Those who have experienced the “shale gale” in North America have lived with the frenzy that this resource has kicked off. Shale gas and oil hold the promise of pushing the U.S. toward energy independence. But none of this is possible without the service and supply industry.
Drilling a horizontal, multistage fractured well requires considerably more manpower and equipment than a conventional vertical well. Ensuring that the right tools are on hand – a drilling rig, a frac unit, proppant, frac fluid, etc. – at the right time and in the right amounts is a delicate balancing act, and well costs can skyrocket if one of the pieces is not in place.
This has caused companies that provide frac services to rethink their own supply-chain issues. Marcus Rowland, CEO of FTS International, said his company manufactures its own equipment, fluids, and proppant, owning mines that provide 2 million tons/year of sand. It also manufactures a specialized resin to coat the sand for use as a proppant. And it owns 3,000 rail cars to move fluid proppant to the wellsite.
He made the decision to go this route due to the rapid growth of his company. “We couldn’t get the equipment we needed,” he said. This was partly due to the fact that many frac jobs run 24/7, making equipment availability paramount to success. “We moved to a manufacturing mode defensively, but it turns out that it’s less expensive and produces higher quality,” he said.
Platinum Energy Solutions is a much smaller company, but it too owns a sand mine and 500 rail cars. It has three new fleets coming on before June in anticipation of additional activity.
If North America is strapped for frac crews, it’s nothing compared to Europe. In a panel session on European shales, several operators discussed that continent’s potential for a shale gale of its own. With North America having 75% of the world’s fracture crew capacity, this gale will require significant investment in fracing and completions crews.
Melvyn Giles, global theme leader, Unconventional Gas for Shell, said that Europe has technically recoverable reserves estimated at 8,000 Tcf. Its shale resources are not as great as those in North America and China, and the geology is different, but some countries sit atop enough resources of shale gas, tight gas, and coal bed methane to anticipate a significant change in energy independence if those resources are developed.
The best news about European shales is that gas prices are much higher in Europe than in North America. The rest is mostly bad news: thinner source rocks; less incentive for development due to the fact that governments own the mineral rights; higher population density, meaning that public opinion will be a much larger element of potential development; and cooperation from governments, which isn’t a given considering that France has already banned hydraulic fracturing.
For Giles, the demand for gas and the need to replace coal-fired electricity generation can help drive shale gas development. But European operators will need to follow the same path as their North American counterparts – exploration, appraisal, development, etc. And to reach large-scale development, the service and supply industry in Europe will have to beef up considerably.
For instance, he said, there have been 25 tight and shale gas wells drilled in Europe since 2005, while more than 30,000 have been drilled in North America over the same time frame.
Peter Clutterbuck, CEO of 3 Legs Resources, is one of the many operators active in the Baltic basin in Poland, and his company is the first to have produced shale gas from a horizontal well with multiple frac stages. So far his company hasn’t had an issue finding service and supply companies eager to help drill wells.
“The drilling and frac companies anticipated the growth,” he said. Companies with experience in North American shales are anticipated to bring their learnings to Europe. However, new expertise particular to European shales will have to be developed. He added that evidence from North America indicates that it takes 15 wells in a new basin to establish that kind of expertise.
“We’ll have to identify the sweet spots and develop fracture and completion technology,” he said. “But we expect to have 22 shale gas wells in Poland by the end of this year. At the end of the year we’ll have a better knowledge base.”
Giles added that, as this knowledge base increases, costs per well come down. This in turn will spur more drilling, which will increase competition, which will further drive down costs.
So far, said Clutterbuck, lead times for equipment are short because service companies have responded very quickly. “The service companies will seize this opportunity,” he said.
Maintaining the balance between supply and demand will be the real challenge for these companies going forward.