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Could the North American Shale Boom Happen Elsewhere?

by Blake Clayton
March 15, 2013


The dramatic takeoff in oil and gas production in the United States and Canada over the last half decade has left many people asking whether a similar boom will happen in other countries. It’s a good question. To answer it, you have to start by identifying what critical factors enabled the boom to happen here, then figure out whether these same enabling factors exist elsewhere.

Here’s a quick list of seven of these enablers. They vary in importance. Some are essential prerequisites to any shale production gains, like suitable geology. Others are catalysts: Without them, shale production is still possible, but will come much more slowly than it has in North America. The mineral rights regime is an example.

  1. Mineral rights regime: Land owners in the United States and Canada also own the subsurface rights to minerals found on their property. This is a highly unusual legal regime, but one that proved critical in launching the hydrocarbon boom by allowing landowners to negotiate directly with oil and gas companies for drilling rights. Of all the seven factors, this one was unquestionably one of the most important reasons why the boom has proceeded at the pace and volume that it has.
  2. Geology: The United States and Canada are blessed with some of the most prolific shale resources anywhere. Unless you’ve got the reserves, all the other ingredients won’t get you far.
  3.  Water supplies: Fracking is a water intensive process. Each well can require upwards of five million gallons of water, according to Platts, which are injected along with sand and other substances.
  4. Low population density: Unlike some other parts of the world, like the United Kingdom, much of North America’s shale reserves are located beneath places that are relatively sparsely populated. That extra elbow room means an easier operating environment for the industry and less headache for regulators.
  5. Deep capital markets: Financing small, risky drilling operations—the kind of undertakings required for an ultra-competitive upstream marketplace—are nothing new in this part of the world.
  6. Cutting-edge oil service companies: The technical capabilities that service companies like Halliburton offer have allowed new entrants to play in the shale space and even older operators to improve their metrics over time.
  7. Infrastructure: The U.S. oil and gas pipeline network, to name just one facet of the supply chain, is the most prolific in the world—and even it has been swamped by recent years’ output growth. Roads, rails, and other transportation infrastructure have been critical in allowing production to ramp up by linking wells to the marketplace.

I’m sure there are others beyond the seven I’ve outlined here.  Anyone trying to project if or when shale production will get off the ground in a serious way beyond the United States and Canada will have to start by seeing whether the right conditions apply.

Post a Comment 4 Comments

  • Posted by Andy Revkin

    Good initial list. Some relevant discussion of shale gas prospects and problems in India and China can be found here: A Look at the Role of Policy in America’s Shale Oil and Gas Era

  • Posted by Dan Woynillowicz

    Interesting post, Blake.

    A correction though — the mineral rights regime in Canada is dominated by public ownership via the Crown (provinces hold the vast majority of mineral rights, or the Federal government in the case of the territories).

    However, even with public ownership the same economic motivations apply – provincial governments have been very keen to exploit their shale gas resources in light of the associated revenue (from mineral rights auctions, production royalties, taxes).

    As in the US, public concerns about shale gas development are on the rise and questions are arising about whether governments are actually collecting their fair share of revenue (from royalties) from the exploitation of public resources, and whether they are appropriately managing these revenues (e.g treating as a general revenue income stream vs. one-time income, a portion of which should be saved).

  • Posted by Doug Matthews

    Good piece but one very big error.

    “Land owners in the United States and Canada also own the subsurface rights to minerals found on their property”
    In all Canadian provinces west of Ontario, the subsurface estate belongs to the Crown, not the surface landowner.
    In Manitoba, it’s about 80/20 private/Crown and then in Saskatchewan, Alberta and British Columbia virtually 100% Crown subsurface with a few, limited, exceptions.
    Hope this helps.
    Doug Matthews

  • Posted by Andy Skuce

    As Doug said, private holding of mineral rights had no influence at all in Western Canada. The fact that all of the subsurface rights were held by the Crown and administered in a uniform, industry-friendly way by the provinces, probably helped companies in acquiring big land positions and making large scale plans.

    Conventional gas production had been known and regulated in much of Western North America for decades and was easily tolerated by landowners since there was typically only one well per square mile. Intensive unconventional gas development, that, in comparison, industrializes the landscape, came in by stealth, taking advantage of relatively permissive regulation.

    It also helped that gas prices were relatively robust during the formative years of 2003-2008, with the occasional price spike. There were expectations that a gas shortage was looming and that high prices would be there to stay. I don’t think anyone in 2005 was foresaw a glut and a price slump.

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