Friday, April 07, 2017

Shale Gas and its impact on Turkish Economy

"Shale Gas" is on the agenda. What is "Shale gas"? Is ShaleGas production as easy as you might think? Is it cheap? Do we have it in our environment? Can we produce? What is the cost of SaleGas production? What happens to the environment in Shale Gas production process?

Shale gas is basically natural gas. Only the thermal calorific value is a bit low. Shale gas production is same as Natural gas production by non-traditional, non-conventional method. The soil structure "thin-bedded, rich in organic matter", is suitable for producing oil and gas is called "Shale".

"Shale Gas" is the method of taking the Natural Gas which is trapped between the deep underground rocks. Shale Oil (Shale Petroleum) are removed by the same methods. ShaleGas and Shale Oil production technology are not new practice. Since 1947 there has been market practice in the United States.

Soon, the US will build large number of LNG terminals and become one of the world's largest gas exporters. Rich Shale Gas sources will change the world gas market prices and balances. Traditional natural gas deposits are found in separate volumes of crude oil or on crude oil reserves. Shale Gas is the volume of natural gas trapped in impervious soil rocks.

"Horizontal Drilling" and "Hydraulic Fracturing" have gained economic value with the development of the Shale gas producing technology.

Existing natural gas reserves produced by traditional methods suffice for the world's needs of about next 60 years. With Shale gas to be produced by non-conventional methods, this period is extended up to 250 years.

China has 1.275 Trillion cubic feet (Tcf), US 862 Tcf visible reserves, it is estimated that Turkey has 15 Tcf Shale Gas reserves.

Horizontal wells used to drill for Shale gas in environmental technologies inevitably affect the nearby wildlife. The fluid used during well excavation and hydraulic cracking consists of 98% of sand and surface water, and the required contribution of 1-2% consists of chemicals that will reduce friction during soil excavation. It is not possible for chemicals to contaminate groundwater if appropriate technologies are used in deep underground hydraulic cracking. Because the depth of sand and chemicals is about 3000 meters below ground, far below the depth of the deepest underground water. Much quantity of fresh water (about 15-20 thousand m3) is needed during the excavation of each well.

We estimate that Shale Gas may be found in Southeast Anatolia and Thrace region in Turkey. There is no visible reserve yet proven. It is necessary to open large number of wells for visible-proven reserve figures. It is not possible to reach a quick result quickly with 1-2 drilling wells, that is not true.

The rapid increase in natural gas prices at international spot markets, the decline in production from existing sources, the natural gas depletion, the reduction of traditional natural gas resources that are easily accessible, and the new developments in Shale gas production technologies have increased the investment appetite for Shale gas.

Crude oil prices were at US $ 55 per barrel in February 2017 at international markets. Ref. IndexMundi, Crude Oil (petroleum), Dated Brent, light blender 38 API fob UK, US Dollars per Barrel

The delivery price of Russian natural gas in February 2017 at Germany border was 6.00 US $ for MMBTU. Ref. IndexMundi. Natural Gas, Russian Natural Gas price in Germany, US Dollars per Million Metric British Thermal Unit

This is the current price at Turkish border as they have not sold it to us under the price they sold to Europe. As long as natural gas is needed, the prices of natural gas will increase.

Let's also say the price of Natural Gas USA Henry Hub. As of February 2017, the price for 1000 Sm3 is USD 136 - or USD 3.50 / MMBTU. Ref. IndexMundi, Natural Gas, Natural Gas terminal spot price at the Henry Hub in Louisiana, US Dollars per Million Metric British Thermal Unit

By the end of 2016, Turkey is 98% dependent on imported natural gas and 92% dependent on imported oil. The most important cause of the current account deficit is the energy shortage, namely imported natural gas and imported coal.

Hydraulic Cracking method for Shale gas was introduced with the legal regulations of the US norms and legislation. US Shale Gas production was 14 Billion Nm3 in 2005 and 241 Billion Nm3 in 2011. In 2010, 15,467 wells were opened in the US. There will be more encouragement in this regard during the presidency of Donald Trump.

For Shale gas production, 3000-3500 meters depth in the well before the rock excavated for the production of Shale gas, then it is necessary 1000-1500 meters of horizontal drilling. During the horizontal drilling, chemical liquid and sand are pressurized, then underground layer cracking is made in 20-30 different points. 40-50 meter underground layer is cracked in each crack, then ShaleGas which is emerging is collected from these cracks into the well.

The sand that is added to the water (or liquid) that keeps the formed cracks open. Shale Gas production wells can be opened at intervals of about 500 meters in between. It is estimated that the approximate USA budget price for each Shale Gas production drilling well is between US $ 200-500 thousand.

We also should consider the environmental risks of Shale Gas production technology. Because of the high pressure liquids used in deep soil drilling, local small earthquakes can occur, which may trigger big ones.

There is also a risk that chemicals may interfere with drinking water when cracks occur at shallow depths. We notice that 25-75% of the water injected into the ground is returned to the surface. Returned dirty water is dangerous which may contaminate domestic use water, and if serious checks are not carried out, return dirty water may cause environmental pollution.

With the US natural gas to add up Shale gas production, it can affect world gas prices, but we do not expect that prices will fall much in short term.

Because in the US, the trend towards gas fired thermal power plants began instead of coal-fired power plants.

The coal-fired power plants are shutting down, more combined cycle power plants are commissioning to use more Shale gas. The Shale gas quantity to export is limited. The average cost per new well to be opened in the US has increased. Now, with the average production cost of ShaleGas is over US $ 7 per MMBTU, new wells do not have the economic features.

Do you have Shale Gas in Turkey? We guess, yes it exists, but we do not know how much yet. We have not yet drilled a significant number of reliable results.

Even if we have reserves, it will take at least 8-10 years to find and exploit it and use it on the market. Significant investments are needed to transport gas in order to reach the market from the production well of ShaleGas. Our ball-park guess is that the Shale gas we produce will reach consumers at a price that is not less than $ 300 per 1000 cubic meters.

We need to set up organizing shipyard zones that will be able to produce off-shore platforms for overseas off-shore searches in places such as search- drilling technologies, improvement of drilling rigs, increase of R&D studies, in shipyards such as in Istanbul Tuzla, İzmir Aliağa, Antalya, Mersin.

During Donald Trump's US presidency, that is to say, over the next 4-8 years, the production of Shale Gas will increase, gas prices will decrease, conversion to combined cycle power plants and more gas consumption are expected. First of all, it will occur in the US and then in other countries with relatively low prices, natural gas will be replace coal.

Coal will be sold more cheaply at international markets. Carbon emissions and water vapor will increase the greenhouse effect. Due to energy policies of President Donald Trump, Renewable energy investments will unfortunately be reduced first in the US, then perhaps all over the world. Global warming will eventually increase. Turkish current account deficit will be even greater if we do not care about.

Haluk Direskeneli, is a graduate of METU Mechanical Engineering department (1973). He worked in public, private enterprises, USA Turkish JV companies (B&W, CSWI, AEP), in fabrication, basic and detail design, marketing, sales and project management of thermal power plants. He is currently working as freelance consultant/ energy analyst with thermal power plants basic/ detail design software expertise for private engineering companies, investors, universities and research institutions. He is a member of ODTÜ Alumni and Chamber of Turkish Mechanical Engineers Energy Working Group.

Ankara, 07 April 2017


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