In recent years, conventional reserves of fossil fuels such as oil and gas have been steadily dwindling. With renewables not yet sufficiently developed to end dependence on these resources, the world faced a stark choice: either return to more hazardous and more polluting sources such as nuclear and coal, or accept dramatically higher energy prices and constraints on economic activity. In recent years, however, a quiet revolution has taken place. In the US, after decades of deindustrialisation, firms are retooling in energy-intensive industries like steel and chemicals. Growth has returned, carbon emissions have declined and the price of gas has fallen. The reason for this transformation is shale gas, and its potential as a new source of cheap and abundant energy is prompting interest worldwide.
DEFINITION: Shale gas is part of the family of unconventional hydrocarbons, and “shale” refers to the geological material in which shale gas and associated (“tight”) oil is formed. It typically lies much deeper than the conventional reservoirs of oil and gas that have until now provided the majority of the world’s supply.
Shale is actually the source rock for those conventional deposits. It is the layer at which organic material millions of years old is transformed under immense pressure into hydrocarbons. In conventional deposits, those hydrocarbons have seeped back toward the surface, passing through layers of semi-porous, permeable rock before becoming trapped beneath a seal of nonporous rock. It is in these “traps” that reservoirs of oil and gas can accumulate under enormous pressure, enabling a single vertical well to tap huge quantities.
Deeper-lying shale consists of rocks, which are much less permeable. The oil and gas in these formations is less concentrated, and locked more tightly within the rock. Wells must be dug deeper to access such formations and low permeability of the rocks means little oil or gas is released from any single well.
NEW TECHNOLOGIES: Establishing how to economically extract hydrocarbons given such constraints had proved elusive. This changed in the 1980s, when George Mitchell pioneered the combination of two techniques for extracting gas from shale: horizontal drilling and hydraulic fracturing (“fracking”). By drilling a well over a mile deep and then turning the bore sideways, Mitchell’s rigs were able to penetrate deep within a shale formation. If a solution of water with chemicals is pumped down the well, the resulting pressure will fracture the rock bed and release the trapped gas or oil.
Over the last few years, rocketing shale production has drastically reduced the US’s fuel import bill and its import dependency, even allowing it to begin exports. The international impact is already noticeable, with energy markets such as Algeria and Nigeria seeing export demand drop as the US reduces its consumption of foreign hydrocarbons. Shale production is not unique to the US. Deposits have been discovered in France (where it has been banned) and the UK (where it is allowed), and in South Africa a debate has arisen over the potential of 425trn cu ft (tcf) of shale gas below a nature reserve. So could shale also revolutionise Algeria? The country has begun conducting surveys, with some promising findings. As production slows in mature fields and domestic consumption rises, shale is becoming a focal point for the hydrocarbons-rich country.
SHALE SCALE: When the US government’s Energy Information Administration (EIA) published its estimates in April 2011, it put Algeria’s resources of risked gas in place at 812 tcf and risked technically recoverable gas at 231 tcf, compared to current proven reserves of 159 tcf. By May 2013 the EIA had moved on to include five more basins, and revised an estimate of one of the original two it had looked at. Risked gas in place was now put at 3418 tcf and risked technically recoverable gas at 707 tcf. According to the EIA, this is almost 10% of the world’s recoverable shale gas (7299 tcf) and puts Algeria third on the scale, behind only China (1115 tcf) and Argentina (802 tcf), and ahead of the US (665 tcf).
There is also shale oil and condensate in six of those seven basins. At 5.7bn barrels recoverable, it is of a more modest size but it does compare well with the 12.2bn barrels of proven reserves, and is similar in composition to Algeria’s light, sweet “Sahara blend”. The shale is distributed among those seven basins in 11 rock formations. In the east there are the Illizi Basin (56 tcf) and the Berkine (or Ghadames) Basin, the one for which the EIA raised its estimate (from 196 to 282 tcf). In central Algeria the basins are Timimoun (152 tcf), Ahnet (60 tcf) and Mouydir (10 tcf). West of Ahnet and south of Timimoun there is the Reggane Basin (121 tcf), while in the extreme west there is Tindouf, which has been downgraded from 35 tcf to 26 tcf by the EIA.
HIGH HOPES: The size of the reserves has drawn interest, aided by amendments in 2013 to the Hydrocarbons Law to attract investors to unconventional oil and gas by offering longer exploration and production periods, and more advantageous tax rates (see analysis).
Hydrocarbons parastatal Sonatrach drilled its first exploratory well for shale in late 2011 near Tamanrasset, around 2000 km south of Algiers. Italy’s Eni signed an agreement with Sonatrach in April 2011 providing for joint studies on the technical and commercial feasibility of shale exploitation, and has already performed some exploratory fracking. Exploration accords have also been signed with Canada’s Talisman and the Anglo-Dutch firm Shell, which were reported in the spring of 2013 to be preparing to drill their first exploratory wells. There have been talks, though so far no announced agreement, with the US’s ExxonMobil. France’s Total, which is present in several Algerian fields, has talked of “large geological potential” for shale.
The authorities are gearing up for the next move. The minister of energy and mines, Youcef Yousfi, who said in October 2013 that the next bidding round would be launched “in two or three months”, had earlier indicated that shale exploration blocks had been identified. ALNAFT, the agency that will conduct the bidding round, has been assessing the investments necessary to realise Algeria’s shale potential. Around €230bn would be needed over the next 50 years or so to achieve an annual production level of 60bn cu metres of shale gas – equivalent to roughly 75% of Algeria’s current marketed gas production – with the first output envisaged in 2024. Of that amount, €150bn would be needed for drilling alone, ALNAFT estimates, with 12,000 wells required over the period. That would require a huge number of rigs: the US shale boom raised the number in place there from 700 in 2002 to over 3000 in 2012.
POTENTIAL PROBLEMS: Shale production often comes with complications, though some of them will be less pertinent in Algeria. One that has been important in Europe that is not as relevant to Algeria is the impact fracking would have on populated or protected areas. The basins in Algeria extend to Morocco and Libya, but are in largely unpopulated areas. There are concerns about disrupting delicate desert ecosystems, but the challenge is far less than in France. However, there are specific concerns about water. Each well involved in the process of extracting gas and oil from shale requires between 7000 and 15,000 cu metres of water, which is problematic in the arid country. Leakage is also a concern, given that fracking water is mixed with various substances and chemicals to improve efficiency.
The extent to which this poses a risk is heavily debated. Former Sonatrach director Mohamed Terkmani said in September 2013 that the risk of chemicals getting into the water supply in significant quantities is nonexistent because the fracking will be taking place in formations at least 2 km below the water table. Similarly, according to the National Agency for Water Resources, the water reserves of the Saharan Basin are between 40trn and 50trn cu metres. Annual production capacities are small in comparison, at 6.54bn cu metres, but they are still more than double the amount consumed by agriculture, industry and other users.
Shale exploration can be hit and miss. Discontinuities mean that operators cannot just drill one well and assume there will be a lot of shale gas in the surrounding area. Multiple wells must be drilled, and estimates in other shale producers have often been revised downwards as probable reserves turn up empty. Poland saw Marathon Oil, Talisman and ExxonMobil pull out in 2013 citing geological difficulties, for example. To successfully harness a shale boom also requires a wide range of very different factors, such as small, flexible producers, sub-soil property rights and accessible equipment. As a result, while Algeria’s reserves look promising, it will take a number of variables aligning to ensure the country reaches its potential in terms of production.
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