(John Kemp is a Reuters market analyst. The views expressed are
By John Kemp
LONDON Nov 20 Hydraulic fracturing
("fracking"), the technology which revolutionised the U.S. oil
and gas industry, has started to make its first cautious forays
FTS International, formerly known as Frac Tech, one of the
leading suppliers of hydraulic fracturing equipment and services
in the United States, has signed joint venture agreements to
supply well-completion products and other services, including
pressure pumping, in Saudi Arabia and Brazil.
On November 13, FTSI announced a joint venture with Brazil's
PETRA Energia to provide completion services to onshore
conventional and unconventional oil and gas wells (www.ftsi.com/).
Based in Rio de Janeiro, the joint venture plans to begin
operating in 2013, and will focus on the Sao Francisco and
Reconcavo sedimentary basins in Brazil's North East.
The joint venture will deploy 22,500 horsepower of FTSI's
pressure pumping equipment in the first stage before developing
manufacturing and additives businesses locally to meet local
Earlier this year, FTSI announced a joint venture with
Summit Technologies, a subsidiary of Selected Arabia, to provide
well services and pressure pumping in Saudi Arabia and Oman.
Selected and Summit were founded by Rami Ali Al-Naimi, son
of Oil Minister Ali Al-Naimi. FTSI's joint venture has taken it
into the heart of Saudi Arabia's petroleum establishment.
Summit has a long-term services agreement with Saudi Aramco
to provide equipment and services for exploration, production
and refining (www.selectedgroup.com/).
TESTING THE WATER
FTSI manufactures custom pumps for its own mobile pressure
pumping units, and owns and operates its own sand mines, sand
processing and resin coating facilities to ensure a dependable
supply of proppant.
In the third quarter, FTSI deployed pumping equipment with a
total of 1.5 million horsepower, and fractured 338 wells across
the United States, making it one of the largest suppliers of
pressure pumping services in North America.
The number of wells fracked between July and September was
almost 30 percent below the same period in 2011, reflecting the
slowdown in gas-related drilling activity, according to the
company's financial statements.
In September, however, the company raised $350 million of
new equity capital from its existing shareholders with the
declared purpose of paying down debt and providing flexibility
for "potential future expansion into international markets, such
as Brazil, the Middle East, China and Indonesia."
FTSI's overseas ventures remain very small compared with the
huge size of the U.S. hydraulic fracturing industry.
But they will be a key indicator of whether the horizontal
drilling and fracturing technologies that have revolutionised
production in North America can achieve a similar transformation
elsewhere, and whether pressure pumping specialists can escape
from the glut of natural gas and liquids at home by expanding
In 2011, the U.S. Energy Information Administration
published an initial assessment of world shale gas resources
that put the total at 6,622 trillion cubic feet -- six times as
much as in the United States.
The study examined 48 major sedimentary basins with
significant shale gas potential in 32 countries outside the
Middle East and Russia ("World Shale Gas Resources: An Initial
Assessment of 14 Regions Outside the United States" April 2011).
Major deposits are much more widely distributed than
conventional gas. The EIA study concluded there were likely to
be world-scale resources in China (1,275 trillion cubic feet).
Argentina (774 trillion cubic feet), South Africa (485 trillion
cubic feet), Canada (388 trillion cubic feet), Brazil (226
trillion cubic feet), Poland (187 trillion cubic feet), France
(180 trillion cubic feet) and a host of other countries.
The estimate of technically recoverable shale gas deposits
would roughly double estimates of conventional gas resources.
Ironically, the Sao Francisco and Reconcavo basins were not
among those assessed by the EIA, which concentrated on Brazil's
three southern regions (Centre West, South East and South). But
if fracking really is about to go global, the first indications
could come from the North East.
Widespread distribution of shale resources promises greater
supply security through geographical diversity, reducing
dependence on the current group of large conventional suppliers,
many of which are located in unstable parts of the world.
The EIA study was restricted to gas but has fuelled
speculation that similar volumes of oil might be found in shale
formations around the world, since the formation of oil and gas
deposits is similar, extending reserves and breaking the
industry's dependence on producers in the Middle East.
Many seasoned industry observers have cast doubt on whether
the fracking revolution can be exported from the United States
and whether production of shale oil will ever be on a large
enough scale to transform the global oil industry.
"If the revolution continues in the United States and
extends to the rest of the world, energy consumers can
anticipate a future dominated by cheap gas. However, if it
falters and the current hype about shale gas proves an illusion,
the world will face serious gas shortages in the medium term,"
Professor Paul Stevens wrote in a 2010 report for the Royal
Institute of International Affairs ("The Shale Gas Revolution:
Hype and Reality").
Observers have been even more sceptical about the
transformative potential of shale oil.
Stevens and others have pointed to sharp differences between
the petroleum industry in the United States and other countries.
The geological, regulatory and industry conditions which spawned
fracking are not replicated in Europe and elsewhere ("The Shale
Gas Revolution: Developments and Changes" August 2012).
The United States benefited from favourable geology (large
and relatively shallow sedimentary basins with big technically
recoverable resources) that was unusually well-explored. The
oil-rich Bakken shale, for example, was discovered in the 1950s.
In most of the world, subsurface mineral rights belong to
the government. But in the United States, subsurface rights were
in private hands, creating stronger incentives to develop them,
and helping exploration and production companies buy off
opposition from local communities by offering royalties.
The United States benefited from a large oil and gas
exploration sector, dominated by a myriad of small
entrepreneurial firms, supporting by numerous service companies.
The country also had an extensive network of gas-gathering and
transmission pipelines in place and a well-developed gas market
to transport and sell all the gas coming from shale plays.
Most of the big shale plays that have been developed so far
have been in the traditional oil and gas producing areas such as
Texas, Oklahoma and North Dakota. Local and environmental
opposition has been much stronger in the U.S. Northeast and in
Europe, where communities have not had to live with oil and gas
France has banned fracking, putting the enormous Paris basin
out of bounds, and in Poland the early results from fracked
wells have been disappointing.
Fracking is unlikely to transform Europe's oil and gas
production for the foreseeable future. It may have more
potential in emerging markets across Latin America, the Middle
East and Asia.
If FTSI's joint ventures are successful, however, they will
help transfer the technology to new areas and potentially export
the shale revolution to Brazil and the Gulf.
Progress on both joint ventures will be keenly watched to
see if the shale revolution really is about to go global.
(Editing by William Hardy)