THE GEOGRAPHY OF UNCONVENTIONAL ENERGY PRODUCTION
Companies are tapping into reserves of shale oil and natural gas worldwide. Knowing how to manage this complex task in remote areas is the key to success.
When it comes to the boom in unconventional energy production, North America gets most of the headlines. After all, that region has developed at an accelerated pace and contains the world’s largest reserves of oil and gas, which are now exploitable using methods such as hydraulic fracturing (“fracking”) and horizontal drilling.
However, unconventional exploration and production is by no means limited to North America. It is also underway in Argentina, Australia, China, Russia, Indonesia, and India, to name just a few of the countries that are benefiting from the technology.
“The rest of the world has seen what a step-change this has made to the U.S. economy,” says Jonathan Shortis, Vice President of Energy for Europe, the Middle East, and Africa (EMEA) with DHL. According to a recent report on unconventional oil and gas supply chains by IHS Economics, oil and gas derived from shale are expected to contribute $468 billion annually to U.S. gross domestic product by 2020.
For many developing countries, especially those still struggling to recover from the worldwide recession of 2007–2008, the lure of unconventional energy sources is impossible to resist, because it is driving energy independence and bringing in much-needed revenue. Major activity is in progress in many parts of the world:
- Latin America holds strong potential for unconventional energy production, Shortis says. Argentina, in particular, has undertaken a “massive development” of its resources, with reserves that could rival those of the U.S.
- In North Africa, Algeria and Libya contain large deposits of shale oil and gas, which could be exploited once political stability has been achieved. South Africa, too, is moving ahead with production, with license applications pending for exploration in the Karoo National Park.
- Oil-rich Saudi Arabia is deploying unconventional techniques to tap much-needed reserves of natural gas. The “supermajors” (the largest and most influential oil companies) are also exploring potential sources of shale gas in countries such as Oman.
- Europe, which is just beginning to get into the game, has identified significant reserves of shale gas in the United Kingdom, Denmark, and Eastern Europe, with exploration advancing in countries such as Romania, Poland, and Ukraine. Whether those countries will move ahead with production depends on individual government policies on development, Shortis says.
- Additional areas with large deposits of shale oil and gas include Russia, Australia, Mexico, and China’s Sichuan Province.
Remote Locations Pose Real Challenges
The extraction of shale oil and gas from remote regions presents significant logistical challenges for producers. Frequently the task requires the creation of basic infrastructure, including roads and rail, before the first piece of drilling equipment can even arrive at the site. In Ukraine, for example, DHL had to bring in concrete road slabs – literally laying the groundwork for the development of access roads and well pads.
Other challenges are administrative in nature. The surge of unconventional energy production has brought about a global shortage of engineering resources, a problem that is even more acute in developing countries. Oil companies are responding by keeping their own personnel focused on core responsibilities and by outsourcing certain tasks, especially the movement of key equipment and supplies, to trusted third-party providers and integrators.
Dealing effectively with governments and neighboring communities is vital to the success of unconventional drilling operations. Interactions with officials are often face-to-face and require an intimate knowledge of local communities’ business standards as well as attitudes toward energy development, Shortis says. Fracking, in particular, is a controversial process that can meet with stiff opposition from local environmental groups.
Such issues are beyond the control of a service provider, but once the decision to go ahead with exploration and development has been made, a lead logistics provider (LLP) can step in. Oil producers rely heavily on such organizations to help them tackle the challenges of managing remote well locations and ensuring a consistent material flow into and out of the well sites. For instance, it is often up to outside partners to supply the necessary drivers and vehicles as well as the logistics scheduling tools to support the well engineering and drilling teams in the field.
Additionally, lengthy supply lines and inadequate communications infrastructure make it difficult to maintain visibility over the movement of people, equipment, materials and information to the well-head. An LLP with both global coverage and local expertise can help to overcome those obstacles.
The LLP, also known as a fourth-party logistics (4PL) provider, can also help the energy producer to maintain standardized systems and processes, which otherwise might vary widely from location to location. The trick lies in finding a partner with both global reach and an intimate knowledge of local conditions. The latter is essential for dealing with subcontractors and maintaining the quality of workers’ operational and safety performance on the ground.
An LLP might be called on to hire multiple subcontractors and train them on such key elements as health and safety, vehicle maintenance, and even the proper loading and strapping of a vehicle. Auditors in the field follow up to enforce compliance with operating procedures and ensure that drivers are properly trained and licensed. At the same time, drilling sites must be in strict compliance with ever-changing regulations, imposed by local officials as well as by national authorities.
Even the best-qualified partner can have trouble accessing critical information in remote areas. To ensure oversight of all data and operations, DHL recommends the creation of a “control tower” staffed by individuals with a strong local knowledge base and appropriate language skills. Technology can help as well, in the form of intelligent vehicle-monitoring systems that track shipments and key milestones.
All of this requires a significant investment on the part of the oil company, but Shortis says it is well worth the effort.