Shale Gas Boom Goes Global
Tony is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The shale gas boom in the United States is a well-known story to energy investors. But another story is much less familiar to investors. The exploration for shale gas and its extraction through hydraulic fracturing (fracking) is quickly becoming a global phenomena.
Major international energy companies are searching for shale gas in all corners of the globe, including Argentina, Australia, China, South Africa and eastern Europe. In deciding where to explore, the oil majors followed simple logic: They looked for the most promising shale basins that were located near the most lucrative natural gas consumer markets.
The answer the oil companies came up with? Eastern Europe, a region looking to get out from under the thumb of Russia and its gas company, Gazprom (NASDAQOTH: OGZPY.PK). The region imports about 69% of its natural gas from neighboring Russia and Gazprom. The company hold the world's biggest natural gas reserves, with 18% of the total, and also accounts for about 15% of the world's annual natural gas production.
One of the most aggressive companies acquiring acreage in eastern Europe is Chevron (NYSE: CVX). The company's focus is the region from the Baltic Sea to the Black Sea called the Trans-European Suture Zone. Chevron has been buying up gas properties in Poland, Romania, Bulgaria and the Ukraine. It has acquired 6,250 square miles in the region since 2009.
The most promising of these areas in eastern Europe seem to be Poland and the Ukraine. It is believed the Ukraine has Europe's fourth largest shale gas reserves and the current government is open to outside investment, inviting in western oil companies to help unlock its potential. Ukraine's government has picked Chevron and Royal Dutch Shell PLC ADR (NYSE: RDS-B) to lead large-scale exploration for shale gas. Shell general manager for Ukraine exploration and production, Graham Tiley, believes that the country can eventually become a gas exporter, a far cry from currently where Ukraine's gas bill annually from Russia has reached above $12 billion.
Poland is another jewel in energy companies' eyes, after the US Energy Information Administration said last year that the country may hold 5.3 trillion cubic meters of shale gas, the largest reserves in Europe. However, the country suffered a blow in June, after ExxonMobil (NYSE: XOM) ended its exploration efforts in the country following tests at two wells in eastern Poland that failed to find natural gas in commercial quantities. Exxon has six properties in Poland. But the real reason why it is abandoning Poland is that it sees a much bigger opportunity in Russia where it will develop Siberian tight oil reserves with Russian oil giant Rosneft.
The Exxon disappointment followed a downgrading of Poland's shale gas reserves by the government itself, to reserves of between 346 billion and 768 billion cubic meters of gas. If that estimate is accurate, Poland may never be a big exporter of natural gas. But it will be enough natural gas to get it away from Gazprom which currently supplies about two-thirds of the country's gas needs.
Poland is a great example of what the problem is in eastern Europe, and why it is surprising Exxon gave up after only two wells. The region is vastly underexplored, and no one is really sure how much natural gas lies underground there in shale deposits. More wells need to be drilled, as happened in the United States, in order to really get a good understanding of the geology and the size of the shale basins. That will likely take several more years of drilling by companies such as Chevron to get a handle on what actually is in the ground.
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