Euro Shales

Hans-Martin Schulz, senior geologist with GeoForschungs-Zentrum, says many companies are looking at Europe’s shale-gas potential.

The great American shale-gas revolution has caught the notice of Europe. A number of Old World economies rely heavily on imports of Russian natural gas, so the idea of abundant, home-grown gas harvested within their own borders appeals to many Europeans.

Shale-gas evaluation techniques honed by U.S. companies are now being applied to Europe’s basins by a diverse group of operating companies, research organizations and government agencies.

“During the past two years, we have faced hype similar to that experienced in the U.S.,” says Hans-Martin Schulz, senior geologist with GeoForschungsZentrum (GFZ), the German research center for geosciences in Potsdam. “Many companies, not only from Europe but also from the U.S. and Canada, are looking for shale gas in Europe.”

European basins host a number of attractive shales, based on analogies to productive U.S. shales. However, the sizes and histories of Europe’s basins differ markedly from those in North America. Western Europe’s basins are far smaller and often, more geologically complex. Much remains unknown about the factors that will control gas production in their shales.

?An outcrop at an undisclosed location in Europe shows impressively thick, black shale.

The most recent estimate of shale-gas resources in Western Europe stands at some 510 trillion cubic feet (Tcf). The estimate is likely low, as it comes from a study published in 1996 by H.H. Rogner. His work was done on gas from fractured shales, and did not include Poland, Hungary or Romania. Of course, Rogner’s study also predates the tremendous technical advancements in shale-gas extraction that have been made since 2000. Whatever today’s number might be, Europe’s shales appear to offer a small but meaningful target.

“Shale gas in Europe will not gain the significance that it has in the U.S.,” says Schulz. “But local shale-gas plays can help to buffer the increasing demand for natural gas on a local scale.”

Bob Fryklund, Houston-based vice president for IHS Inc., says European shales occur across the Paleozoic section.

As yet, no shales produce at commercial rates on the continent. “It’s very early for shales in Europe,” says Bob Fryklund, Houston-based vice president for IHS Inc. “Companies are figuring out where the shales are and collecting acreage. A few projects are entering the pilot stage.”

Geologically, Europe’s shale plays occur across the Paleozoic section, and tend to lie in foreland and intercratonic basins, says Fryklund. Most of these shales are clearly prone to gas, but it’s not apparent if selected shales will be able to produce oil as well, as in the Barnett and Bakken plays in North America.

Potential aside, issues around regulations, size of projects, water use and oilfield service availability will all be challenging. Conflicts with surface owners over developments can be anticipated in heavily populated Europe, where most minerals are state-owned. Broader concerns over the environmental impact of industrial development are likely to be raised as well.

“The above-ground part of the business is as important, if not more important, in Europe as it is in the U.S.,” he says.

Research efforts

On the research front, the Shale Gas in Europe project was launched earlier this year by GFZ. The so-called GASH project is exclusively funded by industry; sponsors sign on for three-year commitments. Sponsors to date include Marathon Oil Corp., StatoilHydro, Total, ExxonMobil, Gaz de France and Vermilion Energy.

Shale-gas projects are popping up across Europe. Most are in the evaluation stage; pilot projects are just getting off the ground.

“There are two big topics: one is the compilation of a European black-shale database, and the second is a series of research projects at the reservoir and basin scale,” says Schulz. Topics range from seismic characterization to geochemistry and geomechanics. In addition to GFZ, Institut Francais du Petrole and TNO, the Dutch geoscience organization, are involved.

The GASH project is investigating three black shales in particular: the Cambrian Alum shale in Sweden, the Lower Jurassic Posidonia shale in Germany, and Carboniferous sediments in The Netherlands and Germany. Cores are already available from the Alum, Posidonia and Carboniferous shales, and the group plans to drill a well on an island in the Baltic Sea to core the Alum interval this year.

Productive analogies will be provided by studies of the Barnett and Marcellus shales from the U.S.

Europe also holds potential for biogenic accumulations, similar to Michigan’s Antrim shale. Analogs to the Antrim shale may occur in regions that were glaciated during the Pleistocene time, and GASH will devote some resources to study these types of shale accumulations.

Another project is GeoEn, funded by the German ministry for research and education. This six-year project will look at three areas of energy, one of which is shale gas. It is exclusively funded by Germany, and will center on its indigenous shales. “We have started looking at black shales in Brandenburg and Mecklenburg-Vorpommern, in northern Germany,” says Schulz. Researchers are investigating such topics as geomechanics, sedimentology and organic geochemistry of the potential gas shales.

Cost challenges

A wide variety of companies are looking at Europe’s shales, from small entrepreneurial firms to international majors, says Rob Clarke, Houston-based manager, Wood Mackenzie’s unconventional gas service.

Wolf Regener, president, BNK Petroleum Inc., says his firm has licensed 700,000 acres that are prospective for shale gas in Poland.

Two regions Wood Mackenzie follows closely are Poland and Austria’s Vienna Basin. While petroleum systems in Europe tend to be physically smaller than in the U.S., shales in Poland and Austria are quite a bit thicker. Additionally, their porosity values, thermal maturities and total organic carbon (TOC) contents fall in favorable ranges, at least based on U.S. analogies.

“Interest is high because tremendously thick shales generate huge gas-in-place estimates,” says Clarke. “All the variables feed into in-place gas, which is what is needed to start working the problem.” Even at low recovery factors, the volumes of gas that could potentially be produced are measurable.

Another plus is favorable fiscal regimes in both Austria and Poland. Tax rates and royalties are lower than in the U.S. “Although there is not yet any commercial production, fiscal structures are attractive,” says Clarke. Thus far, it’s so early in the game that some incentives already in place for coalbed-methane or conventional gas developments have not been extended to shale gas; less than 10 known wells have targeted the shale in Poland and the Vienna Basin to date.

And, while it’s very early from well-drilling and commercial perspectives, selected companies have made substantial investments. “We think a lot of work has been done under the radar, and a great deal of prospective acreage has already been leased,” says Clarke. A combination of state-owned companies and first movers has tied up large chunks of promising areas.

The most daunting impediment to shale gas is its high cost. Estimated costs for exploration and development of Europe’s shales are multiple factors higher than for U.S. shales. “The lack of supply chain and lack of appropriate rigs and equipment means substantially higher well costs. Emerging European shales have many challenges on the cost side of the equation,” he says.

The same constraints will affect the pace of shale-gas development. Given the supply-chain issues, aggressive development is not possible in European plays, and that certainly impacts project returns.

Industry project

Among small North American firms, a first mover into European shale gas is BNK Petroleum Inc. The Camarillo, California-based firm started to chase the plays about 18 months ago, says president Wolf Regener. BNK had experience in the Bend shales in the Palo Duro Basin in Texas and the Woodford shale in the Ardmore Basin in Oklahoma. It decided to look at the slice of Europe that lay between Russian gas and the large consuming markets.

“We think a lot of work has been done under the radar,” says Rob Clarke, manager, unconventional gas services, Wood Mackenzie.

BNK evaluated shales in nine European basins before zeroing in on the Polish concessions in the Gdansk Basin. It obtained a good amount of data available from existing wells, and indications in Poland were favorable. “We see similarities between the Polish and U.S. shales, and we were looking for the ones that had the closest characteristics,” says Regener.

In addition to agreeable geology, factors that attracted the firm to Poland were its cooperative regulators and an advantageous fiscal regime. Poland’s royalties are less than 2%, and its corporate tax rate is about 19%.

The company picked up 700,000 gross acres, in which it holds an 80% interest. LNG Energy Ltd. and another private U.S. firm hold the remaining 20%. The concessions are spread among three acreage blocks. One block has a pipeline running through and a bit of developed gas production; the others are undeveloped. Major gas-transmission lines lie just 20 to 30 miles away from the latter concessions.

Silurian shale is the primary objective, found at depths from 2,100 to 3,600 meters. In addition, an Ordovician shale provides a secondary target, and the blocks may hold some tight-sand potential as well. Gross thickness is 150 to 500 meters, and up to half of that can be net; thermal maturities are high, 1.2% to 2.6% Ro. TOC contents range from 0.7% to 9.9%; and silica contents from 25% to 63%.

“The bottom 100 to 150 meters of the Silurian shale look excellent from currently available data,” he says. “We have a report indicating the shale is overpressured, but we won’t know for sure until we drill our first well.”

BNK plans to drill that well, a vertical science test, during the first quarter of 2010. At present, it is high-grading its acreage through subsurface studies. Hundreds of meters of core are available in the Silurian shale.

The company also plans to expand to other areas in Europe. “We have current targets in three additional basins across Europe,” he says.

Truly, Europe’s shales are getting a good going-over; within a few years commercial production may be realized. It’s exciting for this part of the world to have potentially new, domestic energy resources, and it’s a great extension of American ingenuity to the broader world.