This question keeps getting repeated: “Will shale gas and tight oil technologies proliferate beyond North America?”
Of course they will. There is no precedent for game-changing innovations in any business to respect territorial boundaries. So some remaining questions are, under what conditions will shale gas and tight oil be developed in other countries, how long will it take, and where first?
With respect to necessary conditions, it seems Texas has the right stuff. At a major conference in Dallas last week, a few thousand exuberant U.S. oil and gas executives were gushing over recent production growth from unconventional resources. North Dakota’s Bakken seems like yesterday’s news as attention now shines on the productive oil potential of the legendary Texas Permian Basin.
The stock, U.S. oil man’s answer to what drives such domestic exploration frenzy is the American principle of landowners’ mineral rights – if you own the land on the surface you also have title to the oil and gas beneath your feet. This alignment of financial interests between private landowners and oil companies lubricates the wheels of capitalism like nowhere else. Ergo, the converse argument goes, we are unlikely to see meaningful shale gas or tight oil development in other parts of the world, where no such subsurface benefits accrue to the landowner. But there are flaws in this line of thinking.
For one thing, there have been plenty of game-changing innovations in oil and gas exploration and development over the past 150 years – rotary drilling, offshore platforms, 3D seismic to name a few – all of which have been put to work around the world. Further, Canada's minerals are largely the property of the Crown, yet the country has grown to be the fourth-largest producer of oil and gas in the world and has readily embraced, and in fact helped pioneer, innovations in unconventional resource development. Beyond North America, countries with state-owned oil enterprises and limited property rights are also places that have developed the most prolific oil and gas production; Russia and Saudi Arabia come to mind.
Although property rights are a debatable catalyst, germinating a shale gas or tight oil revolution does require a special condition that Canada and the U.S. can claim a lead in (for the moment): An abundance of adaptable infrastructure.
Since the origins of the North American oil and gas business in the late 1850s, trillions of dollars have been spent on building a responsive, critical mass of oil field service equipment, upstream processing facilities, pipelines, roads, railroads, electrical power lines, and all the other infrastructure needed for operating a large-scale, efficient industry. Other big producing countries have varying degrees of iron, too, however the concept of infrastructure isn’t limited to rigs, tanks and pipes.
A highly evolved regulatory bureaucracy for oil and gas is a major asset in places like Texas and Alberta, and is something that is lacking in many regions thought to have unconventional resources, for example Eastern Europe. But the real secret sauce is the now-public knowledge gained from drilling hundreds of thousands of wells. After 150 years of drilling, the North American industry knows the location of the most prolific oil and gas reservoirs, especially ones like the Permian Basin that were considered old and “mature” less than a decade ago. Going back to these established fields with new drilling and completion technologies means that there is no need to waste time poking holes in the ground to see if something is there; the only debate is how much more can be recovered. New technology, infrastructure and equipment, regulatory sophistication, and long-standing knowledge are fertile conditions for the current domestic boom. When combined with free market capitalism, it’s a system that is difficult to replicate.
Although the conditions may not seem aligned in other countries that have shale gas and tight oil potential, it’s only a matter of time before large producers wake up. They’ve been asleep, because they haven’t felt the most important condition of all: Competitive pressure.
To this point, the impact of aggressive unconventional resource development has remained bottled up in Canada and the U.S. Big oil and gas producers around the rest of the world have been immune to North American price pressures and the need to compete for market share. This is likely to change over the next five years as LNG tankers start to sail. Similarly, as more domestic oil displaces American imports, pressure will be felt by big global producers to respond. Like any business with stale and unchallenged processes, it takes an assault on market share to launch innovation.
There is nothing that speeds up the adoption of new technologies and processes faster than the heat of global competition. When? The proliferation of shale gas and tight oil technologies will happen well before the end of the decade. And when the rest of world starts producing shale gas and tight oil in meaningful quantities, the next question that will be repeated will be, “What now?”