Hydrocarbons’ great divide
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The recovery of hydrocarbons is like wringing blood from a stone. Some hydrocarbons are thinner than blood (and some much thicker) and some rock is more squeezable.
Unsurprisingly, the industry has chosen to extract the most technically and economically attainable hydrocarbons first.
The single unifying characteristic of ’unconventional’ hydrocarbons resources is therefore prosaic: they are more difficult to produce than ’conventional’ resources. In many cases the technologies needed are not new, although there is a higher rate of innovation for unconventional resources. Hence many commentators consider unconventionals to be ’difficult to produce’.
This ’difficult to produce’ label has many manifestations and implications, but one of the most important aspects is equally simple - uncertainty. For unconventionals the volumes of product recoverable are more uncertain and the cost of production (currently) tends to be much higher and more uncertain. This means comparable profit margins are likely to be more uncertain, and therefore that the developments are far more exposed to the vagaries of volatile product prices.
Unconventional resources themselves can be technically difficult to locate and define; expensive to explore for and delineate; have relatively low product value; be troublesome to produce and process; or present exceptionally high consequences of failure. Unconventionals frequently present a combination of all these factors.
Hydrocarbon resources currently considered to be unconventional include high-pressure, high-temperature; heavy oil; shale gas; coalbed methane; deep water; shale oil; pre-salt. Some of the techniques used have created headlines recently, so it is probably worth a few minutes to examine these issues in a little more detail.
There has been much written recently on the impact of shale gas development on water aquifers, with allegations of toxicity and gas leakage among the most prominent. Freshwater sources that are tapped for human consumption or agricultural purposes are seldom more than a two- or three-hundred metres deep, whereas most conventional hydrocarbons occur well below those levels. The hydrocarbon industry has been penetrating aquifers for decades (a large percentage of all hydrocarbon wells) and has well-developed and proven sealing/cementing methods for preventing any significant impact. While there is always a possibility that a particular well may fail, or that an operator may adopt unsafe procedures, these would be highly unusual circumstances.
The same applies to the argument about fracturing and the toxicity of fracturing chemicals. Fracturing has been part of the productions engineer’s production stimulation toolbox for decades and is a well-understood and widely used technique that targets carefully only the hydrocarbon-rich zone for good cost and well-integrity reasons. Gas leakage to water wells is therefore highly unlikely unless there has been a breach of established principles. The fracturing fluids used for shale gas wells are in general particularly toxic. What is different, perhaps, is that for environmental and cost reasons the fracturing fluid is reused in multiple wells and is stored temporarily at the well-pad site. Poor handling and poor storage dam design could result in pollution and contamination of shallow aquifers, but again this is highly unlikely in a well-run operation.
Some unconventional resources referenced are actually where fluids and rock could be considered conventional, but where the technologies, fluid compositions, pressures, water depths or geological circumstances make the development of the resources particularly challenging. Current developments in this category include the high-pressure and hydrogen sulphide-rich gas developments such as in Central Asia, which place high demands on pressure-containment materials and construction techniques; the deep-water developments where recovery failure can be problematic (as evidenced by the Macondo blowout); and pre- or sub-salt developments where wells are subjected to dynamic loads due to salt movement.
Unconventional resources place a premium on technical expertise, simply because of the potential for loss and environmental damage. Application of
that technical expertise requires systematic appraisal of the risks presented by a particular situation as well as an organisational structure that is focused and flexible enough to implement the technical development processes and operational procedures that are needed.
There are few organisations that can claim to do this effectively for all technologies and geological settings. It is no coincidence that the challenges of shale gas development were solved by dedicated independents rather than by the oil majors.
Despite this, unconventional resources are becoming an increasingly important part of the portfolios of most oil companies and it is becoming apparent that even the majors are being forced to look hard at whether they have the skills and business models to cover the full spectrum of unconventional developments. As a result, some specialisation is becoming evident among even the larger operators and acquisition of the dedicated independents has been ongoing for several years.
On the other hand, the tendency over the past few years is for more resources to be developed by national oil companies, meaning greater exposure to unconventionals for which they are typically poorly equipped, although they have understanding of the needs of conventional resources. For example, procurement processes, which are often aligned to state tendering requirements, are adapted poorly to the flexibility needed for efficient production of unconventional resources.
In summary, the future is one of increasingly challenging technical development accompanied by increased potential for failure, whether organisational, commercial or technical. The technical challenges will probably be solved and increased hydrocarbon demand will raise prices to the point where commercial success is more assured. But the organisational challenges are perennial.
Charles Goedhals is senior technical engineer at Gaffney Cline & Associates