Unconventional Sources Seen Boosting Global Oil Supply

LONDON Feb.19, 2007 (Dow Jones Newswires)

More than 20% of global oil supply could come from unconventional sources by 2025 according to a new study.

The equivalent of 3.6 trillion barrels of oil and gas could eventually be processed from so-called unconventional hydrocarbons, U.K. consultancy firm Wood Mackenzie estimates.

Unconventional hydrocarbons currently account for less than 10 million barrels of daily total global oil production, out of approximately 70 million bpd, according to the study, released Monday.

That figure could climb to closer to 20 million bpd by 2025, the firm suggests, as governments and international oil companies seek to exploit global shale oil reserves, holding nearly 3 trillion barrels of oil equivalent, with a further 560 billion barrels lying in heavy oil deposits.

To date, the vast majority of unconventional activity has so far taken place in North America, where existing infrastructure, commercialized facilities and transparent regulation have helped push the sector forward.

Yet the study expects a future focus on unconventional hydrocarbons to center on Europe, China and India, where security of supply issues and anticipated market conditions are likely to nurture unconventional production.

But while reduced access to global conventional hydrocarbons and recent rises in oil and gas prices make the prospect of such unconventional reserves attractive, their exploitation still faces long-term obstacles ranging from the technological to the environmental, Wood Mackenzie predicts.

Technological advances will be key to securing both acceptable unit costs and limiting environmental impact, the firm says, with public approval of unconventional exploitation's ecological footprint, and its contribution to global warming, a hurdle it will also have to clear.

In the near term, meanwhile, commodity prices will likely influence unconventional development, the study finds. Its medium term forecasts for oil at $40 a barrel - and for gas at $5.20 per thousand cubic feet - offer a "favorable environment" for exploiting most unconventionals, it says.

Having previously been dominated by the smaller independent firms, Wood Mackenzie says that North America's unconventional sector is now starting to attract the attention of the majors.

"With conventional non-(Organization of Petroleum Exporting Countries) supply expected to peak within the next decade, and the difficulties in discovering accessible gas reserves, international oil companies with growth ambitions can not afford to ignore these unconventional resources," it says.

The technological advances pioneered in North American unconventional hydrocarbons exploitation are likely to assist increased activity worldwide, Wood Mackenzie predicts, while more attractive fiscal and licensing terms and requirements may also be on offer, smoothing the path for increased entry into the sector.

Copyright (c) 2007 Dow Jones & Company, Inc.


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