Following in the footsteps of China, Southeast Asia is taking its first steps in shale gas and oil exploration. Indonesia has awarded its first exploration contract, while Myanmar is also seen as a promising area.
However, commercial production could be years away given the high costs and risks in the exploration process. No one in the industry is sure whether any sites in Asia will be able to replicate the success seen in the United States.
The shale revolution is well under way in the United States, where advances in technology have made the extraction of oil and gas from shale rock formations economically viable, if not environmentally controversial. But the prospect of dramatically reducing dependence on imported oil and gas has been a powerful incentive in the US.
Asia could see similar benefits if development proves feasible. Shale gas and oil deposits in China are estimated to be larger than the combined amount in the US and Canada. China has already begun exploration. Its Ministry of Land and Resources forecast shale gas production would reach 6.5 billion cubic metres per year by 2015. The target by 2020 is 60-100 billion cubic metres per year.
In Southeast Asia, most countries except Malaysia and Brunei rely heavily on oil and gas imports from the Middle East. Even Opec member Indonesia has been a net importer of oil since 2004 as domestic production is not enough to serve rising demand.
Indonesia in 2011 produced 2.5 million barrels per day of crude oil on average from 4 billion barrels of proved reserves; however the daily consumption is 3.1 million barrels.
In May this year, Indonesia’s Energy Ministry awarded a contract for shale gas exploration in the Sumbagut block in North Sumatra to state-owned Pertamina. The block is estimated to hold around 18.56 trillion cubic feet (Tcf) of shale gas. The company expects to spend six years on exploration with initial production of 40 million standard cubic feet per day (MMscfd), rising to 100 MMscfd in 2020.
Jakarta intends to offer two more shale gas blocks for auction by the end of this year: Kisaran in North Sumatra and West Tanjung in South Kalimantan. They are located in conventional gas fields so it is possible that they also have unconventional gas.
The energy ministry of Southeast Asia’s largest economy estimates the country has around 574 Tcf of shale gas reserves.
Advanced Resources International Inc (ARI) recently conducted the “World Shale Gas and Shale Oil Resource Assessment” report for the US Energy Information Administration (EIA). It evaluated resources in 26 regions, comprising 41 individual countries. Technically recoverable shale gas and oil in 95 shale basins and 137 shale formations are evaluated.
In Asia, the report looked at 24 basins and 38 shale formations in China, Mongolia, Thailand, Indonesia, India, Pakistan, Jordan and Turkey. Myanmar was not included in the report.
Two-thirds of the assessed, technically recoverable shale gas is concentrated in six countries; China is the only one in Asia among them. For shale oil, China is also on the top list.
However, Asia overall is rich of shale oil and gas (see chart). By country, China is ranked second for technically recoverable shale gas resources with 1,115 trillion cubic feet, and is third for technically recoverable shale oil with 32 billion barrels.
Two countries in Southeast Asia — Thailand and Indonesia — were mentioned in the study. Indonesia has shale gas and oil potential within selected marine-deposit formations and more extensive shale resources within non-marine and often coal-filled shale deposits. The best overall potential appears to be mostly oil-prone shale within the Central and South Sumatra basins, near a conventional oil and gas field.
ARI said that while no shale gas or oil exploration activity had been reported to date in Thailand, the Khorat, Northern Intermontane and Central Plains basins had significant potential.
The Khorat basin has an estimated 5 Tcf of risked technically recoverable shale gas resources.
Songpope Polachan, director-general of the Department of Mineral Fuels at the Energy Ministry, said that although the Khorat basin appeared promising, the reserves were yet to be proved. However, the non-marine shale deposits in northeastern Thailand are harder than those in the United States and difficult to fracture.
As well, he said, the oil- and gas-rich shale in the area is as far as two kilometres underground in northeastern Thailand compared with 800 to 1,000 metres in the US. “This makes shale gas and oil exploration in Thailand more difficult and costly than activity in the US,” he said.
However, the department has not shut the door on exploration. Up for bids in the 21st petroleum concession bidding round will be the Phu Phra block in Sakon Nakhon province. Esso explored the block around 30 years ago and found potential for shale gas.
“The average investment cost of conventional petroleum exploration in Thailand is US$10 million per block, whereas the cost of unconventional gas like shale rock can be $40 million,” said Mr Songpope.
“It’s not worthwhile to invest such a huge budget with no idea whether the result will be fruitful. It does not work for Thailand. We should focus on conventional oil.”
Cost is also a barrier for Indonesia. A well for shale gas in Indonesia is expected to cost $8 million, compared with $2 million to $3 million in North America.
A source from PTT Exploration and Production Plc, Thailand’s largest E&P company, said the company was more interested in exploring shale gas and oil in the United States than in Thailand.
Dr Siri Jirapongphan, executive director of the Petroleum Institute of Thailand, said Thailand still had abundant conventional oil and gas resources for many years.
“Who would think of spending huge money for shale gas when they can spend less to produce conventional oil and gas? Besides, we don’t even know whether we have shale gas and oil reserves,” said Dr Siri.
In his view, if Thailand really wanted to explore shale resources, it would require government funds because the financial risk to the private sector is too great. “The process needs to be changed if Thailand really wants to know whether we have shale gas resources.”
Mr Songpope said Myanmar had marine shale formations that might interest some of the foreign companies interested in the country’s oil and gas industry.
Myanmar expects to open around 20 offshore oil and gas shale blocks for auction soon.
Olivier Massman, a partner with Duane Morris Vietnam and a member of the supervisory board of PetroVietnam Insurance, said one of his clients was exploring shale gas and oil potential in Myanmar. He does believe that a number of E&P companies are doing the same.
“Southeast Asian countries actually should shift their focus to exploring shale gas and shale oil. There are lots of implications for them,” he said. “They can reduce reliance on oil and gas imports from the Middle East. It may take time, but they at least should realise that shale gas and shale oil are their future.”
Maria van der Hoeven, executive director of the International Energy Agency (IEA), also sees implications for Asia because if shale gas production cost is low, it will pull down power costs, as has happened in the United States. However, Asia could not just “copy and paste” the US shale experience.
“In the US, all land assets, both on the ground and underground, belong to the land owners, so the process is not complicated,” she said. “In comparison to Asia, don’t forget that this region has more biodiversity. In Indonesia, for example, people are concerned about biodiversity protection. So, Asians should find their own ways for exploring shale resources in environmentally friendly solutions.”
Standard & Poor's Ratings Services said in a recent report that it may take more than five years to make shale gas exploration and production feasible in Asia, and even then the cost could be high because of challenging terrain. Inadequate skills of local exploration personnel could be another hurdle.
As well, regulatory and environmental policies such as fixed regulatory controls on gas prices in some countries make it uneconomical to extract shale resources, it said.
Despite the challenges, S&P remains optimistic about shale gas exploration in Asia Pacific. “The need for energy security, the push for lower-emission fuel, and robust energy demand are likely to spur Asia-Pacific countries to pursue commercial production of shale gas and oil, in addition to other hydrocarbons,” its analysts wrote.