the climate, and could lead to devastating impacts on the
environment, wildlife and human activity. Oilsands production,
in particular, has been highlighted due to the extra energy
needed to release it from reservoirs and upgrade it to fuel.
Environmental Non Government Organisations (ENGOs) and
other groups have targeted the Keystone XL pipeline as a
proxy, hoping that its demise can stop the increase in oilsands
production.
Pipelines carrying shale oil have largely avoided such
attention due to the smaller amount of extraction energy.
Rather, attention has focused on the process of hydraulic
fracturing, which is used to create sufficient permeability to
allow the economic release of gas and oil from the source
shale.
In the course of hydraulic fracturing, millions of litres of
water are forced underground under high pressure. Some of
the chemicals used in the procedure could contaminate local
drinking supplies, and several jurisdictions have banned it until
more is known. Recently, citizens in the Texas city of Denton
voted to ban further permitting of hydraulic fracturing within
municipal boundaries. Opponents successfully argued that
fracking pollutes air and drinking water, and that the disposal
of the vast amounts of water produced by the drilling process
could cause earthquakes. Denton sits atop an immense
resource; the development of the Barnett shale pioneered the
economic production of shale gas. If opposition grows and
more bans ensue, however, the midstream sector would be
adversely impacted as the growth in gas production slows, or
reverses.
Issues surrounding hydraulic fracturing are being addressed.
The industry has been promoting understanding of the
practice through education efforts and public announcements.
Frack companies are devising new frack chemicals made
from benign household products and food ingredients, and
reducing the amount of water used. Service companies are
building portable modules to recycle frack water that returns
to surface. Norway’s Statoil recently announced a pilot project
where it will use CO
2
to partially replace fresh water used for
fracking in the Bakken.
The future
While environmental concerns are expected to dominate the
oil and gas sector for many years, the greatest impact in the
near-term future is the low price for oil. In 2014, OPEC decided
to maintain production of 30 million bpd and allow prices
to erode in an attempt to maintain market share. The price
for a barrel of oil tumbled from over US$100 to under US$50.
Generally, shale oil exploration and production is economic in
the US$60 - 80 range, placing many plays in jeopardy.
Companies in North America quickly responded; several
billion dollars has been slashed from exploration budgets,
and rig counts have fallen dramatically. Although North
American oil production will continue to climb over the next
year or two thanks to long-term oilsands projects coming
onstream, production of oil and gas from shale sources will
dwindle more dramatically due to rapid declines in shale
well production rates. Eventually, rates will reverse, taking
downward pressure off of oil prices, but also putting some
proposed crude pipeline projects on hold.
Likewise, certain gas line projects are likely to be affected
by low crude prices. In Canada, several LNG exporting facilities
have been proposed in British Columbia. EnCana, Apache
Canada and EOG Resources received approval from the NEB
to build the CAN$5.6 billion Kitimat LNG project, capable of
liquefying 1.4 billion ft
3
/d. All in all, the NEB has approved over
14 billion ft
3
/d LNG capacity.
The recent tumble in crude prices has had a knock-on
effect in the LNG sector, where prices are linked to crude. One
year ago, Japanese utilities were paying over US$15/million ft
3
on the spot market; prices are now down by half. In late
2014, Malaysia’s Petronas and partners announced that they
were deferring a final investment decision on the proposed,
CAN$36 billion Pacific Northwest LNG project; if more LNG
projects are postponed or cancelled, pipeline projects such
as Spectra’s Westcoast Connector and TransCanada’s Prince
Rupert line would be unnecessary.
While short-term commodity fluctuations and concerns
over climate change are expected to cause volatility in the
oil and gas industry, thanks to shale, the long-term prospects
for the midstream sector remain bright. Existing basins are
only beginning to reach maturity, and a score of new plays
beckon. According to the Interstate Natural Gas Association
of America (INGAA), North America will need to spend almost
US$641 billion over the next two decades (approximately
US$30 billion annually), to handle all the new gas, crude oil
and natural gas liquids (NGLs) coming onstream.
And, beyond that, new shale sources around the world
beckon. The UK Department of Energy and Climate Change
(DECC) issued a British Geological Survey that estimated the
Bowland shale and Hodder shale (in the north of England)
held 1328 trillion ft
3
of gas in place. The EIA has estimated that
26 trillion ft
3
are technically recoverable. Recently, Nutech
Ltd. Drilled into the Weald basin of southern England and
discovered up to 158 million bbls per square mile of oil in
place in low permeability mudstones.
According to the US Department of Energy, Poland
has shale gas reserves of 785 trillion ft
3
, of which
185 trillion ft
3
is immediately available for extraction. China
is the leader in shale gas reserves, holding approximately
1275 trillion ft
3
. Argentina contains significant unconventional
reserves; according to the EIA, the country could hold up to
774 trillion ft
3
of recoverable shale gas, mostly in the Neuquen
basin in western-central Argentina, and Golfo San Jorge, in the
southeast.
Although the economic, regulatory and fiscal regimes
differ from region to region (as do general public perceptions
towards hydraulic fracturing), most jurisdictions are eager
to benefit from the revolution that has transformed energy
in North America. For the next several decades, as new
international plays enter into economic reality, the midstream
sector will benefit from the exploration and production of
shale resources around the world.
88
World Pipelines
/
JULY 2015
