Oil & Gas -
As the shale gas trend gathers pace, David Cook, Executive Officer and Head of Oil & Gas at TAQA, looks at what it means for the energy industry
The shale gas “revolution” is changing the energy industry landscape. Major drilling operations in North America, and particularly the US, have triggered an increase in production and a fall in domestic gas prices.
Already countries in Europe, Asia and South America are closely watching the US situation as they consider exploration of their shale gas reserves.
China has the largest estimated reserves of shale gas at 36.1 trillion cubic metres (TCM), according to the Energy Information Administration agency of the US Department of Energy. The US comes next at 24.4 TCM, followed by Argentina (21.9 TCM), Mexico (19.3 TCM), South Africa (13.7 TCM), Australia (11.2 TCM) and Canada (11 TCM). As the shale gas trend gathers pace, David Cook, Executive Officer and Head of Oil & Gas at TAQA (pictured), looks at what it means for the energy industry. He also talks about the role of gas in the energy mix and TAQA’s North American operations.
Can you describe how the shale gas revolution has changed the energy industry globally?
“Revolution” is the word that has been used for the new development of shale gas, as well as other unconventional resources. Less than 20 years ago, deep water exploration and production was considered unconventional. But one of the amazing things about the energy industry is that it tends to respond to opportunities. We are constantly opening up new technical and commercial frontiers that allow us to meet new challenges and demand. In the case of shale gas and shale oil, technology has allowed us to again step up to the challenge. The timing of the shale gas revolution has been crucial. It has coincided with significant global events, and this has made it a focus of conversations for governments, investors, environmentalists and consumers. Shale gas has shifted North America towards energy self-sufficiency. But I believe we are in the early cusp of the curve. While we see huge numbers being used to describe the shale resource, it remains to be seen how these numbers will play out against demand growth, economic viability and the perceived or real effects on the environment. On the environmental point, it’s important to stress that the industry tends to address these issues as part of the development of all new technologies. It’s hydrocarbons we produce, and it’s not the perfect energy source, but we will strive to make it as safe and clean as possible.
With the North American reserves of shale gas apparently delivering such cheap energy domestically, do you see a two-tier market developing?
We are seeing some of the lowest gas prices in North America on the back of growing shale production. Yet in light of a number of global events such as the Fukushima nuclear disaster in Japan and rising global demand, gas prices are high in the Asian and European markets. As advanced as we are, the world is still a big place and it is impossible to instantly transport a molecule of gas from North America to Japan. There is no Star Trek teleportation technology out there.
The development of shale gas, and the infrastructure needed to process it and then transport it, will take time. While this price arbitrage will eventually narrow, there will always be variations across the global markets. So the question becomes one of how rapidly the market price differences will shift. The timing will depend on the pace of further shale development, and transportation options, in North America and the rest of the world.
TAQA has a major presence in North America. Can you tell us about the company’s strategy there and if you hope to develop it on the back of the shale gas boom?
There are several strong reasons for TAQA’s involvement in North America independent of the shale revolution. We have talked about having a diversified portfolio, so we are not just involved in one market or a single product. This provides balance and protection as prices and demands in various markets change. Being in the North American market with a long-term view is a great opportunity although, right now with the low prices, it is a challenging time to be there. We have seen many companies suffer because of the depressed market price of gas. This is a market that requires a long-term strategy and the stamina to stay in the game. We achieve this through our “intelligent growth” approach as well as smart cost controls. Part of “intelligent growth” for our North American business, with three million net acres of land and nearly 500 million barrels of oil equivalent (mmboe) reserves, is applying unconventional, horizontal multi-stage frac technology. This is an essential ingredient for the shale gas revolution. But it is also worth remembering that operating costs for traditional gas producers are lower than for shale gas operators. This will obviously have a beneficial impact on our business in the long term as North America moves into the liquefied natural gas (LNG) export market. To illustrate this, a number of major projects are in the works to develop LNG in Western Canada and ship it across the Pacific to energy-thirsty countries such as China, Japan and South Korea. In the long term, this will help rejuvenate the domestic gas market in North America.
How does the North American strategy fit in with TAQA’s global plan?
Aside from being involved in a prolific market, our North American business also works across tremendous technical diversity. This helps us build our skills base, for example in subsurface expertise and new drilling technologies. Connecting these skills across the organisation helps us succeed in other operations around the world. Obviously, we would not use North America just as a training ground; we are there because it’s a smart piece of business. But our North American operation has let us tap into vital skills. For example, our Canadian experience has been critical to our access and appraisal in the Kurdistan region of Iraq.