Latin America - a growing force in shale gas development?

Latin America’s energy consumption is forecast to grow significantly with natural gas use at 7.6 trillion ft³/d in 2012 and forecast to reach 16 trillion ft³/d in 2040.

The US Energy Information Administration (EIA) shale resource report issued in June 2013 focused attention on Latin America and contains additional data and refined estimates. Whilst the updated EIA report may not be as ground breaking as the 2011 report, it highlights the potential significant role of shale development in Latin America.

Shale potential

Argentina, Brazil and Venezuela were identified as countries holding the largest promise.

Argentina

Argentina rose to second in the world for shale gas with technically recoverable resources of 802 trillion ft³ of gas (and fourth in shale oil with 27 billion boe). There has been recent shale activity in Argentina and in July 2013 national oil company YPF announced a joint venture with Chevron, promising an initial investment of US$ 1.24 billion in the prominent Vaca Muerta formation.

Brazil

In Brazil, the EIA report suggests that large opportunities exist in shale notwithstanding the focus on offshore pre-salt resources.

Brazil was ranked tenth globally for shale gas reserves with 245 trillion ft³ of gas, as compared with 226 trillion ft³ of gas in the previous report (and having 5.4 boe of shale oil). The biggest upside may be six other basins identified by the EIA with shale potential but having insufficient geological information to quantify reserves.

Venezuela

One of the most notable victors in the report is Venezuela. It is anticipated to have 167 trillion ft³ of gas up from an estimated 11 trillion ft³ of gas in 2011 and it is also ranked sixth in the world for shale oil. The EIA report was only able to evaluate the Maracaibo basin in western Venezuela and shale potential in the eastern part of the country is as yet unknown.

Other countries identified in the region with shale potential are Mexico (ranked sixth globally with 545 trillion ft³ gas and seventh with 13.1 billion boe), Columbia (55 trillion ft³ gas and 6.8 billion boe oil), Uruguay (down from 21 to 2 trillion ft³ gas and 600 million boe oil), Bolivia (36 trillion ft³ gas and 600 million boe oil), Chile (49 trillion ft³ gas and 2.4 billion boe oil and Paraguay (75 trillion ft³ gas and 3.7 billion boe oil).

Challenges to shale gas development in Latin America

Argentina

The development of shale gas in Argentina is undoubtedly complex, costly and challenging. Significant levels of investment are required for the number of wells, hydraulic fracturing capacity, sourcing of water and disposal of wastewater, logistics, transportation and infrastructure.

Just over a year ago the nationalisation of YPF prompted claims from Repsol which highlighted key concerns for investors. Political and economic factors coupled with inflation, exchange rate restrictions and general regulatory uncertainty means Argentina is not an easy place to develop and produce unconventional reserves.

Venezuela

PDVSA, the Venezuelan state-owned oil and natural gas company, has historically dominated the country’s oil and gas industry. Venezuela has significant resources, which are yet to be developed to their full potential as a result of restrictive government policies bringing high costs and high risks for investors.

The future of the Venezuelan oil industry, and of Venezuela itself, is uncertain but Nicolas Maduro is expected to continue Hugo Chavez’s policies of government involvement in PDVSA resulting in challenges for outside investors in the context of shale gas development.

Brazil

On 5th August, 2013, Brazil’s energy policy council (CNPE) authorised oil and gas regulator Agência Nacional do Petróleo, Gás Natural e Biocombustíveis (ANP) to conduct the country’s 12th bid round, which will include 240 onshore blocks in seven different basins – Acre, Paraná, Parecis, Parnaíba, Recôncavo, São Francisco, and Sergipe-Alagoas.

Brazil’s 12th bid round is scheduled to occur on 28 - 29th November, 2013. Whilst Brazil is not new to unconventional oil and gas production, tight oil production is negligible and as yet there is no commercial shale gas production.

Environmentalists have expressed concerns over potential damage and in addition to addressing environmental issues developers will also need to satisfy local content requirements. The unknown potential of shale gas deposits coupled with the need to overcome technological challenges indicates that Brazil is likely a number of years away from first shale gas production.

Conclusion

Notwithstanding the challenges, shale gas development in Latin America has been inspired by the shale boom in the US. Countries such as Argentina, Brazil and Venezuela will undoubtedly pursue opportunities to make shale production a viable and competitive option in the future to meet increasing demand for natural gas.

Further resources

• Read the EIA report here - www.eia.gov/analysis/studies/worldshalegas/
• Read more about Brazil’s 12th bid round here - www.anp.gov.br
• Read more about PDVSA here - www.pdvsa.com
• Read more about YPF here - www.ypf.com/Paginas/Home.aspx

Author: Written by Hannah Longley, Baker Botts LLP
www.bakerbotts.com/hannah-longley/

Read the article online at: https://www.hydrocarbonengineering.com/special-reports/15082013/special_report_latin_america_a_growing_force_in_shale_gas_development/