Gazprom to Continue Shale Gas Market Investigation

Source: 10/30/2012, Location: Asia

The Board of Directors took notice of the results of a survey on the shale gas sector development throughout the globe. It was mentioned that the core structural units of Gazprom Group continued investigating the progress with shale gas production.

However, the participants of the meeting agreed that at the moment shale gas production in Russia would be inexpedient due to the abundance of conventional gas reserves with their recovery cost being considerably lower than the estimated cost of shale gas production, as well as due to the considerable environmental risks.

The Management Committee was tasked to continue the investigation of the shale gas sector development throughout the globe and to report the results to the Board of Directors in the fourth quarter of 2013.

In 2011 and 2012 commercial shale gas production was still underway in the USA and Canada only.

In 2011 shale gas production in the USA totaled 194 billion cubic meters. Meanwhile, the share of shale gas in the national gas output increased from 23 to 30 per cent during the last year. According to preliminary estimates, in 2012 shale gas production in the USA will amount to 220–240 billion cubic meters.

Over the past period of time, the shale gas production cost hasn't undergone considerable changes. Thus, as of August 2012, the cost of shale gas production from the US fields was within the range of USD 130–260 for a thousand cubic meters, in Canada it was USD 140–230 for a thousand cubic meters. In the meantime, gas prices in the region are on the level of approximately USD 100 for a thousand cubic meters. Therefore, in the current pricing environment shale gas production in North America in 2012 at gas-only fields was unprofitable for most gas producers.

In Europe the attitude to shale gas became more restrained after poor results of first wells drilling in Poland. The majority of experts believe that Poland has the most favorable conditions for shale gas production in Europe. But in March 2012 the Polish Geological Institute together with the United States Geological Survey published the report with the assessment of shale gas resources in Poland. According to the report, technically recoverable resources of shale gas in the country are within the range of 346 to 768 billion cubic meters. The estimates turned out to be much lower than the ones provided by the US Energy Information Administration last year (5.3 trillion cubic meters).

In Asia it is the People's Republic of China that is considered as the most promising country in terms of shale gas production development. State plans for unconventional gas production are rather ambitious and envisage the production of 6.5 billion cubic meters as soon as by 2015 and up to 100 cubic meters by 2020. However, shale gas production in China faces a number of challenges. The most part of the Chinese territory is characterized by unfavorable conditions for gas field facilities construction. As a rule, shale gas deposits are buried at great depths, they feature lower porosity, lower gas content and, besides, they are 2–3 times thinner than, for example, in the USA. Moreover, they are situated in the regions with a complex terrain, a high population density and scarce water resources, which is a problem for the majority of Chinese regions. The country does not have an extensive system of gas pipelines. A number of technologies crucial for shale gas production are poorly developed.

It should be emphasized that gas production from shale is related to certain environmental risks because it demands drilling of a great number of wells and injecting considerable amounts of water mixed with sand and chemicals into the stratum. Therefore, there is a danger of polluting the land surface and the subsurface waters serving as a source of drinking water for the population.

By now, the moratorium on hydraulic fracturing has been imposed in France and Bulgaria. The Czech Government proposed imposing a temporary moratorium on shale gas fields development. In September 2012 the German Ministry of Ecology issued a recommendation on prohibiting hydraulic fracturing near drinking water sources and mineral wells. In some American states the moratorium on hydraulic fracturing is already in force.

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