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Latin American shale gas on the backburner

The continent’s large unconventional reserves have yet to yield any significant production

Latin America has some of the most promising shale-gas plays in the world, but with just a handful of wells drilled outside Argentina, exploration in the region remains in the early stages.

Brazil is thought to have the region’s largest shale-gas resources outside Argentina. The US Energy Information Administration (EIA) estimates that three of the country’s basins – Paraná, Solimões, and Amazonas – hold around 245 trillion cubic feet (cf) of shale gas, but there are six other basins that are likely to add to that total.

The government has initially estimated total shale-gas resources of 500 trillion cf. That dwarfs the country’s 16 trillion cf of proven conventional gas reserves. In a country that has seen gas imports soar in recent years, there is an obvious incentive to try to tap into those resources.

Yet, with Brazil focused on developing its huge offshore reserves, unconventional gas has so far not attracted much serious attention from the government or state-run Petrobras, which is by far the largest player in the industry.

Petrobras not keen

Earlier this year, Petrobras’s chief executive Maria das Graças Silva Foster summed up her company’s view on unconventional gas: “Our focus first is oil, second is oil, third is oil then natural gas ... shale gas is not a priority for us.” With one of the world’s largest capital spending programmes – around $236 billion over the next five years – and mounting debt, Petrobras has little appetite for a major push on shale gas.

That could leave the door open to other companies to play a leading role launching the sector. So far progress has been slow. The locus of action has been around the São Francisco basin, but results there have not been encouraging. Shell quietly decided not to press ahead with a large-scale shale exploration programme in the basin after initial test drilling earlier this year.

Moreover, much of Brazil’s onshore is underexplored. As exploration ramps up following two bid rounds this year that sold off huge swathes of onshore acreage, companies are expected to target cheaper and easier-to-access conventional fields, even if they offer smaller reserves.

Still, there is little question about the resource potential and the country is likely to see increased shale drilling in the following years. The economic viability, though, will not be known until more wells are drilled and the government looks more closely at shale-specific fiscal and environmental policy.

Mexican Eagle Ford

Mexico, too, has huge shale-gas potential. The prolific Eagle Ford formation stretches south from Texas into Mexico, and there are other shale-prospective basins along much of the country’s Gulf Coast. The EIA estimates Mexico has recoverable shale-gas resources of 545 trillion cf, sixth largest in the world.

State-run Pemex, which holds a monopoly over the country’s upstream, has announced ambitious exploration plans, but to date activity on the ground has been modest, with just a few wells having drilled. High costs, reportedly more that $20 million a well, have dimmed Pemex’s enthusiasm for shale drilling.

Nevertheless, shale gas remains at the centre of Pemex’s long-term strategy to increase domestic production, and the company has floated the idea of spinning off a shale-focused unit. Mexico faces a growing gas deficit, and is importing an increasing share of that gas from producers in the Eagle Ford.

Mexico’s shale-gas hunt could benefit from proposed energy-sector reforms that would allow greater levels of foreign involvement in the country’s upstream.

There are companies drilling in the Eagle Ford in southern Texas that would jump at the chance to extend development south of the border, given the right investment climate. And an influx of experienced companies and expertise would jump start the sector. For now, though, that remains a long-term prospect.

There are other countries across the region that have substantial shale-gas potential but where exploration and development are unlikely anytime soon. Venezuela, for instance, has 167 trillion cf of recoverable shale resources, according to the EIA, more than any country in Europe. But with huge untapped conventional gas reserves, a focus on developing its world-beating heavy-oil reserves and an unattractive investment climate, those resources will stay in the ground.

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