Henry Hub sees a future in US gas

As political upheaval swept across parts of the Middle East and North Africa, another revolution was rocking the energy world.This year, the United States again became a net fuel exporter, thanks to a technology that unlocks natural gas from shale formations by blasting them with a mixture of water and various chemicals, a controversial practice known as hydraulic fracturing, or fracking. Now oil companies are looking at how shale can be used to solve a gas shortage in the Middle East that threatens to put a cap on industrial development and domestic electricity supply. International Petroleum Investment Company, an Abu Dhabi sovereign wealth fund, and Mubadala Development, a strategic investment company owned by the Abu Dhabi Government, are building an liquefied natural gas (LNG) import terminal in Fujairah scheduled to come online by 2014. Royal Dutch Shell is working with Algeria and Tunisia to lay the foundation to bring fracking to the Middle East for the first time. Although environmentalists and oil companies often disagree on fracking's effects on the ecology, its effect on American energy security is indisputable. Futures of Henry Hub, a natural gas benchmark, have fallen from 2003 highs of nearly US $20 per million British thermal units to US$1.90. Such low prices in the US have led companies to predict a chemical manufacturing boom in America and have worried Qatar, the world's top LNG exporter. The National spoke to Mounir Bouaziz, Shell's vice president of exploration and production in the Middle East, about prospects for shale gas in the region. He also addressed Shell's prospects with the renewal of Abu Dhabi's biggest onshore oil concession, a cluster of fields that yield 1.4 million barrels of oil per day - half the emirate's oil output. The Abu Dhabi Company for Onshore Oil Operations concession, which Shell shares with ExxonMobil, Total, BP and Portugal's Partex, expires in 2014 after a 75-year run, and all eyes are on who Abu Dhabi will choose next. A while ago people thought Shell was the obvious choice to develop Abu Dhabi's Shah sour-gas field. But instead it was initially given to ConocoPhillips. Do you think there might be other surprises coming up with Adco? I really don't know. I believe we've been a good partner. We've contributed to the development of resources in Abu Dhabi. We're also present in Gasco, and Shell prides itself for really being a leader in gas, so we brought a lot of know-how to the operations. And now we're very keen to stay for the next 70 years with Abu Dhabi. We are just waiting to see how that process is going to evolve. It seems there is a lot of competition from new players such as China, South Korea and companies such as Statoil and Maersk. What are you doing about that? It's normal. But the question is what differentiates each of these players? OK, leave the technology aside … Shell has the largest footprint in the region when it comes to joint ventures with local governments or local national oil companies. So that on its own is really a key differentiator with, maybe, others who are coming for the first time to the country or to the region. The two last major concessions we've seen went to South Korea and to Occidental. Neither had much of a historical presence in the region. Which is fine - again, it's really not our decision, and we respect what the decision-makers are doing. But we understand it's a highly competitive world. We are competing elsewhere. In September 2009 we had nothing in Iraq. Now we are one of the largest investors in the country. We put a lot of time into exploration and it hasn't delivered what we were expecting … This is purely technical. The commitment to the country is still there. Meanwhile, we are seeking other areas of cooperation. But overall for the region, I remain positive … We have some ongoing discussions now, for example, in Tunisia. The last time I saw the [oil] minister, I think I spent with him an hour and a half. During the whole conversation, although I was talking about getting a permit or concession for exploration, we haven't talked about oil production or reserves. It was all about jobs, jobs and jobs. As a company, it's going through our head that in the past it was good enough to have the relationships, capital and technology. But now we're really convinced - and it's easy to say it, but it's not easy to put it in practice - that local content will be a key to success. Are there any countries in the region where a natural gas shortage is cramping economic growth? The example I have in mind is quoting the Moroccan minister of energy, who says, 'If we cannot supply gas to electricity and gas to investors, we are pushing investments away from our countries. It's really putting constraints on our GDP.' If I can give you an anecdote, I was really surprised and shocked the other day by having some regional big investors calling to ask me for my advice to see whether they should invest in large fertilizer plants in the United States. This is really the world upside down. You used to have Americans, Europeans etcetera coming to the region for the availability of feedstock and energy, and now it's the other way around. So how soon do you think North America will begin exporting gas here? It's really an interesting case study, what has happened in the United States. I've been working on gas for more than 10 years, and I remember six years ago the whole gas industry, especially LNG, was just focusing on the United States as a market. But with the power of innovation and agility, slowly you see that people are working on unconventional gas. Overnight, you see the United States turn from a net importer to an island of self sufficiency, and now they have 100 years worth of supply. Does Shell have any specific plans to bring shale gas to the Middle East? We are a big player in the United States with unconventional gas and the marketing of the gas, so of course we are very interested in that. Will it come to this region? Why not? We delivered the first cargo of LNG to Kuwait all the way from Sakhalin in Russia, so anything is possible. What do you see as the most attractive shale plays here? Right now we are discussing this very seriously with countries in North Africa, like Algeria and Tunisia, to work with them in creating the right regulatory framework and the right fiscal regime. So that would be the first in the whole region? Yes, it could be, yes. What about safety concerns? I admit, as an industry sometimes, we are not good in sitting down with the public and explaining. The [ground table] water [for human consumption] we use is usually at maximum 600-metre depth, whereas the fracking is happening at 4,000-metre depth. So there is no way it's going to reach the water layer. There have been few vocalised public concerns about the safety of nuclear or carbon-burial projects here, could be the same case for fracking? What we learnt in the industry is you need to respect the public. We know that it is an issue in a lot of people's minds, rightly or wrongly, and it is important if we start now developing this technology in the region, that we really take the time to explain it to the stakeholders. It's not only the issue of fracking. People have a lot of concerns that that's a process that uses a lot of water, but over time we learnt how to minimise that, how to use different types of liquids etcetera. How long will it be until we see our first shale gas here? Well, the big advantage of working on unconventional [gas] is that exploration is a totally different process. Normally, in conventional, you spend a lot of time on seismics, on interpretation, on analysis. But with this type of unconventional development, really the only way to do it is very quickly. You have to drill, see if you have a layer or not, and then very quickly move into pilot.