The US may be at the forefront of the shale revolution, but in a list of countries where above-ground factors are most conducive to oil and gas development, the country lags behind competitors such as Canada and the UK.
The Energy Information Administration’s latest report on global shale resources, conducted by Advanced Resources International and covering 137 basins in 41 countries, showed that in terms of resource potential, Russia tops the list for shale oil, followed by the US. ARI put the US in the top spot for shale gas, followed by China, while EIA shale gas resources estimates indicate that China is #1, followed by Argentina.
But history has repeatedly shown that an abundance of oil or gas in the ground is not a necessary condition for development and marketing of those resources.
An assessment of above-ground risks shows Canada leading the pack in terms of offering an environment conducive to monetization of shale and other oil and gas resources, followed by the UK and Australia, according to consultancy PFC Energy’s Petroleum Risk Manager Model.
The model examines 21 factors in over 70 countries, with risk factors covering five broad categories – economics, politics, sector entry, sector operations and sector shocks. “We look at above-ground risk and the fuamental drivers of how a state behanves to enable us to give clients meaningful projections about policy evolution and risks affecting the hydrocarbons sector,” Hannan Amin-Salem, a director in PFC Energy’s Markets and Coutnries Group and manager of the Petroleum Risk Manager Service told Breaking Energy.
The risk manager service takes a broad look at how functional a country’s political system is, rule of law, sanctity of contracts, and the potential for abrupt and unpredictable changes to policy frameworks and energy sector leadership, among other factors. Issues such as availability of infrastructure, capacity and quality of support services “will ultimately determine the feasibility, cost and timeframe for commercializing unconventionals”, said PFC.
Some of the results come as a bit of a surprise, including the ranking of the US – home of the unconventional revolution – at #5, behind the UK. “They actually score pretty closely, so we’re talking about fine gradations of risk in the two cases,” Amin-Salem said.
The UK scored higher than the US in terms of both economics and politics. “The UK scores better on regulatory burden. It’s much more streamlined, clear and predictable,” and “the UK’s fiscal balance is much stronger”, Amin-Salem said.
Another factor in comparing the two countries – and one that has a relatively heavy weighting – is export risk. “The UK has a particularly high rating vis-a-vis the US on export risk, and that of course is another factor that is weighted pretty highly in this model,” Amin-Salem said. “For oil producers, they need to get their product to market.”
But the US has some advantages over the UK, where “the growth prospects have not been as robust as in the United States”, Amin-Salem said. “In terms of hydrocarbon sector entry, the US scroes a ltitle bit higher, and the key differentiator there is – according to our model – government take in the United States,” she said, adding that “the US also scores higher in terms of sanctity of contracts”.
Some traditional oil and gas producers came in with surprisingly low scores. Indonesia and Algeria were ranked #50 and #52 respectively, whereas Uruguay is #7.
“Algeria in particular, especially if you want to contrast to Uruguay, is hit by a low score on facility and personnel violence,” Amin-Salem said.” That score has a particularly high weight in the model we use because of its importance to our clients. There are companies that won’t go into certain countries even if the resource is material and highly prospective because of the degree of risk.”
2013 Petroleum Risk Score: Top Ten
- French Guiana