Middle East Shale: Potential and Implications

EAGE Workshop Jordan, September 2013

1

Middle East shale – overlooked, but important

“Middle East [was] not addressed by the current study. This was primarily because there [are] significant quantities of conventional natural gas reserves” (EIA 2011) “Shale gas is neither plentiful nor cheap” – Qatar Petroleum (2010)

Middle East Shale: Key points

• Most attention to date has focussed on impact of North American shale gas/oil on the Middle East

• But MENA shale raises important questions:

– Does MENA have shale oil/gas resources? Where and how much?

– Does the region need to develop its shale oil and gas?

– Can the region develop shale resources technically & economically?

– What are the challenges to be overcome?

Global Shale Impact

4

0

100

200

300

400

500

600

700

800

900

Jan-04 May-05 Sep-06 Feb-08 Jun-09 Nov-10 Mar-12

Oil

pro

du

ctio

n (

kbb

l/d

ay)

Qatar

Ecuador

North Dakota

US shale boom – North Dakota (Bakken) overtakes smallest 2 OPEC members

5

Global gas resources

0

2000

4000

6000

8000

10000

12000

14000

Asia & Australia North America Former SovietUnion

Middle East &Africa

Latin America Europe

Gas

re

sou

rce

s (t

rilli

on

cu

bic

fe

et)

Tight gas

Shale gas

Coalbed methane

Conventional gas

Source: Rogner (1997), EIA (2011, 2013)

• Shale means a huge jump in global resources

• Detailed assessment of Middle East unconventional gas not publicly available

• MENA’s dominance in conventional gas challenged by unconventional gas

23/07/2015 6

Shale gas can reshape gas trade flows

• White: satellite imagery of lights = energy demand

• Purple Red: global gas basins, in increasing size of resources (USGS)

• Yellow: main current and future export routes for Middle East gas

Significant shale gas potential

Less LNG demand in Europe?

North African shale gas to Europe

Australian shale-to-LNG

Lower Chinese (and Indian?) LNG imports

North American shale-to-LNG

v

New conventional gas

More intra-MENA gas trade?

MENA shale resources

8

Early Silurian: Qusaiba, Mudawarra

9 Source: Afifi (2004)

Middle Jurassic: Sargelu, Naokelekan

10 Source: Ziegler (2001)

Late Jurassic: Jubaila-Hanifa

11 Source: Ziegler (2001)

Early-Middle Cretaceous: Garau/Sulaiy; Kazhdumi

12 Source: Ziegler (2001)

Palaeogene: Pabdeh, Aaliji

13 Source: Ziegler (2001)

Abu Dhabi examples: Diyab, Shilaif

14 Source: Ahmed K. Taher (2010)

• Shilaif (Mid-Cretaceous)

• 31 billion bbl generated, most not migrated out of source rock

• Diyab (Late Jurassic)

• Well B1 tested 1000 bpd from natural fractures

Middle East shales compare favourably with USA

Country Shale Age TOC % Thickness (m)

Oman Athel Silicilyte Infracambrian-Cambrian

4-7 50-1500

Regional Qusaiba Silurian 4-12 20-70

Jordan, Iraq Mudawwara Silurian 4-7 50-1500

Turkey Dadas Silurian 2-8 30-61

Iraq Chia Gara Jurassic 2.5-7.5 30-300

Iraq, Iraq, Kuwait Nahr Umr Cretaceous 0.4-14 150-220

Iran, Iraq Pabdeh Palaeocene 3-7.5 150-220

USA Barnett Carboniferous 4.5 90

USA/Canada Bakken Devonian-Carboniferous

10-20 46

• Middle Eastern shales often deep (4000+ m) – but comparable to Haynesville

• Likely many are high liquids; carbonate rich (easier to fracture)

Numerous different Gulf unconventional gas plays

• Gulf unconventional plays varied, potentially large

• Sour and contaminated gas (CO2, H2S, nitrogen)

• Tight gas (sands & carbonates)

• Shale gas, condensate and oil

• Deep and ultra-deep

• Mixed resources (e.g. deep, tight and sour)

Source: PacWest; Manaar research

CURRENT ACTIVITY

• Also: Egypt, Tunisia, Algeria

MENA gas: Shale resources significant locally and globally

Sources: BP, USGS, EIA, Petrenel, Baker Hughes, Manaar research

0

200

400

600

800

1000

1200

1400

1600

1800

Gas

re

sou

rce

s (T

cf)

Shale gas (Tcf)

Exploration potential (Tcf)1

Gas reserves (Tcf)

Middle East need for shale

18

Does Middle East need to produce shale oil?

0

20

40

60

80

100

120

2010 2015 2020 2025 2030 2035

Demand

Non-OPEC + NGLs

OPEC

Source: OPEC Bulletin & World Oil Outlook

• OPEC itself sees only slow

growth in call for its crude

• Forecasts a slowly-falling

market share from 34% today

to 32% by 2015-35

• Competition for new supplies

from Iraq, Iran, Libya, etc

• However shale oil can be

important for non-OPEC

producers

• Oman, Egypt, Tunisia, etc

• Algeria?

• Associated liquids - Kuwait

19

20

-5

0

5

10

15

20

25

2008 2015

Ga

s e

xpo

rts/im

po

rts (

Bcf/

da

y)

UAE Jordan

Bahrain Kuwait

Syria Iran

Lebanon Israel

Yemen Oman

Libya Egypt

Algeria Qatar

Source: Fattouh & Stern,eds. (2010)

-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

2008 2015

Gas

exp

ort

s/im

po

rts

(Bcf

/day

) Jordan Bahrain

Kuwait Syria

Iran Lebanon

UAENet gas exports / imports Net importers only

Does Middle East need to produce shale gas?

Long-term global gas export balance

• Middle East and Africa are

the two major exporting

regions

• Asia is the major importing

region

• Russia supplies Europe

• Big change is the emergence

of North American gas exports

after 2015

• However, total Middle East

gas exports do not grow much

and it falls behind Africa

-35.0

-25.0

-15.0

-5.0

5.0

15.0

1990 2000 2010 2020 2030

Gas

exp

ort

s (B

cf/d

ay)

North America S & C America

Europe & Eurasia Middle East

Africa Asia Pacific

Abu Dhabi: gas supply squeezed to 2016

0

2

4

6

8

10

12

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Ga

s s

up

ply

/d

em

an

d (

Bcf/

da

y)

Bab Hail Shah

IGD AGD-II OGD-III

Imports Existing fields Demand

Oman: needs unconventional gas to maintain LNG exports

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Ga

s s

up

ply

/d

em

an

d

LNG exports

Oil sector

Industry

Power

Supply

Gas policy motivations vary by country

-10%

10%

30%

50%

70%

90%

-100% -50% 0% 50% 100%

% p

ow

er

gen

era

tio

n f

rom

oil

Net gas imports

Iran

Saudi Arabia

Yemen Iraq

Libya

Kuwait

Syria

Egypt

Oman

Algeria Qatar

Abu Dhabi Bahrain

Tunisia

UAE - Northern Emirates

Morocco

Jordan

Dubai

Lebanon

Bring gas to domestic consumers

Limit dependence on gas imports

Save domestic oil for export

Grow domestic gas to sustain exports

23/07/2015 24

Bubble size indicates market size

Implications of soaring MENA gas demand

• Need for improved efficiency and end to gas flaring

• Challenges to gas-based industrialisation & job creation

• Need for new gas exploration & development

• Power cuts and unrest

Challenges to overcome

26

MENA unconventional gas SWOT analysis

Strengths Weaknesses

• Strong existing transportation networks and infrastructure

• Numerous organic-rich shale/carbonate horizons

• Carbonate-rich shales (easy to fracture)

• Preferential pricing for shale gas (Oman)

• Incentives for exploration and development (Algeria new Petroleum Laws)

• Fast-growing, gas-short domestic markets

• More expensive to produce than conventional gas

• Gas prices not high enough to support high costs

• Water scarcity

• Lack of drilling and exploration resources in North Africa at present as well as skilled labour

• Only 3 dominant pumpers in the MENA: Schlumberger, Baker Hughes and Halliburton

• Deep reservoirs

• Uneven distribution of gas reserves between countries

• Traditional mindset of NOCs

Opportunities Threats

• Adequate resources of shale gas and tight gas

• Gain to export in thriving gas industry

• Local market conditions - gas shortage countries have potential for long term gas supply contracts

• Many unexplored reserves in North Africa and Iraq

• Saline-water & non-water fracs such as CO2 and LPG to alleviate water shortages

• Insufficient increases in gas prices

• Lack of adaptation of fiscal regimes

• Environmental opposition in Egypt and Tunisia

• Political instability, particularly in North Africa

• Competition from exports from US, East Africa, East Mediterranean

Gas prices have to rise to support shale gas development

US shale break-even prices (source: Antero)

Saudi Arabia current: $0.75

Bahrain current: $2.25

Iran target: ~$6

Gas pricing reform slowly materialising

0

5

10

15

20

25

Gas

pri

ce e

qu

ival

en

t ($

/MM

Btu

)

29

LOW LEGACY PRICES

HIGH NEXT-GENERATION PRICES

INTERNATIONAL BENCHMARKS

HIGH-COST FUELS

HIGH NEXT-GENERATION PRICES

Source: Manaar research 29

Unconventional gas still competitive

• Alternative generation (solar, nuclear, coal CCS) is cheaper than LNG or oil

• However, high-cost domestic gas (e.g. unconventional) at ~$8/MMBtu is still

competitive against alternatives

30

Source: Manaar research

23/07/2015

Gas/oil fuel prices $/MMBtu

0

5

10

15

20

25

Ele

ctri

city

ge

ne

rati

on

co

st (

$₡

/kW

h)

Dubai retail rate

Kuwait retail rate

MENA frac capacity not insignificant today, but well behind China, Russia

Source: PacWest Consulting Partners; Manaar research

MENA to see fast growth in frac capacity, but still small in global terms

Source: PacWest Consulting Partners; Manaar research

Conclusions

• Shale oil and gas present both challenge and opportunity to MENA

• MENA likely to have large shale oil & gas resources, spread across many

countries

• Less immediate need for shale oil given market constraints

• But could be important in non-OPEC, second-tier producers

• Shale gas potentially important in meeting regional gas demand

• Relevant to almost every country

• Barriers to development

• Mainly: commercial terms, low gas prices

• Also: water, service companies, deep reservoirs

• Region gearing up to activity: Jordan, Saudi Arabia, Oman, Algeria, Abu

Dhabi, etc

Robin Mills,

Head of Consulting,

Manaar Energy Consulting,

Dubai, UAE

robin.mills@manaarco.com

+971 4 326 6300

+971 50 293 4668

www.manaarco.com

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