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Shale Revolution Spreads With Record Wells Outside U.S.: Energy

The hydraulic fracturing of shale in search of oil and gas has hardly started outside the U.S., but that’s changing.

A record 400 shale wells may be drilled beyond U.S. borders in 2014, with most in China and Russia, according to energy consultants Wood Mackenzie Ltd. While that’s a fraction of the thousands of shale wells drilled in the U.S., the number of rigs used onshore in Europe and the Asia-Pacific region has increased 10 percent over the past year, data compiled by oil services company Baker Hughes Inc. show. Most of those rigs are meant for shale, Bloomberg Businessweek reports in its Nov. 18 issue.

“It’s likely there will be a revolution,” Maria van der Hoeven, executive director at the Paris-based International Energy Agency, said in an interview in London. “But not everywhere at the same time. And you just can’t copy the U.S. experience.”

Fracking in the U.K. will start next year, after the government lifted an 18-month moratorium imposed when a drilling company found it had accidentally caused earthquakes. Two utilities -- Centrica Plc (CNA) of Britain and GDF Suez (GSZ) SA of France - - have bought stakes in the country’s drilling licenses to help bankroll the drillers and win a cut of any profit.

“History repeats itself, yes, but nothing is ever the same,” said Christof Ruehl, chief economist at BP Plc (BP/) in London. “There’s going to be developments outside the U.S. and North America which will be big and important, no doubt. But it will take some time.”

Shale Boom

The shale boom has moved the U.S. closer to energy independence, added jobs, helped revive manufacturing, and lowered gas bills. Yet the conditions that fostered the U.S.’s success don’t exist in Europe and Asia. In some countries landowners don’t own the oil and gas in the ground: the state retains all mineral rights. Or a country may levy much heavier taxes than the U.S. on oil and gas profits.

Once they start fracking, though, countries such as China, Argentina, and Russia could experience new oil and gas booms.

China has the largest shale gas reserves, estimated at 1,115 trillion cubic feet, followed by Argentina at 802 trillion cubic feet. In shale oil, Russia tops the list with about 75 billion barrels, according to a report by the U.S. Energy Information Administration. Australia, Poland, and Algeria all have big potential.

Argentina may be the first to capitalize on its shale resources with production expected as early as 2015, according to research by BCG, the Boston Consulting Group.

Oil Players

Fracking outside the U.S. is likely to be good for the big oil players. Royal Dutch Shell Plc (RDSA) teamed up with China National Petroleum Corp. this year to explore in Sichuan, the province that accounts for 40 percent of China’s shale reserves. Hess Corp. (HES) is exploring with CNPC in the western Xinjiang region. YPF SA, the Argentine oil company, has joined with Chevron Corp. (CVX) and Dow Chemical Co. (DOW) to tap deposits in the south American country’s vast Vaca Muerta formation.

“Within three to five years, there should be exponential growth in drilling as there was in the U.S.,” Edward Morse, head of commodities research at Citigroup Inc., said in an interview. “The big problem isn’t replicating the geology, it’s replicating the critical ingredients that got the American shale revolution going.”

To contact the reporters on this story: Brian Swint in London at bswint@bloomberg.net; Nidaa Bakhsh in London at nbakhsh@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

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