In their latest study titled “Unconventional Hydrocarbons – The hidden opportunity,” Wood Mackenzie examines the key types of unconventional oil and gas, namely heavy oil, tight gas, coalbed methane and shale oil. The study outlines the resource potential and location of these resources (which are also referred to as non-conventionals) and examines the challenges surrounding their development. Further, the study identifies which companies are leading the way in this area.


Wood Mackenzie undertook the study in a climate of anticipated tightening global oil supply and regional tightening in gas supply along with demand growth, both of which have resulted in an increasing interest in the exploitation of unconventional hydrocarbons.


Phaedra Powilanska-Burnell, managing consultant for Wood Mackenzie, said; “Wood Mackenzie believes that the size of the of the unconventionals hydrocarbon prize is potentially enormous, approaching 3.6 trillion barrels of oil equivalent (boe) of resources globally.” Putting this in context, this is double estimates of undiscovered conventional resources in the world.


Looking to the future, Wood Mackenzie says that by 2025 unconventional oil is expected to supply more than 20% of global demand. Unconventional gas is likely to be at least as important; Wood Mackenzie forecasts it will account for more than 40% of US gas supply by 2010. Spurred on by an immediate requirement to secure future gas supply, North America is at the forefront of unconventional exploitation and, with the recent run up in commodity prices, an increasing amount of these resources can be economically produced.


There remains substantial unconventional gas reserves to be produced in North America, both from existing basins and new areas. Wood Mackenzie forecasts it will account for 42% of US gas supply by 2010, up from 27% in 2005. The continuing refinement of technologies to increase recovery factors and lower the unit costs will drive these new developments.


On the oil side, interest in the oil sands of Canada has surged over the last few years, and production is expected to quadruple to 4 million barrels/day by 2020. Notably, there remains significant potential beyond this -- less than 20% of the estimated total recoverable reserves are included within currently commercial projects. In the US, a renewed focus the oil shale deposits of Utah, Wyoming and Colorado is currently occurring, Although significant barriers remain to the development of these resources, in particular the need for substantial technological progress, their potential is enormous with a possible resource size of around 1.5 trillion barrels of oil.


The study identifies the critical factors for successful development of these hydrocarbons. These factors span technical, commercial, fiscal and environmental issues. In particular, Wood Mackenzie warns that in order to unlock the potential of unconventional hydrocarbons, companies will need to fully understand the risks associated with the different challenges to ensure their investments are successful.


“As unconventional resources are distributed widely around the globe, the key risk is not discovering the resource but in identifying areas where the critical factors are in place to enable economic development,” said Powilanska-Burnell. The study concludes that short- to mid-term development will be driven by commodity prices. Wood Mackenzie’s medium-term oil price (US$40/bbl flat real) and gas price (US$5.20/mcf Henry Hub flat real) suggest a favorable environment for the exploitation of unconventional oil and gas (with the exception of shale oil) outside of the existing North America areas. Regional and country-specific factors, therefore, have a large impact on the development of these hydrocarbons.


Wood Mackenzie says that the unconventionals sector is presently dominated by the independents who have pioneered development in North America. However, this is beginning to change, with the supermajors beginning to establish larger positions in the unconventional arena. Powilanska-Burnell concluded, “With conventional non-OPEC supply expected to peak within the next decade and the difficulties in discovering accessible gas reserves, international oil companies (IOCs) with growth ambition cannot afford to ignore these unconventional resources.”


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