) for the European situation and, finally, concludes by considering the global geopolitical implications of unconventional gas development. This EUCERS Strategy Paper is the result of a previous study conducted by Maximilian Kuhn for the 11th IAEE European Conference Energy Economy, Policies and Supply Security: Surviving the Global Economic Crisis, a presentation by Frank Umbach at the Atlantik-Brcke in Berlin on the future global gas markets with implications from unconventional gas and an expert roundtable jointly organized by Research Analysts at the British Foreign and Commonwealth Office (FCO) and the European Centre for Energy and Resource Security (EUCERS) at Kings College London. This expert roundtable assembled prominent political scientists, economists and energy experts from Europe to address the issue of shale gas development in Europe and the geopolitics of shale gas. I would like to commend the authors and editors Maximilian Kuhn1 and Frank Umbach2 for producing this invaluable piece.
1

Furthermore, we recognize and thank the many collaborators and reviewers who have participated and contributed to the argumentation and writing process. We are especially grateful to the many speakers and panelists and, in particular, to the Foreign and Commonwealth Office (FCO) for the funding that made the expert roundtable possible. Specifically, for taking the time to share their unique insights on unconventional gas development we would like to thank our speakers: Marco Arcelli (ENEL), Andrew Bartlett (Standard Chartered), Katinka Barysch (Centre for European Reform), Stanislaw Cios (Ministry of Foreign Affairs of the Republic of Poland), Marc de Saint Gerand (Standard Chartered), Luis Deza (ENEL), Mark Downes (Shell UK), Florence Gny (Oxford Energy Institute), Paul Gilbert (Tyndall Centre for Climate Change Research, University of Manchester), Dieter Helm (University of Oxford), Michael Holgate (Independent Energy Consultant), Brian Horsfield (GFZ German Research Centre for Geoscience), Patrick McCarthy (ExxonMobil UK), Sean Melbourne (Shell UK), Tony Melling (Independent Energy Consultant), Pierre Nol (University of Cambridge), Erik Oswald (ExxonMobil), Greg Pytel (Sobieski Institute), Alan Riley (The City Law School London), Aura Sabadus (ICIS Heren), Alex Shivananda (Aclaria Capital), Meb Somani (Barclays Natural Resource Investment), Jaroslaw Wisniewski (Kings College London), and Ernest Wyciszkiewicz (Polish Institute for International Affairs). Last, but not least, I would also thank Grant Rudgley from Kings College for helping to edit this Strategy paper.

Maximilian Kuhn is Chief Editor, EUCERS Strategy Papers and a Research Associate at the Centre for Energy, Marine Transportation and Public Policy (CEMTPP), School of International and Public Affairs (SIPA), Columbia University. He may be reached at: mk3235@columbia.edu (Maximilian Kuhn). Special thanks to Albert Bressand (CEMTPP), Gregory Stoupnitzky (CIS Capital), Gordon Shearer (Hess LNG) and Michael Holgate for their advice, encouragement and the review of earlier versions. Frank Umbach is Associate Director of EUCERS as well as Senior Associate and Head of the Programme International Energy Security at the Centre for European Security Strategies (CESS GmbH) in Munich-Berlin. He may be reached at: umbach@cess-net.eu (Frank Umbach). The authors are solely responsible for any errors of fact or interpretation and the views expressed in this paper are solely those of its authors.

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EXECUTIVE SUMMARY Due to the silent (r-)evolution of horizontal drilling and slick water hydraulic fracturing, the rapidly expanding production of unconventional gas resources (i.e. shale gas) has transformed the U.S., almost overnight, from becoming the largest LNG import market to a self-sustaining gas producer and a net gas exporter; in 2009, overtaking Russia as the worlds largest gas producer. Simply put, this has had worldwide geopolitical and economic implications. The combination of three factors: (1), a drop in demand linked to the global recession; (2), an increase in incremental U.S. non-conventional shale gas production; and (3), the arrival of new LNG delivery capacity, have together created a sudden gas glut an overcapacity of LNG that has led LNG to become less expensive than pipeline-gas (based on long-term contracts), contributing to the de-linkage of the gas prices from the oil price. This could become a permanent feature of the global energy market because remaining global unconventional gas resources are even bigger than conventional ones; however, the present lack of sufficient geological information and concrete exploration drilling test data outside of the U.S. makes the short-term future of unconventional gas production uncertain for at least the next years. Nonetheless, the new gas (r-)evolution has begun to shift to the rest of the world, with exploration test drilling in Europe, China, Australia, Canada and many other countries. This study queries the prospects of unconventional gas production in Europe. There are a number of factors to consider. First and foremost, since the density of population is much higher in Europe, environmental concerns must be addressed as public acceptance will be the main issue for future unconventional gas development. Yet, current environmental legislation in the EU needs to be further analyzed so that unconventional gas can offer new business opportunities and better export chances for coping with the worldwide environmental challenges of unconventional gas exploration. In contrast to the U.S., Europe lacks any detailed and reliable geological study, making it difficult to estimate the potential for unconventional gas. Additional, unit supply costs, environmental regulation, pricing mechanisms, and market structures in Europe are different from those in North America. This makes lesson- and knowledge-transfer between the continents difficult. Nonetheless, the unconventional gas (r-)evolution has enabled a transformation of the global gas market and industry. It calls for a new mindset in Europe; particularly as, European unconventional gas is thought to be competitive at contemporary long-run average European contract prices of around 8-9 US $/ million British thermal units (MMBtu.). This development is unlikely to materialize significantly before 2020, but could mean that tight gas, shale gas, and -8-

coal bed methane (CBM) production could in the best-case scenario compensate for the declines (or at least some amounts of them) of the indigenous conventional gas production. Estimated total recoverable reserves in Europe amount to between 33-38 tcm, of which 12 tcm are tight gas, 15 tcm shale gas, and 8 tcm coal bed methane; whereas total conventional gas reserves in the EU amount just to 2.42 tcm. In theory, therefore, Europes unconventional gas resources might be able to cover European gas demand for at least another 60 years. In this scenario Europe may still remain a net gas importer, but, nonetheless, the development would (1), further reduce the import dependence from unstable producer countries outside the EU27 and (2), assist the EU in its numerous other energy policy initiatives that have been implemented to reduce its gas (import) demand and diversification of gas imports since 2007. Thus, domestic shale gas production can be very lucrative and enhance the EUs energy supply security. Also, as unconventional gas is a major domestic fuel similar to renewables it may offer a higher degree of policy support under a supply security-driven focus (e.g. Poland). Given the worldwide and European prospects for unconventional gas production, it becomes clear that even if only a fraction of the potential of unconventional gas resource will become available for European and other energy markets before 2020, it will (1), undercut the very high prices of the new Siberian gas fields of the Yamal Peninsula and in particular Russias Arctic offshore gas resources (like Shtokman), (2), offer the EU another domestic source, enabling greater diversification of gas demand and imports, (3), extend the global overcapacity of gas at least until 2020, and (4), improve the EUs energy supply security in the next decades. Nevertheless, it is important to reemphasize that one must consider public acceptance of unconventional gas development as much as one considers the geology, economics, and market structure of the European energy future. On the geo-economic and geo-political side, unconventional gas has the potential to change the industry structure far greater then is commonly understood, and this calls for a new mindset within both industry, conventional gas suppliers like Russia and demand centers (e.g. Europe) and those involved in the wider public policy arena. Unconventional gas could become a major challenge for traditional exporters like Russia in the period between 20152030. Thus, if unconventional volumes are large enough, Russia will be forced to make strategic decisions about: (a) defending its existing market model and pricing system in an environment that would risk making unconventional gas production profitable on a large scale, with negative implication for market share; or, (b) seeking to marginalize unconventional gas production via changing the hitherto oil-indexed, long-term, take-or-pay contracts by adapting

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a more flexible pricing system. The latter option shows that even the threat of unconventional gas production in Europe could lead to a positive outcome for European consumers. In sum, regardless of how the outlook on European unconventional gas development looks, and despite of whether or not unconventional gas becomes affordable and sustainable in the mid-to-long term in Europe, shale gas has already changed the European market; even before a single well has been drilled, or a single molecule of unconventional gas has been produced from the European basins.

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INTRODUCTION I have been studying the energy markets for 30 years, and I am convinced that shale gas will revolutionize the industry and change the world in the coming decades. It will prevent the rise of any new cartels. It will alter geopolitics. And it will slow the transition to renewable energy.3 The greatest energy innovation of the decade, according to Daniel Yergin, is unconventional natural gas.4 North America alone has enough recoverable unconventional gas resources to supply its total natural gas demand for the next 45 years.5 Although unconventional gas is nothing new to the oil and gas industry, the supposed shale gas revolution is rather an unfolding evolution - a combination of several old and new technologies. Unconventional gas from shale, coal-bed methane and tight formations has been produced in the US since the 1800s.6 The first commercial shale gas well was drilled in 1821 into the Devonian Dunkirk shale near the village of Fredonia, New York to provide fuel to illuminate local homes.7 For the supply-and-demand-driven oil and gas industry, natural gas did not become an important commodity until the end of World War II. Subsequently, in the 1980s, producers began looking beyond traditional sources of natural gas production to keep up with the growing market and to compensate for depleting reservoirs. By the early 1990s, the industry began evaluating coalbed methane and later shifted its attention to shale gas.8 It took until around 2005, however, for the potential of unconventional gas to become fully clear. At a time of soaring gas prices, rapidly depleting conventional wells, and failed attempts to bring forth additional supplies, the U.S. was destined to become an importer of liquefied natural gas (LNG). Instead the surge in unconventional gas production in the U.S. led to a reassessment of the long-term gas balance that, in recent years, has turned U.S. supply assumptions upside down by the successful development of domestic shale gas. Now the U.S. is even considering turning its LNG import facilities into export terminals, as its shale gas reserves are estimated to be big enough to meet domestic demand for the next 30 years to come.

3 4 5 6

Amy Myers Jaffe (2010), Shale Gas Will Rock the World, Wall Street Journal, 10 May 2010. Daniel Yergin and Ineson (2009), Americas Natural Gas Revolution, The Wall Street Journal. Amy Myers Jaffe (2010), Shale Gas Will Rock the World, Wall Street Journal, 10 May 2010. Anthony Andrews, (2009), Unconventional Gas Shales: Development, Technology, and Policy Issues, in: CRS Report for Congress. Hill, D.G., Lombardi, T.E. and Martin, J.P. (2004), Fractured Shale Gas Potential in New York. Northeastern Geology And Environmental Sciences. Vol. 26; Part, pp. 57-78.
http://www.pe.tamu.edu/wattenbarger/public_html/Selected_papers/-Shale%20Gas/fractured%20shale%20gas%20potential%20in%20new%20york.pdf

Joseph H. Frantz and V. Jochen (2005), When Your Gas Reservoir Is Unconventional, So Is Our Solution - Shale gas, Schlumberger, October.

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UNCONVENTIONAL GAS A PRIMER Conventional gas is generally extracted by drilling into porous reservoirs where the gas can easily migrate to the well bore and up to the surface in relative free flow. Unconventional gas refers to gas extracted from formations where the permeability of the reservoir rock is so low that the gas cannot easily flow (e.g. tight sands), or where the gas is tightly absorbed and/or attached to the rocks (e.g. coal-bed methane). There are many types of unconventional gas resources, including tight gas that is of relative poor quality with low porosity and low permeability; the two principal types are: (a), coal-bed methane (CBM), commonly known as firedamp in coal mines that is a natural gas/methane and can be produced industrially with oil technologies; and (b), shale gas derived from a source rock that has matured and produced gas. The main focus of this paper will be on shale gas. Usually unconventional gas is found as dry and clean natural gas in the shale formations, either as free gas in fine-grained rock pores with low permeability, as free natural gas in natural fractures or by clay particles absorbed gas on organic matter and mineral surfaces.9 Shale formations can act as both a source and a reservoir. In the United States, these reservoirs tend to be found within a depth range of 80 to 2500 meters and have a prospected thickness of around 100 - 200 meters.10 The major North American shale reserves are in the Marcellus Shale in Appalachia, Haynesville, on the border of Louisiana and Texas, and the Barnett Shale of Texas. In the United States, (U.S.), the definitions of unconventional and conventional gas were arbitrarily specified by taxation issues implemented in the 1970s. According to the taxation code, conventional gas is gas produced from a tight gas well whose permeability is equal or less than 0.1 microdarcy. Depending upon the permeability, the well would receive state or federal tax credits for gas production. However, flow rates of gas are determined by a number of both economic and physical properties independent of permeability, thus, choosing a single value of permeability to define unconventional or tight gas is of limited significance. For example, in deep, high-pressure, thick reservoirs, commercial completions can be achieved when the formation permeability to gas is in the microdarcy range (0.001 md).11 In shallow, low-

10

11

Lisa Sumi (2008), Shale Gas: Focus on the Marcellus Shale, For the Oil & Gas Accountability Project/Earthworks. Joseph H. Frantz and V. Jochen (2005), When Your Gas Reservoir Is Unconventional, So Is Our Solution - Shale gas, Schlumberger, October 2005. Stephen Holditch (2007): Working Document of the NPC Global Oil & Gas Study. NPC

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pressure, thin reservoirs, permeability of several millidarcies might be required to produce the gas at economic flow rates, even after a successful fracture treatment. The National Petroleum Council defines unconventional gas as natural gas that cannot be produced at economic flow rates nor in economic volumes of natural gas unless the well is stimulated by a large hydraulic fracture treatment, a horizontal wellbore, or by using multilateral wellbores or some other technique to expose more of the reservoir to the wellbore.12

WHAT IS TYPICAL UNCONVENTIONAL GAS? In actuality, there is no typical unconventional gas. Generally, gas is extracted from reservoirs, and, over the last few centuries, the more accessible reservoirs have been defined as conventional. Reservoirs can be deep or shallow, high or low pressure; high temperature or low temperature, blanket or lenticular; homogeneous or naturally fractured, and contain single layer or multiple layers. Each unique reservoir characteristics can be defined by a function, whilst the economic situation defines the optimum drilling, completion, and stimulation method.13 The challenge is to release the gas in each unique reservoir from rock that can be as impermeable as concrete. Hence when permeability requires stimulation to achieve sustained gas flow the process has been labeled unconventional gas exploration.

DEVELOPMENT OF UNCONVENTIONAL / SHALE GAS IN THE U.S. Major oil and gas companies traditionally neglected the potential of the organically rich gas shale reservoirs. For a long time they considered these as a sealing layer rock that drillers for conventional resources passed through, thus avoiding the stimulation techniques that are required to exploit shale gas.14 Shale plays were regarded as a small-scale niche plays because of the low productivity and drillers, traditionally, sought the larger and less intensive exploitation opportunities, thus aiming at faster returns on their investments. New exploration and development technology changed the picture and made unconventional shale gas recoverable in areas previously thought to be infeasible and economically unrecoverable.
12 13 14

Ibid. Ibid. Charles Boyer (2006), Producing Gas From Its Source, Oilfield Review; Stephen Holditch (2007), Working Document of the NPC Global Oil & Gas Study, NPC.

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The so-called shale gas revolution received public attention with the reassessment of the United States non-proven reserves in 2007/2008, when the U.S. Potential Gas Committee raised its estimate of unproven U.S. gas resources by an astonishing 45%, from 32.7 trillion cubic meters (tcm) to 47.4 tcm. Similarly, Wood Mackenzie estimated that unconventional production in the U.S. lower 48 states had risen from 33% of total output in 2000 to 59% in 2009, and predicted that its share could reach 73% by 2020.15 Equally newsworthy was the effect on U.S. gas production and its dramatic supply impact, which led to continuing weak gas prices on the spot market. Unconventional gas production in North America now accounts for about 50% of U.S. gas production. Within a decade, from 1996 to 2006, the annual production of unconventional gas increased from 140 billion cubic meters (bcm) to 244 bcm. In 2009, U.S. total conventional and unconventional gas production accounted for 599 bcm in 2009, up 52 bcm, or 9.4%, over two years. This was driven by shale gas production, making the United States the de facto No.1 producer of gas worldwide, overtaking Russia. Furthermore, the share of unconventional gas production in the United States is expected to increase further to 6070% by 2020, to 250 bcm in 2015, and to 288 bcm by 2030.16

WHAT MAKES SHALE GAS SPECIAL? The growth in unconventional gas exploration in the U.S. in the last decade was initially driven by the high gas prices of 2005-2008. It represented a mainstreaming of sorts, becoming a business focus of larger, more established and independent mid-cap oil and gas producers such as Devon Energy, Chesapeake Energy, and XTO Energy. It represented a culmination of years of effort by a small group of risk-taking independents, in the U.S. best exemplified by George P. Mitchell and his brother, Johnny, of Mitchell Energy & Development. The brothers were pioneers in trying to solve the perennial problem of how to liberate and extract the plentiful supplies of locked away impermeable shale gas.17 Mitchell and his team of geologists and engineers worked on the shale challenge for over 12 years, from around 1981 to 1993. They experimented with a number of different well technologies, despite these being far from commercially viable, to understand how to free up the gas and stimulate the gas flow into the wellbore. Melting together two key technologies horizontal drilling and "slick water" hydraulic fracturing they finally cracked the shale rock and thus cracked the code for opening
15 16

17

Petroleum Economist, (2009), Europe awaits a shale-gas revolution, Petroleum Economist, December. BGR (2009), Reserves, Resources and Availability of Energy Resources, Hannover/Germany, BGR (German Federal Institute for Geosciences and Natural Resources). Daniel Yergin and Ineson (2009), "Americas Natural Gas Revolution", The Wall Street Journal; Tom Fowler (2009) Stubborn in his vision. Houston Chronicle.

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up major North American shale gas resources. Their progress enabled significant yield increases in well production, leading to a series of incremental improvements that enabled operators in the United States to unlock the vast potential of these challenging resources and to the building up of shale gas production eventually to levels where it became a significant factor in the nations gas production.18 By doing so, they achieved the recognition that one could create a permeable reservoir and high rates of gas production in deep shale formations by using enhancements perfected through a research and development of smaller independent oilfield service companies who, together, took a decades-old technique horizontal drilling and hydraulic fracturing , to get more oil and gas out of the ground and perfect it to work in dense shale formations. This changed the game for unconventional gas.19 Horizontal well drilling has progressed from an art to a science. Instead of drilling straight down into the resources, horizontal drilling enables sideways movement after a certain depth, opening up a much larger area of the resource-bearing formation and, therefore, a greater length of the shale gas deposit to be in contact with the well bore. The other key technology is hydraulic fracturing, which creates multiple-productivity and the same output at a quarter of the costs, in addition to having a much smaller footprint than vertical drilling.20 Hydraulic fracturing was first used as a method to artificially stimulate oil wells, and was introduced in the late 1940s in Texas oil fields. The technique has been improved, refined over the years, and more recently, adapted to maximize exploitation of shale gas formations. Hydraulic fracturing involves isolating sections of the well in the producing zone, then pumping a mixture of steam water, fluids and proppant (grains of sand or other materials used to hold the crack open) down the wellbore through perforations in the casing and out into the shale. The hydraulic pressure created by pumping fluid into the well, under pressure up to 8,000 psi, is enough to produce fissures in the reservoir and crack shale as much as 1000m in each direction from the wellbore, liberating the trapped gas and boosting the migration of the gas flow into the wellbore through the multiple fractures created in the rock. Even without proppant, the cracks stay open for a while, but they will eventually heal and the gas production will decline accordingly. The more fractures in the shale around the wellbore the faster the gas

18

19

20

Stephen Holditch (2007), Working Document of the NPC Global Oil & Gas Study, NPC; Gas Matters (2010), Shale Gas In Europe: A Revolution In The Making, Gas Strategies. Vello A. Kuuskraa (2009), Worldwide Gas Shales and Unconventional Gas: A Status Report; Stephen Holditch (2007), Working Document of the NPC Global Oil & Gas Study, NPC. Dar & Company (2009), Natural Gas Reserves Are Rising - Thanks to Technology, Risk Capital. http://www.darandcompany.com/Natural_Gas_Reserves_051.html.

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will be produced.21 Thus, fractures are the key to good production, but keeping them open after the pressure is released, and while the well is producing, is a difficult process.22 Many recent developments have increased the potential per-well gas recovery factor up to 20%, these include: research and technological innovation; enhancements for prospect evaluation and core testing; shale lithotyping that determines key characteristics of productive shale; and optimizing and tailoring water-fracturing fluid chemistry for the shale and remedial treatment processes for obtaining long-term production. In short, state-of-the-art technologies have opened up new areas by reducing overall exploration, production and operation costs.23 Knowledge of the methodology is the most important constant in the speed and efficiency of bringing on shale gas production. Understanding the complex unconventional gas reservoirs is a critical step in designing optimal fracture geometry, fluid interactions, evaluation processes, micro-seismic surveys, tracers, and production logs. Collaboration and sharing information across disciplines, so that insights are leveraged as effectively as possible, is a key factor and central to improving production. Ultimately, this knowledge sharing helps create a single strategy and facilitates a holistic view of the reservoir throughout its development, which brings with it various insights needed to create shared efficiencies and synergies as the OGJ states.24 The combination of the benefits promised by the new combined technology, its reliability and the cost-benefit benefits in comparison with previous practices led to a rapid innovation cycle with fast adoption of horizontal drilling and hydraulic stimulation.25 It is not only the

operational improvements that both lowered the well cost and improved productivity; refined techniques since the early 1990s, such as horizontal drilling, multi-lateral well completions, fracturing and acidizing all increased the productivity dramatically. But the technological progress was also fuelled by capital incentives, such as tax breaks including the 1980s U.S. Crude Oil Windfall Profit Tax Act and the high post-2000 oil prices.26

21

22

23

24

25

26

Joseph H. Frantz and V. Jochen (2005), When your Gas Reservoir is Unconventional, So is Our Solution - Shale Gas, Schlumberger, October. J. Daniel Arthur and Bruce Langhus (2008), An Overview of Modern Shale Gas Development in the United States. Glenda Wylie (2007), Unconventional Gas Technology: Advances in Fracs and Fluids Improve Thight-Gas Production, Oil & Gas Journal. Mark Parker, (2009), Special Report: Understanding Process Key to Shale Gas Development, Oil & Gas Journal. Florence Gny (2010), Can Unconventional Gas be a Game Changer in European Gas Markets?, NG 46, Oxford Institute for Energy Studies. Paul Stevens (2010), The Shale Gas Revolution: Hype and Reality, Chatham House Report, London.

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Florence Gny states that the US shale gas revolution has been based on five pillars: (1) fiscal credits and the availability funding; (2), the technological nature of the industry; (3), the regulatory body; (4), the competitive market structure; and (5), the availability of service industry competition.27

FALLING COST NOT A GIVEN? George P. Mitchell should be credited with cracking the code that opened the shale plays across North America and, perhaps, elsewhere in the world. He is also recognized as the one who helped commercialize and bring down many of the costs associated with the exploitation of shale gas. It is currently estimated that the break-even point to exploit the resources of some key shale basins ranges between $3.50/million cubic feet (mcf) and $7/mcf. The marginal production costs are thus very competitive partly cheaper than U.S conventional gas production costs despite being higher than the current costs indicated on the North American market. A fundamental variable in the cost equation is that the major U.S. shale gas reserves in the Appalachian basin, the Michigan basin, the Illinois basin, the Fort Worth basin and the San Juan basin are found in close proximity to areas of consumption: this is a clear and major factor in the profitability of these shale reservoirs. Availability of access to local pipeline systems and the short distances to consumer markets, in combination with the available service companies and the infrastructure in place, lead to cost reduction in the development of unconventional gas. The cost of fracturing requires it to be done on a large scale to be economically efficient; but, this cost could be lowered by another $1 to $1.50 per Mbtu if shale oil and gas liquids could be developed simultaneously. Finally, while the current outlook forecasts falling costs due to technological advances for the foreseeable future, at some point costs are bound to rise again as developers move away from high performance wells and sweet spots into more problematic areas that would require complex hydraulic fracturing.

27

Florence Gny (2011), Unpublished Presentation under the Topic: Shale Gas Development in Europe?, EUCERS (Ed.), Shale Gas - Revolution in Europe? Kings College, London. See also Florence Gny (2010): Can Unconventional Gas be a Game Changer in European Gas Markets? NG 46. Oxford Institute for Energy Studies.

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SIMULTANEOUS LNG AND SHALE GAS DEVELOPMENTS HAVE A MAJOR IMPACT There is a critical international component challenging shale gas production in the U.S. The dramatic rise in unconventional gas over the last decade has provided a solution to U.S. supply concerns, but is also affecting global spot gas prices that has created a further problem, a problem compounded by the economic recession and reduced natural gas consumption globally (particularly in Europe). In this way, natural gas is evolving from a local, stationary, non-residential commodity, into a mobile, international, primary product similar to crude oil. Almost at the same time, we are witnessing significant changes in incremental flexibility of global deliveries of liquefied natural gas (LNG). LNG is natural gas compressed and liquefied for transportation, then vaporized at local delivery stations (or trains). It has been expected, through the 1990s and in the early 2000, to become key component of the US and European energy mix. Today, in the US, the combination of enhanced LNG transportation and increases in delivery capacity increases coming on stream, plus current and expected shale gas supply have changed the gas landscape and resulted in the freeing up of some previously contracted LNG volumes bound for the US. Global liquefaction capacity is expected to be up sharply this year and outpace demand for LNG. In 2009-2010, an additional 9 billion cubic meters (bcm) extra liquefaction capacity came online. These additional volumes created an excess supply in the market with immediate impact on spot market prices and on the need for imports (both pipeline and LNG). Some contracted LNG will be forced to go to the U.S. terminals, even if demand is not there.28 This would force Henry-Hub (HH) spot gas prices further down and keep U.S. near-term prices range-bound ($4-8/mmcf). Thus, North American LNG gas prices that are naturally connected to the Henry Hub spot market prices will lead to low marginal prices for LNG in other markets like Europe and Asia. In sum, the combination of three factors: (1), a drop in demand linked to the global recession; (2), an increase in incremental U.S. non-conventional shale gas production; and (3), the arrival of new LNG delivery capacity, have together created a sudden abundance of gas supply.

28

Gas Matters (2010), Shale Gas In Europe: A Revolution in the Making, Gas Strategies.

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HOW LONG IS THIS GAS BUBBLE EXPECETED TO LAST? The question remains, how long is this gas bubble expected to last? Many observers originally argued that the gas bubble would end in 2013-2015. Why? Because, despite the logic that suppliers should reduce production and postpone development plans, a number of factors are aligned to indicate that gas shale drilling plans would continue even in the face of weak US domestic gas prices.29 First, many gas drilling leases were signed with the condition they drill or lose [their] lease. Typically, these gas leases run for five years, though the contracts are set to expire after three years if the driller does not begin production. Hence, to protect long-term assets, producers choose to drill and produce instead of forfeiting leases. To quote Chesapeake Energy (CHK) CEO Aubrey McClendon, up to 50% of all industry drilling for natural gas is tied to the need to retain leases.30 According to FBR Capital, this is a key factor in several areas, including the Marcellus Shale, the Eagle Ford Shale, and, most prominently, the Haynesville Shale.31 Second, most of the independent E&Ps companies the pioneers of the onshore shale plays involved in shale gas exploration and production do not have a refining/marketing arm like the integrated oil majors to serve as a natural hedge. Consequently, they typically have very aggressive hedging programs in place to protect asset and cash flow. A simple hedge involves buying futures contracts to lock in prices. For gas exploration and development companies, hedges in effect guarantee the amount of revenue that companies will receive on a future production, thus giving them some financial stability. As an example, CHK had about 55% of its 2010 production hedged at average NYMEX price of $7.52. In fact, Chesapeake boasts $4.8billion in realized gains from its hedging program since inception in 2001.32 This past behavior may be modified, given that there are currently two proposed bills in Congress intending to limit speculation on future commodity prices. Hedging restrictions, as well as lower existing prices, could also adversely impact available capital for financing new projects.

29

30 31 32

Dian L. Chu (2010), Natural Gas: Shale-Shocked in America, http://www.zerohedge.com/article/natural-gasshale-shocked-america (Stand: 03.04.2011). Ibid. Ibid. Ibid.

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Nevertheless there are key global drivers which in addition indicate that the present gas glut may extend even longer (at least until 2017-2020), especially for Europe, than previously anticipated, due to the following reasons: an accelerated expansion of inexpensive available LNG in the short and mid-term future; the prospect for unconventional gas production in the rest of the world (i.e. China, India, Australia); the expansion of other energy resources, notably the more rapid expansion of renewable energy sources (which may even fasten after the Fukushima-Daiichi catastrophe although the recent Fukushima-Daiichi reactor catastrophe in Japan seem to slow down rather than to change the worldwide trend of a nuclear renaissance).33 However this is happening despite the expected annual natural gas consumption growth of 1.4% until 2035 (44% in total between 2008 and 2035) making it the only fossil fuel for which demand is higher in 2035 than in 2008 in all three scenarios presented by the International Energy Agency (IEA). 34 Figure: Shale gas extraction

Source: Reuters Graphic on shale "fracking" http://link.reuters.com/ryf98r

33

34

Frank Umbach (2011), Globale Renaissance der Kernenergie oder nur eine Wiedergeburt der Ankndigungen? Die Vision einer Welt ohne Nuklearwaffen und die Perspektiven der weltweiten Nutzung der Kernenergie, sterreichische Militrische Zeitschrift (MZ) 3/2011, pp. 267-281 (forthcoming). IEA (2010), World Energy Outlook 2010. World Energy Outlook, Paris, OECD (International Energy Agency).

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THE ENVIRONMENTAL CHALLENGES Developing shale gas reservoirs is also environmentally controversial, particularly since production has moved into densely populated areas of the U.S. northeast, which has incentivized concerns about the effect of drilling and hydraulic fracturing on drinking water. Indeed, major environmental concerns are over excessive water utilization, drinking water well contamination, and surface water contamination from both drilling activities and fracturing fluids disposal.35 The industry argues hydraulic fracturing, which involves injecting water laced with chemicals into the shale to break the rock, has no effect on water sources. However, environmental groups claim the opposite. Figure: Sources of Groundwater Pollution

Sources: Leak paths adapted by Michael HolgateRef 36 adapted from US EPA Hydraulic Fracturing Research Study Scoping Backgrounder, 2010. Casing & cementation courtesy of Talisman Energy.

The Environmental Protection Agency (EPA) indicates that chemicals found in water from 11 of 39 wells tested around the Wyoming town of Pavillion in March and May 2009 may cause illnesses including cancer, kidney failure, and anemia and fertility problems.37 EPA scientists claim that the preponderance of harmful compounds in the area can be attributable to the oil and gas industry. The water in the area, their report stated, was discolored, foul-smelling and bad-tasting.38 What is more, there were confirmed cases reported by regulators in

35

36
37 38

Anthony Andrews (2009), Unconventional Gas Shales: Development, Technology, and Policy Issues, CRS Report for Congress. For detailed case studies involving industrial gas drilling in the U.S. see: Craig Michaels, James L. Simpson, William Wegner (2010), Fractured Communities Case Studies of the Environmental Impact of Industrial Gas Drilling Riverkeeper. Michael Holgate (2011), Unpublished presentation under the Topic: Shale Gas Development in Europe?, EUCERS (Ed.), Conference Shale Gas - Revolution in Europe?, Kings College, London. Joyce Nelson (2009), Frack Attack - New, Dirty Gas Drilling Method Threatens Drinking Water, The Monitor. Jon Hurdle (2010), U.S. Finds Water Polluted Near Gas-Drilling Sites, Reuters.

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Pennsylvania of water has becoming flammable due to methane migrating from drilling into the aquifer.39 There are three potential leak paths, as Michael Holgate states, as to contaminate aquifers as shown below through: Naturally occurring or induced fractures: this is thought to be unlikely because of the separation, often thousands of feet, between the fracture zone and the aquifers. It is possible to monitor real-time fracture propagation using micro-seismic and tilt meter observations and the authors are unaware of any evidence of interaction with aquifers to date. Leaks on surface and migration of fluids: leakage of drilling fluids, fracturing-fluids and flow-back water can and does occur from poorly lined storage pits and is a source of groundwater contamination. However, this leak path cannot account for the leakage of gas into aquifers. Poor cementation: establishing a tight seal between the well casing and the formation can be technically demanding, especially in horizontal sections. Even if a good cement bond has been established, the fracturing process involves repeated cycling of hot and cold fluids and pressure changes, both of which can cause the creation of a micro annulus between the cement and the casing and/or formation and a potential leak path. This would provide a credible route for gas migration into an aquifer.40 These leak paths can be prevented by good oil field practices and state-of-the-art cementation and fracture monitoring techniques which should prevent drilling fluids, hydraulic fracturing fluids, or natural gas from leaking into the permeable aquifer and contaminating groundwater. The potential for propagating fractures to an overlying aquifer may also depend on the depth separating the two. Engineers designing and conducting fracturing jobs have a strong incentive to limit the fractures to the height of the gas-producing shale zones. Furthermore, the formation tends to get more plastic and less likely to fracture as it gets shallower, which reduces the likelihood of fracture propagation near aquifers. Afterwards, the well operator recovers a large proportion of these fluids by pumping them out of the well, and disposes of them through waste-water treatment plants or by other means as discussed below.41 In this stage of production the risk to surficial aquifers is limited;
39 40

41

Ibid. Michael Holgate (2011), Unpublished Presentation under the Topic: Shale Gas Development in Europe?, EUCERS (Ed.), Conference Shale Gas - Revolution in Europe? Kings College, London. Gene Whitney (2010), Energy: Natural Gas: The Production and Use of Natural Gas, Alexandria: The Capitol.Net.

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nonetheless, any drilling fluids or fracturing fluids spilled on the ground surface or overflowing / leaking storage pits could infiltrate downwards to shallow groundwater and pose a risk.42 Since each shale gas well is different, as previously explained, service companies adjust the proportion of fracturing fluid additives to the unique conditions of each well, which is one of the major concerns given that that proportion of each chemical additive is kept proprietary.43 This leads us to one other major public concern, the reluctance of the industry to disclose the chemical composition used in fracturing-fluids, claiming commercial confidentiality. The industry in the U.S. has started to address this and chemical composition is now often disclosed. This is unlikely to be an issue in Europe because of the European REACH regulations. The majority 60% to 80% - of the injected fracturing additives returned in flow-back. Typically, it contains proppant (sand), chemicals residue, and trace amounts of radioactive elements that naturally occur in many geologic formations.44 The flow-backwater storage issue is probably the major cause of contamination of drinking water. The U.S. Department of Environmental Protection (DEP) reported around 130 cases since 2008 where wastewater spilled into creeks and tributaries due to human errors. Flow-back water disposal is also an important issue. Local disposal often causes problems in public owned treatment works (POTW) for the processing of the waste water. Contaminants in industrial process wastewaters can kill off the biota essential to a PTOWs operation and hence lead to a violation of water quality standards. Treatment of flow-back water is an active area of research, but most flow-back water is transported to deep-well injection sites for disposal. However, there are few geographically convenient sites available to the typical operator and so the flow-back water often has to be trucked considerable distances for disposal with significant costs (up to $10/bbl) and environmental and social impacts. 45 A further risk is the natural existence of deposits of methane. Once disturbed by drilling methane may flow either up the well or to ground water, a phenomenon that causes drinking water wells to explode or water from kitchen spigots to catch fire. It is a product of drilling

42 43

44

45

Ibid. Anthony Andrews (2009), Unconventional Gas Shales: Development, Technology, and Policy Issues, CRS Report for Congress. Daniel J. Soeder and William M. Kappel (2009), Water Resources and Natural Gas Production from the Marcellus Shale, USGS West Trenton Publishing Service Center.; Pennsylvania Geology (2008), Commonwealth of Pennsylvania Department of Conservation and Natural Resources, Pennsylvania Geology, No. 38. See NETL http://www.netl.doe.gov/technologies/oilgas/Petroleum/projects/Environmental/Produced_Water/00784_FracWater.html

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whether for gas or water not of the fracturing fluids; although this can usually be controlled by isolating the deposit from the well hole with cement. Regularly concerns are raised about the large volumes of water needed to drill and hydraulically fracture the shale, with the disposal of this water and other wastewater associated with gas extraction posing a significant water quality and quantity challenge a challenge that merits regulatory attention. Indeed, there are several regulatory question marks for the sector in the U.S., although the development of shale gas is already subject to several regulation under relevant federal and state laws, such as the Safe Drinking Water Act (SDWA) and the Clean Water Act (CWA), in addition to other state requirements,46 there have still been concerns over the exemption of hydraulic fracturing from the Safe Drinking Act by the Energy policy Act of 2005. This so called Halliburton Loophole47 will be closed if Congress passes the Fracturing Responsibility and Awareness Chemicals (FRAC) Act, introduced in 2009, that would permit Environmental Protection Administration (EPA) regulation of all hydraulic fracturing in the United States.48 Thus, U.S. authorities face a series of difficult choices on gas priorities that will require a more realistic appraisal of the constraints upon capacity development and policy adaptive to environmental concerns. Despite all these constraints, the North American "quiet revolution" on unconventional gas has made it less expensive than conventional gas projects. Advances in techniques have opened huge U.S. reserves of unconventional gas and made the country virtually self-reliant in terms of its gas-supply needs. Therefore, shale-gas drilling is unlikely to be stopped for environmental reasons, especially since the oil and gas majors have invested so much in its development. Deep shale natural gas, conversely, uses water primarily during drilling and stimulation, but produces a tremendous amount of energy over the approximate 20-year lifespan of the natural gas well. When compared against other energy resources, it is by far the most water efficient of all the base-load-level energy resources, and when used for power generation in a NGCC power plant, is among the most water efficient at generating electricity.49 It also touches on the often overlooked fact that compressed natural gas (CNG) is among the most water efficient transportation fuels available today. Most of the environmental concerns in the U.S. arise from a lack of environmental stewardship from small independents combined with ineffective state

46

47

48 49

J. Daniel Arthur and Bruce Langhus (2008), An Overview of Modern Shale Gas Developments in the United States. Gene Whitney (2010), Energy: Natural Gas: The Production and Use of Natural Gas, Alexandria: The Capitol.Net. Joyce Nelson (2009), Frack Attack - New, Dirty Gas Drilling Method Threatens Drinking Water, The Monitor. GWPC and ALL Consulting (2009), Modern Shale Gas Development in the United States: A Primer.

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regulatory framework and monitoring; thus, EU regulation is more robust and European shale gas is more likely to be developed by International Oil Companies who have a good track record in managing environmental impacts, but this will come at a cost. The challenge in Europe will be for shale gas developers to develop and communicate robust environmental codes of practice that reassure both the regulators and the public that the environmental impacts can be managed successfully and that the development will provide a net benefit to the community at large. Given that the shale gas phenomenon is a game changer in the U.S., what are the clear and immediate implications for Europe? In the first instance, Europe is benefiting from the price compression and LNG cargo re-routing towards the EU from the Atlantic basin, placing a downward pressure on natural gas prices on the continent.

PROSPECTS FOR THE GLOBAL AVAILABILITY OF UNCONVENTIONAL GAS RESOURCES The prize in accessing these very large unconventional gas volumes is that their potential is vast it is a resource several times greater in magnitude than that of conventional sources. A study by IHS Cambridge Energy Research Associates (CERA) calculates, for instance, that the recoverable shale gas outside of North America could be larger than the entire world's gas discovered to date.50 Estimates of recoverable resources are increased at a greater pace as technological advances permit access to gas from unconventional resources. The most prolific shale reservoirs are relatively flat, thick, and predictable; the formations are so large that, once drilled, the wells are expected to produce gas at a steady rate for decades. Generally, it is assumed that shale gas wells flow rates are considerably lower than their conventional peers, but once the production stabilizes, the well will produce consistently for 30 years or more.51 While recoverable conventional gas resources are estimated to amount alone to 404 tcm, unconventional gas resources, meanwhile, are estimated even at over 900 tcm (according to the US Geological Survey (USGS) and the German Federal Institute for Geosciences and Natural Resources (BGR).52 From these 900 tcm, at least 380 tcm appear recoverable, taking the total recoverable conventional and unconventional gas resources to

50 51

52

Tom Fowler (2009), Stubborn in His Vision, Houston Chronicle. Joseph H. Frantz and V. Jochen (2005), When Your Gas Reservoir Is Unconventional, So Is Our Solution - Shale Gas, Schlumberger, October. USGS (2000), World Petroleum Assessment, Boulder/Colorado, USGS (United States Geological Survey); BGR (2009), Reserves, Resources and Availability of Energy Resources, Hannover/Germany, BGR (German Federal Institute for Geosciences and Natural Resources).

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nearly 800 tcm equivalent to about 250 years of current production.53 In addition to the U.S., the biggest potential of unconventional gas is currently seen in the region of the former Soviet Union (CIS), Central Asia and China. But given the present lack of sufficient geological information and credible exploration drilling test data outside of the U.S., the prospects for unconventional gas production remain uncertain for at least the next 2-5 years. Figure: Regional Distribution of Tight and Shale Gas Resources

Source: BGR, Reserves, Resources and Availability of Energy Resources. Hannover/Germany 2009, p. 93.

Nevertheless, exploration drilling for shale gas and coal bed methane has already started in China, Canada, Australia (i.e. coal bed methane production) and Europe (tight gas identified in Poland, Hungary and Germany).54 The U.S. Energy Information Administration (EIA) estimated in its International Energy Outlook 2010 that the unconventional gas production of Canada and China will amount to 63% and 56%, respectively, of their total domestic gas production in 2035 (Reference Scenario).55 The Paris-based IEA, being very careful of any estimates for future worldwide unconventional gas production, expects that around 35% of the global increase in gas production from 3,149 bcm in 2008 to 4,535 bcm in 2035 (44% in the timeframe) will come from unconventional gas sources.56 EIA recently published a newly commissioned report by Advanced Resources International, Inc.(ARI) that offers a new initial assessment of the worldwide shale gas resources. The report
53

54

55

56

IEA (2010), World Energy Outlook 2010, Paris, OECD (International Energy Agency). See also Alex Forbes (2009), The Great Potential of Unconventional, European Energy Review, 9 December. BGR (2009), Reserves, Resources and Availability of Energy Resources, Hannover/Germany, BGR (German Federal Institute for Geosciences and Natural Resources) and IEA (2010), World Energy Outlook 2010, Paris, OECD (International Energy Agency). EIA (2010), International Energy Outlook 2010. Washington D.C., EIA (Energy Information Administration), Washington D.C. IEA (2010), World Energy Outlook 2010, Paris, OECD (International Energy Agency).

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analyzed 48 shale gas basins in 32 countries, containing almost 70 shale gas formations. However it still excluded other potential regions such as Russia, Middle East, South East Asia, and Central Africa because they have either large conventional gas reserves (i.e. Russia and Middle East) or lack sufficient information to carry out an initial assessment. Although the report represents a moderately conservative risked resource assessment for basins, the findings of the initial assessment conclude that the worldwide shale gas resource estimate is adding another 40% to the total world technically recoverable gas resources from 16,000 to 22,600 trillion cubic feet (tcf). Map of Major Shale Gas Basins in 32 Countries

Source: EIA, World Shale Gas Resources: An Initial Assessment of 14 Regions Outside the United States, Washington D.C. (U.S. Department of Energy), April 2011, p. 3.

The EIA-report has also concluded surprisingly that China holds technically recoverable assets of around 50% more than in the U.S.. Although some important regions have not been included, the reports valuation is showing that the assessed worldwide shale gas resources are already significantly larger than in the only previous study conducted by H-H. Rogner in 1997 (An Assessment of World Hydrocarbon Resources).57
57

EIA (2011), World Shale Gas Resources: An Initial Assessment of 14 Regions Outside the United States, Washington D.C. (U.S. Department of Energy), April 2011;

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In China, the IEA expects that total gas production will rise from 80 bcm in 2008, to 140 bcm in 2020 and 180 bcm in 2035 and that the bulk of increase in tight gas, coal bed methane and shale gas is expected within this timeframe. In November 2009 China signed a cooperation agreement with the United States on shale gas development projects. Chinas National Energy Administration (NEA) is currently drafting a national shale gas development plan that aims for commercial production as early as possible in order to (1), increase cleaner energy consumption and, (2), reduce reliance on carbon-intensive coal. On this, Shell is cooperating with PetroChina and is presently drilling 17 wells, including ones for tight gas and shale gas; whilst BP is currently seeking to cooperate with Sinopec on joint shale gas development projects in China. In Beijing the government has set up special research projects focusing on shale gas exploration and development technologies and, if the exploration test drilling underway proves to be successful, plans to invest $1 billion a year over the next five years into shale gas development.58 Special attention is also given to coal-bed methane (CBM) due to the lower capital requirements, the technological entry barriers in comparison to tight or shale gas exploration and production, and the involvement of many more players. But, while CBM production capacity was just 2.5 bcm in 2009, production volume are even lower at 0.7 bcm. At present, production targets for CBM were 5 bcm by the end 2010, and are 30 bcm by 2020 and 50 bcm by 2050. Present production costs are about 50% higher than conventional natural gas.59 Global resources of CBM amount alone to 135.5 tcm-372.5 tcm.60

58 59

60

Rogner (1997), An Assessment of World Hydrocarbon Resources, Annual Review of Energy and the Environment 22, pp. 217-262. China Energy Authority Drafting Shale Gas Development Plan: NDRC, Reuters, 28 March 2011. China Gas Sector. Key Takeaways from the Asia-Pacific Unconventional Gas Summit, Yuanta-Industry Update, 1 April 2010. BGR (2009), Reserves, Resources and Availability of Energy Resources, p. 95.

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Figure: CBM Reserves by Countries in 2007

Source: BGR (2009), Reserves, Resources and Availability of Energy Resources. Hannover/Germany, p. 96.

Having analyzed the global potential of unconventional gas, lets take a closer look at Europe in particular.

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SHALE GAS IN EUROPE: A REVOLUTION IN THE MAKING? A number of energy companies as well as policy makers are actively focused on how to replicate and improve upon the North American model of unconventional gas production and use it as a blueprint for reducing European natural gas import dependence. The IOCs who, for the most part, missed out on the first stage of shale growth in the U.S. are engaging wholeheartedly in a land grab encouraged by cheap acreage prices (~c.50$/acre), a solid resource estimate in the EU, and the need to secure the best land in the early moves of what will likely be long-term commitments. As the EU continues to promote self-sufficiency and security in energy, the European Council places as mentioned in its first special energy meeting on February 4, 2011 much hope in unconventional gas and the possibility that it will radically change the supply outlook for natural gas within a few years, as it has done in the North American context. Indeed, unconventional gas exploration is not totally unknown in Europe either; during the late 1990s, the EU sponsored underground coal gasification projects in Belgium and Spain, and Europes mining industry has long been using methane for power generation.61 Currently, three major potential shale gas Paleozoic plays have been identified: the Cambrain-Ordovician (which stretches from Denmark through to Sweden), the Silurian (Poland) and the Carboniferous (which runs from the UK through to Poland). Both the European Commission and the IEA believe these and other basins could be depositories of significant unconventional gas resources, with estimated total recoverable reserves in Europe between 33 to 38 tcm, of which 12 tcm are tight gas, 15 tcm shale gas, and 8 tcm coal bed methane. In comparison, total conventional gas reserves in the EU amount just to 2.42 tcm. Such sizeable resources have the potential to reshape radically the European gas supply picture, with shale gas playing a vital balancing role for regional gas markets. Therefore, in theory, they might be able to cover European gas demand for another 60 years.62 Promisingly, the new EIA study estimated the technically recoverable Resource in Europe even higher, totaling to 624 trillion cubic feet (tcf) in comparison with 862 trillion cubic feet in the U.S., 1,069 tcf in Canada and Mexico, 1,225 tcf. in South America and 1,275 tcf in China.63 Meanwhile, concessions for shale gas test drilling have already been granted in the Netherlands, France, Germany, UK, Sweden, Hungary, Switzerland, Ukraine and with Poland at the forefront (see also Appendix).
61

62 63

Joseph Dutton (2010), The Shale Gale Perfect Storm or Flitting Breeze?, Pan-European Institute (Ed.), Baltic Rim Economies. Bimonthly Review 6/2010, 17 December. Rik Komduur (2010), Europe Not Ready for Unconventional Gas, Yet, European Energy Review, 21 June. EIA (2011), World Shale Gas Resources: An Initial Assessment of 14 Regions outside the United States.

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Figure: Potential gas shales in Europe

Source: Cedigaz Insights N7 May 2010

As Brian Horsfield, Research Director at GFZ German Research Centre for Geosciences, accurately states, critical factors moving forward are availability, cost and environmental compatibility.64 For instance, initial Wood Mackenzie reports estimates suggest that unconventional plays are more complex, deeper (up to 8 km) and less porous than those in North America.65 Given these uncertainties over organic content, shale pressure, and mineralogy, all of which result in risk to any forecast, there are several questions remaining as to how these unconventional resources can transform the European market.

64

65

Brian Horsfield (2011), Unpublished Presentation Under the Topic: Shale Gas Development in Europe?, EUCERS (Ed.), Shale Gas - Revolution in Europe? Kings College, London. IEA (2010), World Energy Outlook 2010, Paris, OECD (International Energy Agency).

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FUNDAMENTALS, DIFFERENT MARKET STRUCTURE, AND CORE CHALLENGES Several obstacles lie ahead of efforts to commercialize shale gas in Europe, starting with acute environmental concerns in Europe. The constraints connected to water can be summarized in two categories; one is the environmental concern, that fracturing of shale contaminates fresh water supplies, and the other is water scarcity concerns for drilling. To avoid contamination of aquifers through drilling and to obey the strict environmental regulations in place in most European countries wells are drilled with multiple casing strings and the shallowest ones isolate the fresh water aquifers. Fresh water aquifers are generally found at depths that are 1,500 to 2,000m+ shallower than the productive shales. In comparison to other fossil fuels, for example coal, the environmental damage done by lignite mining, and also its impact on aquifers, is tremendous. With further technological improvements the potential to develop more environmentally friendly drilling technologies will enable the oil and gas industry to find a way to cope with the many water issues related to drilling, reducing these obstacles over time. Moreover, in comparison to the U.S. European rock strata containing unconventional gas resources are generally located more deeply in the earth and beneath the groundwater, thus raising the costs for exploration drilling and lowering the risk of groundwater contamination. This is especially important because groundwater levels in countries such as Germany are rather moving up instead of sinking deeper. The other underestimated obstacle connected to water is its scarcity. The very large volumes needed to unlock shale gas from rock formations will cause competition with the agriculture industry over water. Millions of gallons of water are likely to be needed per well for fracturing operations. Sourcing of such large quantities of water in areas where water is scarce and environmental regulations apply to large areas of the land will be an obstacle to unconventional gas development. Yet, what is often overlooked by these allegations is that in most shale plays 70% of fracturing water can be re-used, therefore drastically reducing the amount of water needed. In addition, where ground water is not present, technological improvements now make it possible to use water from brackish aquifers.66 European environmental legislation and water policy outlined in the EU Water Framework Directive 2000/60/EC (WFD) commits European Union member states to ground water protection, and the Commission to strategies on pollution control. Although, the Directive 2000/60/EC (WFD) may authorize member states to inject water containing substances
66

BNK Petroleum, (2010), Shale Myths - Shale Gas in Europe, http://www.bnkpetroleum.com.

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resulting from exploration and extraction of hydrocarbons or mining activities. Due to the EUs environmentally rigid regulation, management capacities and experiences associated with the silent revolution of multi-fracturing horizontal drilling technologies, the prestigious Dutch Energy Council goes even further by arguing that current environmental legislation in the EU and the Netherlands is not just adequate to ensure an environmentally friendly exploration and production of unconventional gas resources in the EU but sees even business opportunities and better export chances for coping with the worldwide environmental challenges of unconventional gas exploration.67 As EU Commissioner Gnther Oettinger has rightly stated, despite the early stage, the significant interest in unconventional gas exploration shows that companies see business potential in European shale gas. However, as he also points out, it is important that these companies, as well as public authorities, engage actively with citizens and local communities to address their possible concerns and gain public acceptance.68

PUBLIC ACCEPTANCE AND THE ENVIRONMENTAL DEBATE Public reticence with regard to accepting water and air pollution around gas rigs, compressor stations, and the general environmental surface footprint surrounding drilling pads be that in the form of new roads or other significant obstacles are especially important in Europe due to the continents densely populated areas. In France for instance "exploration work for shale oil and gas has sparked legitimate questions from populations living near the sites," said French Prime Minister, Francois Fillon, and ordered that "no unconventional drilling take place" until the government and parliamentary reports are made public". According to this recent statement, France extended a ban on searching for natural gas and oil in shale rock until two reports on the environmental and economic effects of exploring unconventional resources are published in June 2011. 69 To prevent growing suspicion and resistance, the corporations involved in unconventional gas drilling need to pursue good stewardship of available resources and state-of-the-art technology to minimize the environmental damage. In addition, interactions educational or otherwise

67 68

69

Karel Beckmann (2011), Dutch Energy Council Embraces Unconventional Gas, European Energy Review. Gnther Oettinger (2011), Possibility of Using Gas from Alternative Sources in Europe, Plenary (Ed.), Brussels, EU Commission. Cedigaz (2011), Unconventional Gas Activities in the World. No. 55 April 2011, Thierry Rouaud (Ed.). U-Gas News Report.

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with local communities will also be key for successful unconventional gas drilling in densely populated areas. This leads to the next anticipated obstacle: that shale gas production requires hundreds and thousands of square kilometers, compared with the tens or hundreds needed for conventional gas development. In Europe, this will be very problematic since the population density, being three times greater than in the U.S., will mean that negotiations for getting production rights and access to land will entail talking to hundreds of landowners. As an example in Poland, one million farms are, on average, only twelve acres in size. This distribution of land across the population is at tension with, as Ernest Wyciszkiewicz from the Polish Institute of International Affairs puts it, the political asset that shale gas can help fulfill political agendas and solve regional development issues. In Poland, most of the unconventional gas deposits are found in rural underdeveloped areas. Therefore, the explorations and development of these sources offers the opportunity and the potential to bring new prospects and prosperity to the region, but must be balanced with the issue of public participation and the allocation of profits to these regions.70 How this challenge needs to be solved by each government remains to be seen, but it brings us to the next issue that needs to be addressed: The allocation of property rights in Europe is very different to North America. In the U.S., the owner of the land also owns the subsoil and receives revenues from the resources held within. This provides an important incentive to landowners to allow gas drilling and production on their land. Contrastingly, in most European countries, the state owns the rights and receives royalties. The owner of the land does not own the subsoil and exploration and production companies must therefore negotiate with the subsoil owner the state in most cases and the land owner, which renders the process considerably more complicated. This has two major implications for public opinion. Firstly, since the landowner does not receive revenues from drilling, the incentive to accept the inconvenience is reduced. Secondly, the local opposition to onshore drilling from an ecologically more sensitive European public is more likely if it cannot derive any profit from their subsoils commodities. This may increase a NIMBY (not-in-my-back-yard) opposition to shale-gas drilling. However, this is not unlike the path development took in the U.S., where environmentalists have raised objections to the rampant growth of the unconventional -gas sector. As an example, Chesapeake, one of the largest shale-gas drillers in the U.S., decided it would not drill in an area of New York State after opponents claimed its operations could endanger the
70

Ernest Wyciszkiewicz (2011), Unpublished presentation under the Topic: The Geopolitics of Shale Gas: Is Shale gas a "Game Changer"?, EUCERS (Ed.), Shale Gas - Revolution in Europe? Kings College, London.

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watershed.71 Yet, in many other densely populated areas U.S. deposits have been exploited without any comparable difficulties. Over time, new well and reservoir management technologies are making it possible to significantly reduce the number of well pads that required. Drilling the long laterals in many directions to drain the reservoir from a single site has made it possible to reduce the land take from many individual well sites to multiple well sites with 8 to 12 wells per well pad Another example for new drilling technologies can be found in Ukraine, where specialists have developed an alternative technology that could also be used for shale gas exploration. This technology, called cavitation hydrovibrator, is also designed to fracture rock, but it uses a pressurized water pulse action on rock stratum to increase its degree of fracturing. It appears a much more environmentally-friendly technology by using pure water, without the use of any chemicals traditionally used in fracking.72 Therefore, the technological improvements are expected to reduce not only the surface footprint but also the need to negotiate with all landowners.

ITS ECONOMICS, STUPID! A major challenge to the development of unconventional gas is the entrenched economics of conventional gas. Conventional gas remains the least expensive, but favors gas imports due to an already established transport infrastructure that, in turn, places a heavy reliance on one supplier and has produced strong views of supply security. The fact that shale gas has lower productivity than conventional gas and production declines faster in the first years of production adds some further economic constraints. Typically, the production decline of shale gas wells is between 70% and 90% in the first year - according to Florence Gney - and, as the free gas is depleted, the adsorbed gas bleeds slowly through the low permeability tight gas reservoir from beyond the fracture to give a low production rate that continues for a long period.73 This means that a larger number of wells will be needed to keep up production. These wells require horizontal drilling and hydraulic fracturing, which makes the wells more expensive again. Nevertheless, the well will then keep producing for

Petroleum Economist (2009), Europe Awaits a Shale-Gas Revolution, Petroleum Economist, December. We are thankful Walter Dzerko from Toronto for providing this information see http://bit.ly/7BpJYn. 73 Florence Gny (2010), Can Unconventional Gas be a Game Changer in European Gas Markets? NG 46. Oxford Institute for Energy Studies. P. 5
72

71

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some decades as mentioned earlier, but how expensive shale gas is to produce will technically depend on the shale characteristics. Although European geology is sufficiently well documented, the issue still remains about how much shale the rock formation contains and, crucially, at what cost the gas can be produced. The reserve estimates come from studies that were done in the late 1990s;74 but, potential, rock properties and the specifics of the geologic structures have yet to be confirmed. What is known so far is that the geology is more disturbed and, more fragmented, where the strata of rock have, over the eras, folded back on themselves creating faults that complicate the drilling and appraisal process. Until test wells are drilled in each prospective shale gas basin, it is impossible to know whether any individual project will be economic or not. Low gas prices in the U.S. will ensure continued acceleration of technological advances, which will increase efficiency and improve economics even further, especially if one takes into account that we are talking about a development periods of five to ten years.75 One myth that often comes up is that the European shales are deeper underneath the surface and most probably lack sedimentary basins on the scale of those developed in America. But, as is the case in the U.S., shales in Europe are also found at a wide variety of depths, numerous shales go from outcrop to various depths just like in the U.S. The Fayetteville produces from 1200 m and Haynesville at 4000 m. In Europe, Shell is testing the Alum shale in Sweden at 900m, while other companies are targeting shales in the Baltic Basin between 2,500m and 4,000m.76 Also, some of the European shales are thought to have more gas stored than the shales found in America. Moreover, some of the most promising European shales are offshore in the North Sea, and offshore production of shale gas has not been tried yet, which is more likely an issue of economics than of technology.77 Thus, an additional economic constraint comes from the fact that unconventional gas exploitation is at an embryonic stage and needs further development. Indeed, while Europe's gas distribution infrastructure is well developed, the services sector that would support an unconventional gas industry is not, for which subcontractors are already preparing for an anticipated increase in the level of activity. In addition, Europe also lacks suitable technical equipment, such as drilling rigs, and has extensive state control over local rig markets that

74 75 76 77

Gas Matters (2010), Shale Gas In Europe: A Revolution in the Making, Gas Strategies. BNK Patroleum (2010), Shale Myths - Shale Gas in Europe, http://www.bnkpetroleum.com. Ibid. Gas Matters (2010), Shale Gas In Europe: A Revolution in the Making, Gas Strategies.

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reduces competition and leads to higher costs.78 According to Baker Hughes rig count in May 2010, Europe accounted for 46 Land and 42 offshore rigs: a total of 88 (57 oil/23 gas/8 multiple rigs). Most of these rigs are unsuitable for the necessary types of drilling and hydraulic fracturing operations needed to carry out shale gas operations, but, there are sufficient rigs to drill the science wells. In Poland, for example, where prospects are believed to be at similar depths to those of Texas' Barnett Shale, there are under seven operational rigs suitable for shale exploration. Rig transfers within the EU would be relatively easy, but this would equate to only 46 land rigs, which are unlikely to be suitable for horizontal and fracturing operations, especially if the Polish shale is, as is alleged, over pressured. These figures are ominous when one compares them to the U.S., which has a total of 1,513 rigs in place, of which 1,464 are onshore. The majority of these rigs are used for unconventional drilling while only 49 are destined for offshore purposes. It is often stated that this makes Europe dependent on importing equipment from either North America or China. This poses multiple problems. First, the U.S. imperial rig measurements provide scope for delay as it conflicts with European metric standards. Second, European import requirements and regulations make it challenging to simply import rigs from aboard, which creates a bottleneck for both rig access and service. Nonetheless, this might be a chicken-and-egg issue which can be overcome by time; Europe has excellent engineering and skilled workers who can learn from the U.S. experience, and could, once possessing the expertise, build rigs to European specifications in 9-12 months.79 Besides all this, the regulatory issues and the current market structure also present some obstacles. The competitive market structure is both symptom and cause of the facing material European production going forward.80 Nevertheless, a regulatory system with potential tax credits to help push unconventional -gas development will evolve only as companies demonstrate the commercial viability of their plays. Most of the pipelines in Europe are still not independent but are affiliates of major national producers, which have an impact on their operations and strategies. The ongoing liberalization process and need for a deregulated European market brings several uncertainties even to conventional gas production and long planned investments.81

78

79 80 81

Petroleum Economist, (2009), Europe Awaits a Shale-Gas Revolution, Petroleum Economist, December; and IEA (2010), World Energy Outlook (2010), Paris, OECD (International Energy Agency). BNK Petroleum (2010), Shale Myths - Shale Gas in Europe, http://www.bnkpetroleum.com. IEA (2010), World Energy Outlook 2010, Paris, OECD (International Energy Agency). Nick Snow, (2010), EIA Energy Conference: Experts See Shale Gas Affecting Overseas Supplies, Oil & Gas Journal.

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The long-term import contracts are also a major obstacle for new sources of gas finding their way into the market. Indeed, unconventional gas volumes are likely to depress the spot price, even in the modest spot trading that currently exists on the market. Unconventional and additional LNG also gives more flexibility and liquidity to trading hubs and spot pricing.82 Thus, various experts at Deutsche Bank and Wood Mackenzie suggest that it is conceptually more accurate to use the spot price than the EU contract gas price when comparing how the unconventional gas break-evens with the actual realizable gas price. This is due to the fact that, at least for the next decade, unconventional gas plays seem unlikely to offer the stable supply necessary before 2020 to assume buyers will put in place long-term contracts, as Deutsche Bank states.83

HIGHER COST OF DRILLING Given the infancy of the sector in Europe, we can expect initial production costs to be much higher; drilling costs for Europe are currently between two to four times more expensive on a unit cost basis than they are in North America. Labor cost are significantly more expensive than in the U.S., and, when adding up additional costs for instance for meeting EU environmental standards and taking into account the less competition in the services sector there are fewer drivers to bring down the price of development. Wood Mackenzie predicts the break-even price for shale gas in Europe is at around $9/mm Btu, or almost twice the price of gas in the U.S. at present, and, to go down to a reasonable economic level, needs to break even at a rate of $6/mmBtu.84 According to the Oxford Institute for Energy Studies, the cost of producing shale gas in Europe will be up to 4 times the one in U.S. where costs of production are in the range of $2 and $6 or $7, which means costs of $8 to $27 per mmbtu in Europe. Hence, in Europe, the sweet spots need to be detected early on. On the other hand, as the Petroleum Economist writes, Europe's market is well-developed and flexible enough to reward new suppliers.85 With high and stable oil-linked gas import prices, shale gas production can be very lucrative. So, where the average import price on the German boarder was around $8.52 per mmbtu in 2009 and the average NBP spot marked price in the UK was $4.85 per mbtu.

82

83 84 85

Charles Augustine, Bob Broxson and Steven Peterson (2006), Understandong Natural Gas Markets, AIP (Ed.), ibid. IEA (2010), World Energy Outlook 2010, Paris, OECD (International Energy Agency). Petroleum Economist (2009), Europe Awaits a Shale-Gas Revolution, Petroleum Economist, December. Petroleum Economist (2009), Europe Awaits a Shale-Gas Revolution, Petroleum Economist, December.

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As long as oil-price indexation in Europe continues to govern long-term gas-supply contracts, the gas market will follow crude. Gas prices estimated for 2012 are to reach $9/mmcf 70% of which is determined by the 9-month trailing of the Brent price and the remaining 30% by government subsidies, meaning that the break-even gas price will also be much higher in the EU.86 Despite projections for abundant gas supply in the next three years, this means that the price would be sustainable to pay for the higher CAPEX cost. If unconventional gas remains priced against the oil-price index in Europe this could make up for the lack of operational efficiencies that are unavoidable in a smaller drilling network. Significantly high returns, through either realizable high market prices or substantial cost reduction of 40-50%, as we have seen in the U.S. in the last 4-5 years, would be very positive for the economics of the European individual shale gas plays. Several experts indicate that the overwhelming factor influencing the break-even prices of unconventional gas is the initial well cost drilling and completion rather than royalty rates or operating cost.87 Given the previously discussed surface and geological issues, a steep cost reduction curve in Europe seems rather unlikely in the near-term. However, the newly built gas pipelines, i.e. from Russias very expensive new gas fields in Yamal and other parts of Siberia, or even in the Arctic waters, coupled with the higher transportation costs for the undersea North Stream pipeline and even much higher for the planned South Stream pipeline, indicate that future pipeline gas will be much more costly than is the case with the older pipeline net and its present rather low-cost gas fields. Explaining the land grab currently taking place in Europe can be logically explained: For major IOCs, it is strategically rational to use the first mover advantage, organically entering a market and positioning themselves in the most advantages position. Since licensing costs in Europe are in most cases very low there is little impetus to wait until the high gas break-even prices come down and production begins to become economical, either through lowered cost or tighter gas market prices. In Europe, the first movers will benefit from high profit margins, as later movers, relatively speaking, will have to pay an entry premium for the same capabilities.88

86 87 88

Ibid. IEA (2010), World Energy Outlook 2010, Paris, OECD (International Energy Agency). Ibid.

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A TOUGH NUT TO FRAC As demonstrated, although the exploration risk is low, existing economic constraints and obstacles in Europe make the cost and the development risk for shale much higher than in the United States. Even when the geological and environmental hurdles can be overcome, economic concerns, like production cost and gas-pricing issues can come to dominate. Wood Mackenzie and Deutsche Bank reports indicate that even once considerable challenges in Europe are overcome the reasonable resource potential is actually relatively low on a global scale. Indeed, Deutsche Bank reports do not expect unconventional gas to ramp up more than 9 bcm little more than 1% of European consumption by 2020. While this conclusion seems too skeptical, even a more optimistic forecast concludes that the smaller increases in tight gas, shale gas, and coal bed methane production in Europe will be insufficient to replace the declining production rate of its conventional gas production (as happened in the U.S. during the last year).89 That said, there remains an upside from an expected rising trend in domestic gas pricing and by a relatively attractive fiscal framework: current royalty and corporate tax rates in each country are already very low compared with the incumbent hydrocarbon taxation. What becomes evident immediately is that the geological data about porosity and permeability of shale and coal seams in Europe is almost universally unknown. Since this is a key factor in determining the viability of investment and development it is absolutely essential to see if and how the several test wells, which are to be drilled this year, shed light on the geological uncertainties. It is likely that by the end of this year we will have a better idea of Doctor Drills preliminary estimation on the geological issue. Yet, even if Europe's shale gas potential is realized, it is unlikely that it would happen, as predicted by the Petroleum Economist, over the next ten years (before the entire planned new import infrastructure to supply the continent's forecast demand is built).90 With reports of consequence instead indicating that the European gas market is already tightening around 2015-17 when current oversupply will disappear and higher contract / spot prices in a tighter market will lead to increased and necessary investment in the unconventional gas sector. This, however, indicates that a significant unconventional gas production in Europe wont materialize before 2020. Nonetheless, this perspective may still be focused too much upon the present gas market and technological conditions, whilst overlooking the issue of uncertain future EU gas demand in contrast to older energy and gas forecasts (see below).
89 90

Ibid. Petroleum Economist (2009), Europe Awaits a Shale-Gas Revolution, Petroleum Economist, December.

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BUT ROME WASNT BUILT IN ONE DAY . Given that the unconventional gas industry in Europe is still in its infancy and that successful E&P and service companies are absent in the European landscape, huge uncertainties in the market seem unavoidable for the time being. In this light, it is hardly surprising that some of the European energy and gas experts are rather skeptical about the prospects in Europe.91 However, that skepticism is not very different from the skepticism witnessed in the U.S. just a few years ago, particularly from the IOCs such as Exxon Mobil, BP, Shell and Statoil. Meanwhile, these big companies are often at the forefront of the unconventional gas exploration test drilling in Europe. Without further clarity on material well cost reductions, recovery rates, or a material increase in the market price for unconventional gas, it currently seems hard to see past the current prohibitive surface characteristics of the European situation; namely, environmental legislation, population density, water/proppant supply, and/or lack of service infrastructure.92 All in all, this creates a chicken-and-egg scenario. CAPEX are needed to bring down well cost so that gas break-evens can become economic. To attract investments the surface factors need to improve and issues related to geological sub-surface aspects need to be clarified. Alternatively, investment will kick in spite of the not reduced cost because the (spot) gas price has risen high enough for the plays to become economically viable even at current well costs and recovery rates. Lessons learned from comparing the factors determining the success of unconventional plays, in particular shale gas in the U.S. with the potential European outlook for unconventional gas, are as follows: unconventional play success depends on in-place reserves, sub-surface and surface factors aligning favorably as measured by gas break-even prices and measures of investment return (NPV, IRR). The production cost can be reduced either by production costs falling, or, equally, by market gas prices rising to high enough levels. Moreover, as Amy Myers Jaffe has reminded us, we should not ignore historical lessons of emerging new energy sources: The reserves and production of new resources tend to increase over time, not decrease.93

91

92 93

Paul Stevens (2010), The Shale Gas Revolution: Hype and Reality, Chatham House Report, London, September and Roderick Kefferptz (2010), Shale Fever. Replicating the US Gas Revolution in the EU?, CEPS Policy Brief, No. 210, June. IEA (2010), World Energy Outlook 2010, Paris, OECD (International Energy Agency). Amy Myers Jaffe (2010), Shale Gas Will Rock the World, The Wall Street Journal, 10 May.

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This detailed review of the North American success story suggests that there are a myriad of factors determining the viability of an unconventional play and, hence, its production potential.94

94

IEA (2010), World Energy Outlook 2010. Paris, OECD (International Energy Agency)

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UNCERTAINTY IN EU-27 GAS DEMAND by 2020 AND ITS IMPACT Since 2006, the EUs dependence on the import of natural gas has widely be seen as the Achilles heel of Europes energy security its growing reliance on the more environmentally friendly natural gas resource creating an increasing dependency on a few problematic suppliers. In November 2000 the European Commission warned, in its first Green Paper, that in the next 20-30 years up to 70% (presently 50%) of the Unions energy demand will have to be imported. With regard to oil, the EUs dependence could reach 90% and, for coal, 100%. At present, 54% of Europes energy is imported. The EUs own energy production is forecast to fall from 46% today to 36% by 2020. These imports have cost an estimated 350 billion 700 for every EU citizen. What is more, the gas import profile of the EU-27 is not very diversified; 84% of gas is imported from three countries: Russia (42%), Norway (24%), Algeria (18%). Even worse, Sweden, Ireland, Finland and many of the new EU-member states are entirely dependent on one supplier Gazprom, the Russian energy giant while Greece, Hungary and Austria are more than 80% dependent on the same supplier. Furthermore, Europe, as the main potential consumer of Caspian energy, has been sliding into a dual dependence on (1) traditional Russian supplies and (2) Russian-controlled supplies from Central Asia and the Caspian Region (CACR). Already, almost a third of the EUs total gas imports are coming de facto from this region via Russian gas pipelines and as a result of Russias gas swap deals with countries of CACR.95 The EUs agreed energy security strategy, its enshrined diversification strategy of both the European energy mix and European imports, and, in particular, its declared 20-20-20 percentage objectives for expanding energy efficiency and renewables (from presently 9%) and decreasing its greenhouse gases by 2020 indicates that in the case of a successful implementation both the EUs energy demand and mix will look very different beyond 2020. Meanwhile, at least the objective for expanding renewables has become very realistic, both in the view of the Commission and the European energy industry.96 That means overall energy consumption electricity plus gas across the EU would likely remain flat or even decline from its high current levels. This is in line with the EUs Energy Review of 2008 and its energy
95

96

Frank Umbach (2010), Global Energy Security and the Implications for the EU, Energy Policy, Vol. 38, Issue 3, March, pp. 1229-1240. Communication from the Commission to the Council and the European Parliament (2009), The Renewable Energy Progress Report: Commission Report in accordance with Article 3 of Directive 2001/77/EC, Article 4(2) of Directive 2003/30/EC and on the Implementation of the EU Biomass Action Plan, COM(2005)628, {SEC(2009) 503 final}, Brussels, 24 April, COM(2009) 192 final; and Frank Umbach (2010), Promotion of Renewable Energy Sources in Germany and the EU in the Light of Their Energy Security Concepts Objectives, Strategies, Challenges and Problems: Lessons to Learn for Japan?", Conference Edition Renewable Energy 2010, Pacifico Yokohama/Japan, 27 June-2 July 2010, 8 pp.

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forecast analysis for 2020 as it highlighted, EUs total energy demand, gas consumption, and gas imports are shrinking. This is due to increasing energy efficiency in the heating sector and strong growth of renewable energies for power generation. Especially in the aftermath of the Fukushima-Daiichi catastrophe and its implications for the controversial renaissance of nuclear power97 and in the current light of the global gas glut with its current `low gas prices, a renewed
shift towards more natural gas consumption is being re-considered at least in the mid-term perspective. This is been emphasized by the triple A argument, which summarizes why natural

gas despite the declining demand may become the bridge fuel for the 21st Century towards a de-carbonized economy: Natural Gas is abundant, it is acceptable and it is affordable. The environmental benefits of natural gasfired power are tangible, substantial and immediate.98 Thus the use of natural gas for power generation is among the cheapest and fasters ways complementary to the renewable goals to reduce CO2 emissions. At the same time, the EU simultaneously has expanded its non-Russian-pipeline gas imports from Norway as well as of LNG from non-European countries (with a capacity of regasification terminals of more than 130 bcm, which will further been expanded till 2020). If one combines the increasing non-Russian import capacities coming from Norway, North Africa, from CACR (Nabucco) and LNG, they amount up to 300 bcm of conventional non-Russian gas imports (Russias present levels are around 150 bcm). In the context of uncertain future EU gas demand, most of the present pipeline discussions i.e. Nabucco versus South Stream are often de-linked from the major question of the future EU gas demand and import dependencies which are being debated based on old forecasts going back to 2004/5. The Fukushima-Daiichi catastrophe and the current global gas glut are likely to have an impact on future European gas demand, but this impact needs to be balanced against the changed economic, technological and overall political preconditions (20-20-20
objectives) since 2004, which are considered to decrease gas import demand.99 Thus, the

previous assumption that import demand from the EU will rise from 300 bcm to more than 500 bcm by 2030/35 (as the IEA still maintains) appears no longer valid; even when one uses the most optimistic and best-case scenario energy forecasts for the EU of 2008, this assumption still does not seem to be the most realistic either.100 Actually, by taking the newest gas forecast

97

98 99

100

Frank Umbach (2011), Globale Renaissance der Kernenergie oder nur eine Wiedergeburt der Ankndigungen?. Malcolm Brinded (2011), You can Count on Gas, Op-Ed/Documents, MEES, Vol. 54, No. 15, 11 April 2011. Frank Umbach (2010), Global Energy Security and the Implications for the EU, Energy Policy, Vol. 38, Issue 3, March, pp. 1229-1240. Ibid.; see also Edward Hunter Christie (2010), EU Natural Gas Demand: Uncertainty, Dependence and Bargaining Power, Turku School of Economics/Pan-European Institute (Finland), Electronic Publication, No.

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for the EU into account, the EU-27s gas import demand by 2030 will be lower than 400 bcm or not significantly be higher (see below figure).101 Figure: EU-Gas Forecast of 2010
EU 27 Bcm 2005 2020 Baseline* scenario, oil price $88/bbl 538 2020 Reference** scenario, oil price $88/bbl 479 2030 Baseline* scenario, oil price $106/bbl 511 2030 Reference** scenario, oil price $106/bbl 457

Natural Gas 519 demand Natural gas 219 130 129 88 87 production Natural gas 299 408 349 423 370 imports Sources: European Commission (internal), here following Hugh Belin, To Russia with Love, European Energy Review, 2 September 2010 (http://www.europeanenergyreview.eu/index.php?id=2299http://www.europeanenergyreview.eu/index.php?id=2299). * includes energy policy measures implemented until April 2009; ** includes 20% renewables in energy consumption, 20% less CO2 emissions, and policy measures implemented until the end of 2009 and a few energy efficiency measures.

In addition the worldwide financial-economic crisis has also decreased the global gas demand, with demand in OECD-Europe declining in 2009 by 8% from 2008. Together with the rapidly expanding unconventional gas resources in the U.S., this has created a global gas glut, a delinkage of the gas prices from the oil price, and European pipeline prices being temporarily three times of LNG spot market prices. Given the worldwide and European prospects for unconventional gas production it becomes clear that the availability for the European and other energy markets of even a fraction of unconventional gas potential will extend the global overcapacity of gas until at least 2020 - thus, also improving the EUs energy supply security.102
Against this backdrop, it seems unrealistic to argue that the EU, at present, needs all the gas pipelines currently being discussed or new LNG-terminals. Both the European gas industry and the EU member states need to prioritize the most economical and energy security enhancing pipelines, whilst at the same time following the same rationale when considering the options for the new regasification terminals that would facilitate higher and more flexible LNG imports in crisis. In this regard, unconventional gas as a domestic source may definitely increase further the EUs future energy supply security; although the prospects for a significant unconventional gas production appear rather a concrete option after 2020.

101

102

17, Turku; Anouk Honor (2011), Economic Recession and Natural Gas Demand in Europe: What Happened in 2008-2010?, Oxford-Institute for Energy Studies, NG 47, January; and Stefan Nicola (2010), Europe's Gas Industry Deeply Divided over the Future, European Energy Review, 22 November. Hugh Belin (2010), To Russia with Love, European Energy Review, 2 September. http://www.europeanenergyreview.eu/index.php?id=2299 Josef Auer (2010), Gas Glut Reaches Europe. Major Impact on Prices, Security and Market Structure, EUMonitor/Deutsche Bank Research, No. 75, 8 July.

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Regardless of how the concrete outlook for European unconventional gas development looks, and despite of whether or not unconventional gas will become affordable and sustainable in the mid-to-long term in Europe , shale gas has already changed the European market even before a single well has been drilled, or a single molecule of unconventional gas has been produced in the European basins.

GEOPOLITICAL IMPLICATIONS OF UNCONVENTIONAL GAS As pointed out, the U.S. unconventional gas success story has been a paradigm shift that has turned expectations upside-down. In essence, it has been a game changer for the emerging world gas market. The advantage of unconventional gas is that it is a domestic, national source of fuel supply enhancing the energy security of each country. Development of unconventional gas reserves brings foreign direct investment (FDI), creates new jobs, and helps to diversify away from other imported fuels, or, as is the case in the U.S., help the nation gain energy independence. In addition, natural gas is of growing importance to the European economies that will cause a rethink about energy security. Already, there is a growing realization among European policy makers that natural gas in world energy markets will have wide-ranging and major geopolitical consequences. In addition, amongst the many policy options available, natural gas can be seen as the best transition fuel to a sustainable and renewable energy future. Hence, gas is deemed to become one of the most important fuels of the decade. The extent of the natural gas resource base means that supplies are plentiful, the infrastructure transporting it to its consumers is in place, and it burns twice as clean as other fossil fuels making it the cleanest of the fossil fuels and publicly accepted source of power generation. Combine this with the ever-increasing role of renewables for power generation; natural gas has the potential to become the major balancing energy source. But, the impact of the shale gas buzz is even greater. It has become the new elephant in the room, with global geopolitical implications that have caused a chain reaction: European gas prices are being renegotiated and revised. It has also caused an average of 15% of Gazproms supplies to be delinked from oil-indexation. Yet, as Dieter Helm puts it, the implications are greater still: relatively cheap and abundant gas, along with the carbon advantage of gas, makes nuclear and coal relatively more expensive than currently assumed. By switching from coal to gas emission can be quickly reduced at a very low cost. Indeed, making gas a major

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transition fuel through 2030 will help renewable energy efforts to reduce emissions, at low cost, quickly in order to mitigate the impact of climate change.103 This chain of events also has the potential to remove Gazproms European gas supply nearmonopoly. In the fourth quarter of 2010 Decline, Russias gas exports to Europe declined by 17% owing to a market oversupply due to re-directed LNG cargoes, and unseasonably warm weather. Unconventional gas is the elephant in the room; it has helped to shift the balance from a seller-dominated market to one dominated by buyers. Unconventional gas is nowadays the new policy option for European countries, giving buyers more leverage to renegotiate the high Russian oil-indexed gas price demands that are included in long-term contracts. Thus, unconventional gas, even without being produced in Europe, puts a certain price cap on high Russian gas prices, as it can become a potential source of diversification, particularly if Russian gas prices are higher than the brake-even point for European unconventional gas. All this has the potential to make unconventional gas development economically feasible and, politically speaking, more appealing. Unconventional gas, and shale gas in particular, has become a negotiating tool for Europe in a changing gas market that is enhancing the regions energy supply security by diversifying energy sources and enabling the prioritization of a domestically located resource. Russia and irrespectively Gazproms strategic options to respond are limited. Although Russia has the largest gas reserves in the world and is geographically close to Europe, Russia is in addition to Europes efforts to diversify its gas imports after the Russian-Ukrainian gas conflict of January 2009 facing very serious challenges on the energy front:104 Russia is facing growing competition with CACR gas exporters for its gas export monopoly. In 2008, more than 80% of the CACR gas exports were still destined for Russia, yet by 2010 those exports had already declined to 55% in 2010.
103

104

Dieter Helm (2010), The Coming of Shale Gas: the Implications for Oil and Energy http://www.terrafirma.com/Alternative-perspective-page/articles/295.html This is in contrast to a report from the Tyndall Centre arguing against shale gas in particular as a transition fuel and highlighting the potential risks to human health and the environment. See: Wood. R., Gilbert P., et al: 2011, Shale gas: a provisional assessment of climate change and environmental impacts. A report commissioned by the Cooperative and undertaken by researchers at the Tyndall Centre, University of Manchester See also Robert W. Hogath, Renee Santoro, Anthony Ingraffea (2011), "Methane and the Greenhouse-Gas Footprint of Natural Gas from Shale Formations", Climate Change (Springerlink.com), 12 April 2011; critical comments to this "biased" study - see "Five Things to Know About the Cornell Shale Study", European Energy Review, 27 April 2011 (originally in: Energy in Depth) and Gregory C. Staple/Joel N. Swisher (2011), "The Climate Impact of Natural Gas and Coal-Fired Electricity: A Review of Fuel Chain Emissions Based on Updated EPA National Inventory Data", American Clean Skies Foundation (www.cleanskies.org), 19 April 2011 Frank Umbach (2011), The Black Sea Region and the Great Energy Game in Eurasia, Adam Balcer (Ed.), The Eastern Partnership in the Black Sea Region: Towards a New Synergy, demosEUROPA (and supported by the Polish Foreign Ministry), Warsaw 2011, pp. 55-88.

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In comparison with the previous year, Russian gas exports to OECD-Europe decreased disproportinately by more than 30% in the first half of 2009 after the latest RussianUkrainian gas crisis.

Russias overall gas production fell by more than 20% in the first half of 2009 the sharpest production fall since the decline of the Soviet Union.

The Intra-FSU gas trade fell 9.2% to 80.4 bcm in 2009. But, these drastic production and export cuts have eased previous fears of a looming Russian gas crisis after 2010.

Although the new Russian-Ukrainian rapprochement and bilateral energy cooperation (gas deal) have, since the summer of 2010, strengthened Moscows position, the new pro-Russian Ukrainian government still has no interest to sell its pipeline system to Russia or let the Kremlin control a majority share of it.

The United Arab Emirates (UAE) have recently negotiated huge investments in Turkmenistan to gain access to and positioning itself to exploit the countrys vast gas reserves. As it is helping to develop the reserves of the worlds fourth-largest gas reserve country the UAE has also supported the EUs Nabucco pipeline rather than Gazproms planned South Stream Pipeline. As a result, the UAE and Turkmenistan may soon be competing with Russia to transport gas to Europe.

Confronted with decreasing natural gas prices and Russias threats to Europes supply security, Moscows policies have become unintentionally the major enabler for unconventional gas developments in Europe. But, even if only a fraction of those unconventional gas resources become available for the European gas market, they still might be less expensive than the very high prices of the new Siberian gas fields of the Yamal Peninsula or Russias Arctic offshore gas resources (like Shtokman) and offer another diversification source for its gas demand. Against this background, and the fear in Moscow of losing further markets shares in its most important export market for conventional Russian gas and the geopolitical game (with Gazprom being the spear-point of Russian foreign policy), it is hardly surprising that representatives of the Russian government and Gazprom try to downplay the importance of a shale gas in Europe and to portray very negative implications of unconventional gas production in Europe for its environment and the EUs climate mitigation efforts.105

105

Alexander Medvedev Answers Your Questions Part One, Financial Times, 18 February 2011; Gazprom Chief Steps Up Attacks on Shale Gas, ibid., 18 February 2011, Gazprom Chief Calls Shale Gas a Bubble, Financial

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Gazprom, hence, needs to diversify as its European export model suffers. It is expected that Gazprom will operate in three distinguished markets: (1), the traditional European market; (2), a de-regulated and compromised domestic market; and (3), a new Asian market.106 However, indications for a new eastern strategy for gas supplies to China - as a new big growing market might not solve the problem Gazprom could face. Although, China is already moving towards a more gas reliable economy for several reasons already mentioned associated with gas as a clean and relatively cheap fuel. But Petrochina estimates that China may have 45,000 bcm of unconventional gas. This would be more than Russias proven conventional reserves. China seems also to be more likely to dictate low prices connected to coal or hub pricing, than to pay such a high premium for gas as the Europeans do. Consequently, with the high cost of building new infrastructure to China and developing expensive new upstream projects in East Siberia and the Russian Far East diversification of gas deliveries to China will not allow Gazprom to reduce its exposure to Europe. When examining the Chinese companies international energy investments one comes to the conclusion that these have been driven less by money-making or value-aggregation objectives and more by pure principles of energy security and diversification. In this way, the U.S.-China Shale Gas Resource Initiative an initiative dedicated to enabling the U.S., as a leader in shale gas technology and developing shale gas resources107 to enter the Chinese energy market is another hurdle preventing Russian gas from going East. In sum, China is more likely to pursue also in the future its energy security agenda and help its local economy by producing domestic unconventional gas rather than enter into new dependencies with expensive Russian natural gas. 108 Another side effect of the Sino-American Shale Gas Resource Initiative is that it reduces the Chinese dependency on the Middle East and disincentives China from breaking the sanctions on Iran in order to satisfying its energy thirst. The less China is being made to feel vulnerable by its need to increase oil and gas imports from the Middle East and Persian Gulf via the vulnerable Sea Lanes of Communication (SLOCS) and the Choke Point of the Malacca-Strait (being blocked by the U.S. and Indian naval forces), the more it may support international

106

107 108

Times.Com, 18 February 2011, and Andrey Konoplyanik, The Economic Implications for Europe of the Shale Gas Revolution, Europes World, 13 January 2011. Kushnir and Kapustina (2010), Natural (Gas) Partners - One Step at a time for Russian Energy to China, Deutsche Bank Research, Frankfurt/M. The White House (2009), Statement on U.S.-China Shale Gas Resource Initiative, Washington D.C. For a detailed report on Chinas unconventional gas exploration and prospects see: Aizhu Chen (2011), RPTSPECIAL REPORT: China set to unearth shale power, 20 April 2011, Reuters http://r.reuters.com/jub29r

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sanctions and the less Beijing will be concerned about the U.S. control of the SLOCs and Choke Points of the Indian Ocean and South East Asia. Unconventional gas not only gives consumers new leverage in balancing the supply-demand equation, but also helps to maintain energy security either as a threat (e.g. Europe) or as a domestic fuel (e.g. China). Unconventional gas thus helps to break quasi monopolies on pricing and helps to integrate the global gas markets further by adding more gas into the market or through re-directing LNG to other markets, as seen in the U.S. Meanwhile, not only the EU may benefit from the geopolitical implications of unconventional gas resources. The Ukrainian Ministry of Environment and Natural Resources and the National Joint Stock Company (NAK) Nadra of Ukraine declared in November 2010 to have the biggest, or one of the biggest, shale gas deposits. The Ukrainian government is to investigate the potential volume of shale gas by mid-2012 and has invited international investors to analyze and develop the Ukrainian shale gas deposits.109 In February 2011, at the Strategic Partnership Commission meeting of the U.S.-Ukraine Energy Security Working Group, both sides signed a 'Memorandum of Understanding to establish a framework for technical cooperation that will assess unconventional gas resource potential in Ukraine. This agreement includes the involvement of the U.S. Geological Survey (USGS), which is currently undertaking a global unconventional gas resource assessment.110 Although there are hurdles for unconventional gas developments in Europe such as public acceptance, environmental standards, economics and/or price issues, unconventional gas serves as a game changer not only continentally, but also globally. This poses a major threat to Gazproms traditional business model. But it is a threat that can be mediated by the Kremlin and Gazprom by finding new mutual agreements and business models in which suppliers, as well as consumers, benefit, without one or another dominating.

109 110

Ukraine Claims to Possess Worlds Biggest Shale Gas Deposits, PR Newswire, 29 November 2010. U.S.-Ukraine Unconventional Gas Resource MOU Signed, Embassy of the United States, Kiev/Ukraine, 15 February 2011.

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Summary and Perspectives: GAME CHANGER, OR NOT? Having elaborated facts of shale gas development in the U.S. and compared the fundamentals market structures, causing different economics and other core challenges for unconventional gas development in Europe, it is time to answer the question: is shale gas a game changer, or not? To what extent shale gas will change the game in Europe is still unclear, however, with the restructuring efforts in the European markets unconventional gas development will be a key element to the energy portfolio of many member states, especially those in Central and Eastern Europe; and one should also not overlook how environmental issues, in the more densely populated Europe, will play out as a key factor to watch in assessing the potential of shale gas in Europe. In the meantime, the European energy policy agenda is facing opportunities and challenges; the latter including a shortage of up-to-date technology and equipment, capital and established market norms. But, is shale gas a game changer, or not? Some of the expert, geologists and industry representatives say it will be, some of them say it will not be. No matter what, shale gas has certainly changed North Americas natural gas market; and, within the evolving global natural gas market it has already had a causal effect on all markets, particular those in Europe. Shale gas enameled the US to remove its energy dependency and, furthermore, to reduce nearly all of its LNG import needs. The combination of this development with the economic recession, led to an oversupply of the international LNG market that placed strong downward pressure on gas prices around the world. So, regardless of how the European unconventional gas industry develops, the shale gas (r-)evolution in the U.S. has already changed the landscape of the international and first of all the European gas market. Shale gas development has changed the energy situation around the world; and, although it has changed the European market, other than one would have expected. Shale gas has not yet changed the overall energy balance in Europe, nor is it clear if it will materialize before 2020, although it has become a game changer for the European gas market. The U.S. shale gas boom enabled a revolutionary domino-effect on the European market, with the contractual structure, based upon 20-years long term take-or-pay oil linked natural gas contracts that had hitherto dominated being re-negotiated. Consequently, shale gas is having an increasing influence on European gas prices and is anticipated to continue doing so through 2015.

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Regardless of how the outlook on European unconventional gas development looks whether or not it will enhance the EUs energy supply security by reducing dependence and/or increasing affordably and sustainably in the mid-to-long term in Europe shale gas has already changed the European market; even before a single well has been drilled, or a single molecule of unconventional gas has been extracted from the European basins.

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APPENDIX ANNEX I Comparison and Differences between the U.S. and European unconventional gas possibilities U.S. shale
Much domestic gas production Many effective hubs Many interstate pipelines Many integrated energy companies, market players

European shale
Dwindling & limited domestic production Few hubs Few integrated market players Landscape dominated by National regulators, not Federal regulator Higher initial cost Well & production cost are higher

Strong federal Regulator Infrastructure, Service companies & suitable drilling rigs Vast Geologic formations / plays Property rights Landowners Lower population Liberalized market Access to trading hubs & pipelines Spot traded commodity

Higher depths of the reserves Varying geologic formations / plays Technique needs to developed and adapted Property / land rights owned by state Local community profits from drilling? Public opinion of drilling (NIMBY) Dense population Surface footprint of unconventional gas Missing service industries & drilling rigs Market structure liberalization & deregulation Long-term contracts Few integrated market players

ANNEX II Global shale gas drivers in different regions

Location North America West Europe East Europe, Caspian Asia Pacific and FSU

Drivers

Maintain leases Cash flow generation

Diversification of supply Projected supply gap Partially linked oil pricing

Balance exports with domestic needs Rising frontier field

Supply imbalance

Demand

Import reliance Pricing protection

production costs Uncertainty Drivers Different public perception, Different geologies;

Different players, Different market, Different regulation, Different infrastructure, Different supply base,

Source: various company resources, own compilation, Schlumberger Business Consulting, Herve Wilczynski, Gatwick, UK, June 9th /10th, 2010

Below ground / Above ground / Commercial - 53 -

ANNEX III: WHO IS DRILLING IN EUROPE

European unconventional gas plays
Country Austria France Basin Vienna basin Companies involved OMV Comments 15 tcf of gas potential identified in deep Vienna basin, testing shale gas in 2009-10 Bresse basin Devon (DVN), East Paris Petroleum Development, European Gas Limited (EPGAU), Mouvoil SA, Bridgeoil Ltd, Diamoco Energy, Lundin Petroleum (LUPE), Toreador Resources (TRGL), Total (FP) EurEnergy Resources Companies seeking permits in various basins

Lorraine basin, Nord Calais, Paris basin, South East basin Germany Lower basin Bodensee Trough Hungary Saxony Pas-de-

ExxonMobil

Wintershall

XOM plans 10 wells on 750k acres 200910

Royal Dutch Shell (through partnership in BEB with 3Legs Resources ExxonMobil)

Bekes basin, Mako trough Penezlek

MOL / Exxon / Falcon Oil (FO) Ascent Resources (AST LN)

Completed tree disappointing hydraulic fracture tests within the Szolnok

Formation on the Foldeak-1 well Netherlands Central Graben, Vlieland London-Brabant Massif; West Netherlands Polish basin, Timan-Pechora Baltic-basin Suliran shale Exxon Cuadrilla Resources / Shell Hold licenses

Poland

3Legs Resources, BNK Petroleum Inc. (BKX), ConocoPhillips (COP), Aurelian Oil & Gas (AUL), Talisman (TLM), San Leon Energy (SLE), 3Legs Resources Lane Energy / Sorgenia E&P, BNK Petroleum, EurEnergy Resources, RAG, RWE Marathon Oil Corp Chevron Exxon Mobile

Preliminary data shows potential for shale gas. First well to be drilled May 2010 Will drill two horizontal appraisal well program commencing June 2010 on Siekierki Gas field seismic planned this year and TLM has committed to drilling three wells as part of farm-in deal

(shallowest 1-2km depth)

Sweden

Alum shale Fennoscandian Border; Baltic Depression Alpine basin Foreland

Royal Dutch Shell

Owns licenses, 3 year exploration project in Skane. 3 well programs planned for 1Q 2010

Switzerland Ukraine

Dnieper-Donets

Maraton, Naftogaz Ukrainy (NAK), JKX oil & Gas (JKX), Regal Petroleum (RPT), Cadogan Petroleum (CAD), Transeuro Energy (TSU)

MRO and NAK signed an agreement in June 07 to explore Dnieper-Donest basin. Other companies mentioned have interests in the basin or the vicinity

UK

Kincardine basin, Scotland (CBM) Cheshire basin, North west England

Composite Energy / BG, Island Gas (IGAS LN), Nexen (NXY CN), greenpark Energy, Marathon, AJ Lucas, Cuadrilla Resources, EurEnergy

3000ft depth, 40ft pay Total resources of 4tcf in Cheshire basin (WoodMac). First CBM production in June09 from IGAS Doe Green site

Resources,

Source: various news and company resources, own compilation

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ANNEX V: EUROPEAN VS. U.S. UNCONVENTIONAL GAS PLAYS, KEY PETROPHYSICAL CHARACTERISTICS AND RESOURCES AND RESERVES (2010)
Area (km2) Resource Potential (tcf) 22 12,1 2 66,1 5 15 4,1 Depth range (m) 45008000 02500 8001500 20004000 1003500 25003500 04000 02000 10006000 19802700 4502000 32003962 15002590 15002590 Shale thickness (m) 1500 20-500 20-75 30-300 30-100 100-400 20-40 Porosity Permeability Production (mmcf/d) Expected Rf GIIP (tcf, estimated) Total organic carbon (TOC) : 1.52% 2-12% n/a 7% 2-25% 4% n/a Thermal maturity (Ro) 0.7-1.6 0.5-1.5 n/a 1.0-4.0 1.4-3.0 05-3.0 n/a Pressure gradient (psi/ft) n/a n/a n/a n/a n/a n/a n/a # Prospective Seams n/a n/a 2-4 n/a n/a n/a 10-24 Well Spacing (p.Acre) 60 247 124 247 247 247 247 EUR/ well Av. Well cost ($/MM) $24,5 $13 $4,7 $14 $15 $8,07 $2,05 Gas Breakeven (US$/mmBtu) $10.2 $8.9 $7.5 $8.49 $8.9 $8.9 $5.7 Opex/ mcfe Other CAPEX per well $1.0 $1.2 $0.4 $1.0 $1.4 $1.0 $0.7 Royalty Rate Corporate Tax

Vienna Shale Germany Shale Lorraine CBM Poland Shale Sweden Shale Turkey Shale UK Cheshire CBM UK Midland Valley CBM Ukraine Tight Gas Barnett Fayetteville Haynesville Marcellus NE Marcellus SW/

900 7.500 1.150 23.816 2.010 18.000 4.820

0-7% n/a n/a n/a n/a 0,06 n/a

n/a n/a n/a n/a n/a n/a n/a

0 0 0 0 0 0 0

4% 18% 15% 17% 14% 15% 17%

750 94 12 844 38.8 151 24

8 4,8 1,3 4,8 4,8 2,2 0,9

0,4 0,6 1,3 0,5 0,6 1,2 1,2

10% 8% 0% 5% 0% 13% 0%

25% 30% 34% 19% 28% 20% 30%

1.300 35.000 8.840 10.350 14.164 105.356 124.519

2 31 21 36 89 113 82

12-24 3002000 30-183 6-61 61-91 38 38

n/a n/a 4-6% 4-8% 9-12% 6-7% 6-7%

n/a n/a 0.005 n/a n/a n/a n/a

0 0 4.547 1.700 3.600 385 375

18% 11% 25% 36% 25% 8% 34%

11 290 238 253 650 1.628 310

n/a 3-13% 2-7% 4.59.5% 4% 2-10% 2-10%

n/a n/a 0.7-3.0 1.5-4.5 2.2-3 1-2 1-3

n/a n/a 0.460.52 0,44 0.7-0.9 0.4-0.7 0.4-0.7

4 n/a n/a n/a n/a n/a n/a

247 494 n/a n/a n/a n/a n/a

1 3,2 n/a n/a n/a n/a n/a

$2,05 $14 n/a n/a n/a n/a n/a

$5.2 $6.4 n/a n/a n/a n/a n/a

1,2 0,5 n/a n/a n/a n/a n/a

$0.7 $1.2 n/a n/a n/a n/a n/a

0% 15% n/a n/a n/a n/a n/a

30% 25% n/a n/a n/a n/a n/a

Source: own analysis, various company reports, Wood Mackenzie, Deutsche Bank, CERA

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Please cite this report as: Maximilian Kuhn, Frank Umbach (2011): Strategic Perspectives of Unconventional Gas: A Game Changer with Implications for the EU`s Energy Security. A EUCERS Strategy Paper, Vol.01, No. 01, May 2011. EUCERS, London.

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European Centre for Energy and Resource Security (EUCERS)

Department of War Studies King's College London Strand London WC2R 2LS info@eucers.eu Tel. 020 7848 1912

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