March 2020 – @alvaroriosroca – Fracking in shale formations is a technique developed in the USA that has allowed the country to go from being a net importer of oil and natural gas to being a net exporter. It is known as the revolution of shale gas and shale oil.
The practice consists of drilling horizontally and breaking the shale (mother rock) with sand, water and chemicals at very high pressure and thus stimulating the production of these formations that have very low permeability.
The production of shale gas in the USA started approximately in 2000 and by the end of 2019 the production is 1,926 Million Cubic Meters per Day (MCMD), that is 64 contracts of 30 MCMD between Bolivia and Brazil. Shale oil production begins later in 2004 and by 2019 the USA produces about 8.7 Million Barrels per Day (MMBPD), that is 11% of world production.
The North Americans have been able to make this technique a successful reality for several reasons By allowing and encouraging the private sector to constantly apply new technologies and experiments. By making fracking operations large scale and equipment and supplies accessible. Taking advantage of financing available in the capital markets and above all making use of the legal security that this country has.
North Americans are pragmatic and unlike several Latin American countries that are “nostalgic”, they allow fracking activity to be carried out with due environmental care and protecting water basins, activities that are strictly regulated by technical parameters and by several specialized agencies. There is no such typical opposition from us to oppose for the sake of opposing, or ultimately to oppose in order to take political or economic advantage.
There is another great difference and that is that the State does not own the subsoil but the inhabitants who dwell on these formations. That is to say, these people grant the leases and one should not go through the bureaucratic Pope-State, as is the case in our region. The royalties paid at the wellhead can be estimated at 15 to 18%. With all this, the thousands of companies have managed to substantially lower production costs to compete with conventional oil and gas production and other energy alternatives. Our region will have all or some of these characteristics. Well, no, almost none, starting with our heavy NOC’s.
Let’s analyze now Argentina which is another country that for the last 10 to 12 years has tried to promote fracking in the Dead Cow formation. A very neat and world class shale geologically and with enormous resources to exploit.
Several companies, including the state-owned YPF, are interested in intensively developing Vaca Muerta because the pilot wells demonstrate very competitive production costs. The royalty in Argentina is approximately 12 to 15% and the area of Neuquén is not very conflictive environmentally because it is a desert with a small population. Thus, gas shale production in 2019 has reached 31.52 MMMCD and oil production has reached 90,000 BPD. Note the difference with what has happened in the USA. The problem in Argentina is not the geology, but rather the country conditions.
Colombia is another country that wants to promote shale in the Middle Magdalena Valley in the La Luna formation. The relation reserves/production of gas and oil are under 8 years and this worries the Colombians and shale is an option. Unlike Argentina, there is strong environmental opposition due to the environmental sensitivity of the area. The estimated royalties for the production of the pilot wells to be made could be between 5 and 20%. We will see what happens in the coffee country and where the initiative starts from its state-owned Ecopetrol. It’s been two years of intense debate.
Mexico has enormous shale resources, but nostalgic President AMLO has decided in one fell swoop to put a stop to fracking, without any consideration or environmental, economic or technical study. The fact is that his stubbornness does not allow him to observe what is happening a few kilometers north of the Burgos shale basin, in the empire.
Finally, Bolivia has been talking about the possibility of developing a shale of the Miraflores formation, commanded by its state-owned YPFB. It should be noted that first it will have to pass special legislation to lower the royalties and taxes established in the CPE and the 50% Law, or make some special concession, and then there will be no strong environmental opposition. While for now it is only a dream.
Judge for yourself, dear reader.
*Former Minister of Hydrocarbons of Bolivia and current managing partner of Gas Energy Latin America