The Oil and Gas Technology Revolution: The Impact on

Africa

Dr. Gary K. Busch

In the last three years there has been a major revolution in the

technology of extracting oil and gas from where it lies trapped

below the surface of the earth or seabed. Until quite recently the

exploration for oil and gas has been the search for pockets of oil

and gas trapped below the surface and drilling a pipe down to open a

passageway for that oil and gas to rise to the surface where it can

be loaded aboard giant tankers, pumped into oil or gas pipelines, or

refrigerated into liquefied natural gas or liquefied petroleum. The

technology has concentrated on producing equipment which can go ever

deeper below the surface to reach these oil and gas concentrations.

A substantial part of oil recovery is from deep sea wells.

However, there are other deposits of oil and gas which are not part

of pools of oil or gas. There are a number of formations which are

"continuous" oil accumulation; i.e. the oil resource is dispersed

throughout a geologic formation rather than existing as discrete,

localized occurrences. There is a substantial amount of oil and gas

trapped in shale below a hard crust of rock not very far below the

surface. In recent years there has been the development of a

technology which can access these shale oil deposits and deliver the

entrapped oil and gas to the surface. These technologies include

“horizontal oil well drilling” and “hydraulic fractioning or

“fracking”. “The first new technology is horizontal drilling, which

allows one vertical well to tap widely into a whole layer of oil or

gas. The second is hydraulic fracturing, or "fracking," which

involves pumping mixtures of water and chemicals into certain rock

formations, particularly shale rock. This breaks up the shale to

release the oil and gas that had been trapped in the rock. This

"fracking" is a game-changer, unleashing our access to oil and gas

that were hitherto out of reach.” Most of these are on dry land and

do not require deep sea wells or pumping stations.

There have been massive finds of “continuous” formations of oil and

gas in the continental U.S. Two of the biggest are the formations

known as the Williston Basin (more commonly referred to as the

Bakken Formation) and the Barrett Formation. The Bakken is the

largest domestic oil discovery since Alaska's Prudhoe Bay, and, on

its own, has the potential to eliminate all American dependence on

foreign oil. The Energy Information Administration (EIA) estimates

its potential at 503 billion barrels. The Bakken is located in the

western two-thirds of North Dakota; western South Dakota; and

extreme eastern Montana (and parts of Manitoba). It encompasses some

25,000 square miles in North Dakota, Montana, Saskatchewan and

Manitoba. About two-thirds of the acreage is in western North

Dakota, where the oil is trapped in a thin layer of dense rock

nearly two miles beneath the surface. Companies use pressurized

fluid and sand to break pores in the rock and prop them open to

recover the oil.1

Perhaps even bigger than the Bakken Formation is the Green River

Formation of Colorado, Utah and Wyoming which “holds the equivalent

of 800 billion barrels of recoverable oil—as much as the U.S. would

use in 110 years, at current consumption levels, and three times the

proven oil reserves of Saudi Arabia,” according to a Nov. 13 press

release from the Bureau of Land Management. “More than 70 percent of

the Formation, including the richest and thickest oil shale

deposits, lies under federally managed lands,” the release said. The

federal government has a critical role in determining the future of

12. “Government Says Huge Oilfield in N.D and Montana”, AP 10/4/08.

the U.S. oil shale reserve, and it has quietly taken steps to

support oil companies in accessing this resource. The oil produced

in both the Bakken and Green River formation is a light, sweet

crude.

In short these two formations make available, within the borders of

the US, more oil than all the other proven reserves on earth. Here

are the official estimates:

- 8-times as much oil as Saudi Arabia

- 18-times as much oil as Iraq

- 21-times as much oil as Kuwait

- 22-times as much oil as Iran

- 500-times as much oil as Yemen

This is very impressive but it doesn’t take into account similar

massive gas formations which have also been found. With the ability

to perform horizontal drilling and the fracking of the substructures

a massive volume of natural gas has been discovered and has become

commercially viable With the tremendous success of the Barnett,

Fayetteville and Woodford shales in the United States, the gas shale

resource base will play a major role in the future natural gas

production on which the nation will depend. Already the Barnett

Shale gas play in Texas produces 6 percent of all natural gas

produced in the Lower 48 states. Recent announcements of emerging

plays in Appalachia, Northern Louisiana, British Columbia, and South

Texas indicate the widespread potential of shale gas resources

across North America. Each of these shale gas basins is different

and each has a unique set of exploration criteria and operational

challenges.2

2 “ API, “Facts About Shale Gas” 1/2/10

The Potential Gas Committee assessment of the nation’s gas

resources in June 2009 indicates that the United States possesses a

resource base of 1,836 Tcf of natural gas. When combining these

results with the Department of Energy’s latest determination of

proved gas reserves, 238 Tcf (trillion cubic feet) as of year-end

2007, the United States has a future supply of natural gas of over

2,000 Tcf. At current consumption rates, this is enough natural gas

to supply the nation for the next hundred years. This is an increase

of more than 35% when compared to the Committee’s 2006 assessment.

This increase is largely attributable to increased supplies from

unconventional gas plays, specifically from shale gas development.

These numbers are increasing as technology improves.

Within a short period of time the US will be self-sufficient in oil

and natural gas. Rather than build the planned LNG receiving trains

for the import of gas, the U.S. will begin building liquefaction

plants and trains for the export of natural gas to the rest of the

world. U.S. energy costs will shrink and remain stable. The use of

generating clean energy using gas will greatly improve the emission

of carbon dioxide. It will also improve the efficiencies of

renewable energy sources as a back-up to solar and wind-power

stations which stop or slow down when the wind drops and the sun

sets. These developments will have a major effect on world trade and

development.

The greatest impact is likely to be on Russia. Russia has moved

itself into a dominant position, via Gazprom, in supplying gas to

Europe. It has been able to exploit its abundance of supply to bully

the Ukraine, Belorussia and others. It has compelled many to accede

to its demands for the location of key pipelines. However, it needs

a massive capital investment to complete its largest project, the

Stokhman fields and to modernise its existing structure. Russia will

find it very hard to attract such a capital inflow as its virtual

monopoly will be broken. It s business plan envisioned exports of

gas to the US. That is very unlikely to happen now. Indeed the US

may become its competitor. This is equally true for Iran which has

been ramping up its gas production for an export bonanza. That will

not happen. Europe will have the opportunity to use the technology

on its own shale formations and buy any additional requirements from

the US. The Chinese have some shale formations and may acquire the

technology to exploit them more fully. The energy equations are

changing and the political equations will change as well.

This will also have a dramatic effect on Africa. As US oil import

dependence diminishes, countries like Nigeria will find themselves

in a bind. There is no reason to suppose that they will necessarily

have to reduce production but the declining US imports and the

increase in US exports of refined products and LNG will have a very

negative effect on OPEC. Someone will have to cut production or

prices will inevitably drop. Angola, Africa’s biggest, or second

biggest, exporter, has been busy diversifying its economy to expand

its production of metals, diamonds as well as investing in increased

food production. Nigeria has wasted every opportunity. Nigeria is

immensely endowed with mineral wealth but has never exploited it.

The Extractive Industries Panel found large reserves of precious

stones, uranium, tin, bauxite, coal and other ores which lay

undeveloped because of the greed and short-sightedness of it ruling

political elite. The agricultural production is unable to feed the

country. It is particularly ironic that most of this mineral wealth

is in the North and the Middle Belt, the two regions which have been

sucking the wealth of the South-South into its pockets to feed their

largely unemployed citizens. Had they exploited the wealth beneath

their feet instead of coveting the wealth of their neighbours it

would be a far different country.

Elsewhere in Africa there are better prospects. The opportunity to

have a less expensive and improve energy supply in South Africa can

unleash the manufacturing capability of that nation. The factories

already exist. The raw materials are there. This will be a major

boost to South Africa. Zimbabwe as well, may be able to use this

supply of fuel and petrochemical products to restore its

agricultural production to become, once again, the breadbasket of

Africa. It already has the factories and the mineral wealth. The

impact on many of the other countries in Africa will be marginal.

This is not because they lack the resources but because they lack

the political and economic institutions to make them work.

There is a new wind blowing and it may do a lot of people a lot of

good.