Unconventional gas gathers pace in Middle East

The development of unconventional gas resources in the Middle East is gathering pace, as Algeria closes in on agreements to explore its shale gas potential.

Algeria is in advanced talks with ExxonMobil and Royal Dutch Shell as it optimistically looks forward to assessing the extent of its shale gas potential. Ty Wright / Bloomberg News

The development of unconventional gas resources in the Middle East is gathering pace, as Algeria closes in on agreements with international oil companies to explore its shale gas potential.

The country is in advanced talks with ExxonMobil and Royal Dutch Shell over shale gas exploration, said the head of Sonatrach, Algeria's national oil company.

"We are in talks with Shell and Exxon," Abdelhamid Zerguine, the chief executive told a news conference last week.

Shale gas is extracted from deep-lying shale rock formations in a process called hydraulic fracturing. It revolutionised the energy landscape in the United States, where prices have tumbled in response to a surge in supply. In Algeria, optimism over shale has given rise to some grand comparisons. "The initial results of the evaluation of the non-conventional gases, mainly shale gas, showed that reserves in the country are at least equal to the US reserves," Youcef Yousfi, the energy minister, told the Algerian Press Service in February.

A few months later, Sonatrach signed a cooperation agreement with the Italian oil and gas company Eni. The agreement laid out the specifics for developing unconventional gas resources, and shale gas in particular.

Interest on the part of major international hydrocarbon producers confirms the potential for shale gas in Algeria.

Other countries in the Middle East and North Africa region are also beginning to explore their options. In Oman, BP is considering going ahead with a US$20 billion (Dh73.45bn) project to produce tight gas, another energy source that is difficult to access.

In the UAE and Saudi Arabia, commitments have been made to make use of huge sour gas reserves by stripping the hydrocarbon of its sulphur, paving the way for a large global oversupply of the chemical.

"As countries in the region begin to move away from associated gas and as reserves of conventional non-associated gas begin to run out, unconventional gas will be coming more and more into the regional supply picture," said Hakim Darbouche from the Oxford Institute for Energy Studies.

New sources of gas are increasingly important, as the GCC alone is grappling with a projected shortfall of up to 31 billion cubic metres a day by 2015.

Natural gas is a prime feedstock in the generation of electricity, and in the production of petrochemicals. As cities grow and industries develop, the supply of gas needs to grow accordingly. In addition, gas produced alongside crude - so-called associated gas - is needed to keep up the pressure in depleting oilfields.

Small wonder then that energy figures in the UAE have been calling for the development of shale.

At a conference held last October, Bader Al Mohamadi, a vice president at Abu Dhabi Gas Liquefaction Company, a subsidiary of the Abu Dhabi National Oil Company, said the emirate would do well to study its shale gas potential.

"Nothing has been happening in this area, so we have to start," he said. "The demand is huge and the prospects are very good here."

Ahmed Al Arbeed, the chief executive of Dana Gas, the region's largest private gas producer, has admitted to interest in shale reserves.

His company was seeking North African shale gas opportunities, especially in Algeria and Libya, he said, adding that "we have studied this jointly with the Algerian government".

The prospect of shale gas in the region has also alerted some of the industry's pioneers.

"I believe the Middle East has huge unconventional potential," said Chris Faulkner, the chief executive of Breitling Oil and Gas, one of the small firms behind the shale revolution in the US.

"As several countries begin to look for the oil shale opportunities, the unconventional story has the potential to be the biggest boom in the energy market in decades."