Global Shale Oil and Gas Estimates Expand

• The Department of Energy's revised shale resource estimates shed new light on the global extent of shale gas and especially shale oil potential.
• While in the US shale gas preceded large-scale shale oil development, other countries may find fewer obstacles for the latter, and an eager market.

Recently revised estimates of global shale oil and gas resources from the Energy Information Administration (EIA) of the US Department of Energy represent a significant increase over the EIA's 2011 estimates.  Technically recoverable shale oil (tight oil) grew more than tenfold, due to the inclusion of formations outside the US, while estimated global shale gas resources rose by 10%. With these revisions, shale formations now constitute 10% of global crude oil resources and nearly a third of global natural gas resources, although the actual impact of these resources on production and markets is still likely to vary greatly from region to region and country to country.

This year's report reflects a greater focus on tight oil, incorporating insights from the significant development of US tight oil resources that has occurred since the previous report was published. Tight oil development is largely responsible for the 19% increase in US crude oil production from 2010 to 2012.  The smaller adjustment to shale gas is the net result of downward revisions for some countries assessed in 2011, such as Poland and Norway, together with the inclusion of resources in additional shale formations and countries, including Russia, Indonesia and Thailand.

The EIA and the consulting firm that prepared the report were careful to differentiate the technically recoverable resources (TRRs) identified in this data from the more restrictive categories of economically recoverable resources and proved reserves. In other words, these figures represent the quantities of oil and gas that could be recovered if prices justified development and infrastructure was available to carry them to market, not the amounts that producers currently plan to develop.  At the same time, these estimates constitute only a small fraction--at little as 5-25%--of the oil and gas thought to be present in the assessed shale deposits.  Further improvements in technology could substantially increase future TRRs. 

It's interesting to note that although the US leads the world in production of both tight oil and shale gas, it ranks second and fourth, respectively, in global resources of these fuels.  The report also indicates that estimated US tight oil resources of 58 billion barrels (bbl) are more than double current proved oil reserves, which represent just under 7 years of current production.  That's significant, because a sizable fraction of the 139 billion bbls of US conventional unproved TRR--non-shale crude oil not currently included in proved reserves--sits in onshore and offshore areas currently off-limits to drilling. So shale provides a pathway for US oil production to sustain higher output than in the recent past, without having to overcome barriers such as those impeding development offshore California or in the Arctic National Wildlife Refuge. 

Or consider Russia, for which the report cites proved reserves equivalent to 21 years of production and slightly exceeding tight oil TRRs.  Russia possesses many of the factors conducive to shale development, including a large drilling fleet and an oil industry accustomed to drilling large numbers of wells, along with oil-transportation infrastructure. It remains to be seen whether Rosneft and other producers will choose to develop the Bazhenov shale and other deposits rapidly, to increase total output and exports, or more gradually, to offset declines in mature fields and maintain current production rates.

The EIA also reported 32 billion bbls of tight oil TRR in China.  Conventional reserves are comparable to those of the US, supporting current production less than half America's.  Without tight oil, China's economic expansion and the rapid growth of its vehicle fleet put it on track to displace the US as the world's largest oil importer within a few years.  China-based companies are seeking oil in Africa, South America and North America, so it's hard to envision them leaving their own shale resources undeveloped. 

The situation is more complicated for shale-rich OPEC members like Libya and Venezuela.  For example, aside from its current political instability, Libya has nearly 90 years of conventional oil reserves at its current OPEC quota of around 1.5 million bbl/day, before considering the 26 billion bbls of tight oil identified by the EIA.

On balance, the latest EIA shale resource assessment presents a wider and more realistic view of shale outside the US than in 2011. That includes tempering some of the previous report's enthusiasm for shale gas prospects in places like Poland, where few wells had been drilled until recently. The new element is the report's portrayal of the tight oil resource base as broad and deep, centered mainly on countries likely to be motivated to develop it. The shale gas revolution may be slow to spread globally, due to much-discussed differences in the conditions for development, compared to those in the US.  By contrast the development of shale oil, or tight oil, faces fewer obstacles and an eager market.

A slightly different version of this posting was previously published on the website of Pacific Energy Development Corporation.