New technology and capital has boosted shale gas and tight oil production in the United States and Canada—a phenomenon dubbed the “shale revolution.” This revolution has important geopolitical implications and has shifted North America’s energy outlook from one of scarcity to one of abundance.
The rest of the Western Hemisphere is also sitting on expansive shale reserves, but these areas have not yet been fully exploited. A recently released AS/COA Energy Action Group Report, “Shale Gas Development in Latin America,” explores these issues in depth.
Within the Western Hemisphere, the primary point of comparison for Latin American countries looking to develop shale gas resources is the United States, where, in 2014, over 20,000 horizontal wells are expected to be drilled, according to RBC Capital Markets. This compares to 250 unconventional wells in Argentina and just 10 in Colombia that are expected to be drilled during the same time period. Investors spent $90 billion in the United States on developing shale gas in 2012 alone; in contrast, foreign direct investment in Latin America last year, in every sector, totaled $180 billion.
In addition to the U.S. and Canada, Argentina, Brazil and Mexico are among the 10 countries in the world with the greatest technically recoverable shale gas resources; together, they make up approximately 40 percent of the world’s total supply. Colombia also has significant potential.Argentina is the country with the most advanced shale industry in Latin America, with numerous projects in production and hundreds of wells already drilled. This activity is primarily located within the Neuquén Basin, which contains the Los Molles and Vaca Muerta shale formations. Vaca Muerta is considered one of the premier shale gas development areas in South America, if not the world.
Mexico is home to the sixth-largest shale gas resources in the world, including the Eagle Ford shale formation in the Burgos Basin, which extends from south Texas. This play has an estimated 343 trillion cubic feet (Tcf) of risked, technically recoverable shale gas, and is considered to be Mexico’s top-ranked prospect for shale exploitation.
The most significant challenge facing shale production in Brazil is access to capital. While most investors are focused on offshore pre-salt oil fields, and much of Brazil’s oil and gas potential lies offshore, it has 18 mostly undeveloped shale basins onshore. Given the large potential of shale gas development in Brazil and the country’s growing clean energy needs—particularly as a long-term drought continues to impact Brazil’s hydroelectric capacity—the government has decided to stimulate shale gas exploration and put onshore shale gas blocks up for auction in 2013.
Though it lacks the abundant shale gas resources of the other three countries discussed, Colombia has the most competitive energy framework and most energy-friendly regime of any country in Latin America. These are still sizeable reserves—and Colombia’s relatively stable regulatory environment, combined with the country’s openness to investment, is encouraging. Three main basins in Colombia—the Middle Magdalena Valley, the Llanos Basin, and the Maracaibo Basin—could be lucrative for shale production, although security remains a risk. Initial shale drilling by Ecopetrol—as well as the entrance of private companies such ConocoPhillips, Exxon and Shell—is a positive indication that investment is coming into the sector.
In order to maximize shale development in the hemisphere, Latin America and the Caribbean should partner with the United States, which holds greater expertise—particularly on environmental issues—more developed technology, and greater capital. One idea would be the formation of a Western Hemisphere Shale Gas Council, for the purpose of coordinating best practices and exchanging sectorial views at the government level. Through this forum, significant attention can be paid to the efficient and effective development of shale gas in Latin America, specifically if the region is to participate fully in the global shale revolution.
