The EIA’s Global Shale Estimates Imply Big Opportunities For Energy Majors

In its latest assessment report on technically recoverable shale oil and gas resources globally, the U.S. Energy Information Administration (EIA) notes that these resources can add significantly to the global oil and gas supply. Including the EIA estimates of tight oil resources in the U.S., which are predominantly in shale formations, global shale oil resources can increase the supply of oil by 11%. On the other hand, global shale gas resources can increase gas supply by 47%. ^[1]

Although the economic feasibility of global shale resources outside the U.S. is not reliably known, we believe that the U.S. based oil and gas companies such as Exxon Mobil (NYSE:XOM), Chevron (NYSE:CVX), Anadarko (NYSE:APC) and others can potentially benefit from their expertise in tapping shale resources gained over the last few years. Moreover, if production from shale resources really picks up in some countries as it did in the U.S., it could lead to lower oil prices in the short term which can benefit consumers as well. However, it should be noted that lower real oil prices might also lead to higher demand, thereby potentially reducing the price impact of increased supply.

EIA Report

The EIA report is based on the assessment of 137 shale formations in 41 countries outside the United States. Including the EIA’s estimates of shale resources within the U.S., technically recoverable global shale oil and gas resources add up to 345 billion barrels and 7,299 trillion cubic feet respectively. These estimates are 10% higher than the EIA’s previous estimate in the 2011 report. According to the report, global shale oil and gas resources now account for 10% and 32%, respectively, of all the technically recoverable resources around the world. At 75 billion barrels, Russia leads in the estimated amount of shale oil reserves globally. This is followed by the U.S. and China, where shale oil reserves are estimated at 58 and 32 billion barrels, respectively. China also leads in recoverable shale gas resources with estimated shale gas reserves of 1,115 trillion cubic feet.

Uncertainties

It should be noted that the EIA’s report focuses on technically recoverable resources, which represent volume of oil and gas that can be produced using current technology. Since the report does not assess the economic recoverability of these shale resources, it is difficult to gauge the potential impact on oil and gas prices. The economic recoverability of oil and gas resources depends on the cost of drilling wells, the amount of resources produced from an average well and the prices received for these resources, which again depend on location, quality and ease of transportation.

It is also influenced by geological and above ground factors such as land ownership rights, availability of operators, supporting infrastructure and water used for hydraulic fracturing. Shale reserves around the world are known to vary significantly in both geology and above ground factors. Hence, the economic feasibility of production from these resources is fraught with uncertainties. Therefore, to assume that these shale resources can significantly reduce long term supply side uncertainties under current conditions would be very optimistic.

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1. Technically Recoverable Shale Oil and Shale Gas Resources: An Assessment of 137 Shale Formations in 41 Countries Outside the United States, www.eia.gov [↩]