We don’t have to prosper from all that oil we found, world edition – Peak Oil #15

How much shale-gas is underground?  The Wall Street has a great graphic in their article Global Gas Push Stalls (behind paywall).

Here are a few of the largest estimated deposits, in trillions of cubic feet:

  • 862 – U.S.
  • 388 – Canada
  • 681 – Mexico
  • 1,275 – China
  • 774 – Argentina
  • 187 – Poland
  • 180 – France
  • 396 – Australia

There’s huge amounts of shale gas waiting to be tapped. Enough to power economic and manufacturing revival in many countries.  What we’ve seen in the U.S. market in terms of dropping prices (benefiting consumers a lot) and generating manufacturing growth could happen in Argentina, Poland, France, South Africa, Brazil, Algeria, and Libya.

But will it? Doesn’t look likely at the moment.

Why?  Many countries are stalling development.

Here’s a great one sentence description from the article about what’s happened in the U.S.

Shale oil and natural gas have rejuvenated the North American energy industry and boosted the economy by supplying companies and consumers with cheap fuel.

A summary of the reasons this will be slower elsewhere? Check this out:

Among the reasons for the glacial pace abroad are government ownership of mineral rights, environmental concerns and a lack of infrastructure to drill and transport gas and oil.

Poland had looked to be a bright spot for development. That 187 trillion ft estimated reserve is compared to their 17.2 billion annual consumption. Doesn’t seem to me it would take a very large percentage recovery to cover their annual consumption. I’m an accountant, so I can’t stop myself from calculating that is a 10,872 multiple of estimated reserves to annual consumption.

But.

The WSJ article says that’s less likely to happen now. Initial wells aren’t as good as expected, the government has changed the tax & royalty laws, and concerns about fracking have cooled interest of the majors.  The Polish government has been slow to issue permits, according to the article.

Surface topography, population density, and water availability will make drilling in China difficult.

The article says some countries are so worried about fracking that they have banned its use. France and Bulgaria are in this category.

France doesn’t want to touch their shale gas.  For comparison, that 180,000B cubic feet estimated reserve mentioned earlier compares to their 49.8B annual consumption. Again, I can’t stop myself from calculating a 3,614 multiple.

Knowledge of the underground geology along with the lack of infrastructure to get fracking prop in and the oil out are major issues as well. Those could be worked through.

Governments however, are creating intentional obstacles.

Argentina is the best example in the article. Or perhaps I should say the worst example.  Check this out:

Argentina recently nationalized the assets of a Spanish company that discovered an enormous shale deposit there that is estimated to hold nearly one billion barrels of oil. This has chilled outside investment, which already suffered from rules that made it difficult to import needed technology and export potential profits. Houston-based Apache Corp. … which holds rights to drill in 450,000 acres of Argentine shale, says it can cost twice as much to drill a well there as the U.S., and then two to four times as much to frack the well so it can begin producing.

So production in Argentina costs twice as much to drill and 2-4 times as much to frack as the U.S. Let’s round that to a multiple of 3. I’m making a wild guess that it would cost somewhere in the range of $18M to $30M to get a well online in Argentina ( 3 x $6M – $10M).

Add rules, again from the government, that make it difficult to get technology into the country and difficult to get profits out.

Then compound that with the risk that if you have a big success, the government can expropriate your wells on a whim.

An article in The Economist (12-1-12 paper copy) discusses Argentina Media – Messenger shot .  The government plans to seize some of the TV licenses of a television network that is an outspoken critic of government policies.  The ‘excess’ licenses over what the government says they may now have will be sold off. Sub-headline says

The government prepare to grab a television empire.

Just how enthused would you be to put hundreds of millions of dollars to work in Argentina?

If I’m a stockholder, I wouldn’t want you taking that severe of a risk with my money.

Just a wild guess, but I’m guessing there won’t be many majors wanting to drill in Argentina anytime soon.  Why should they?  It’s expensive to do, the government makes it hard to get resources in and profits out, and the government may take your assets if you succeed.

Apparently the government in Argentina doesn’t want to tap 774 trillion cubic feet of gas. That is in relation to their 43.5B annual consumption. Can’t help but calculate a 17,793 ratio.

I also can’t help but scratch my head about a government, who if they actually tried to encourage shale gas would then have to work really hard in order to spend all the tax money they’d collect. Guess they don’t want all that tax money that is trapped underground and the prosperity that gas would create.

Other countries around the world don’t have to prosper from the huge amounts of resources under their soil if they don’t want to.

By the way, this post will be archived on a new page, Peak Oil volume 2.

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