Conclusions of the document: «Governance of unconventional natural gas in Latin America: the challenge is balance»

Conclusions of the document: «Governance of unconventional natural gas in Latin America: the challenge is balance»

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Mauricio Medinaceli Monrroy

Conventional and non-conventional hydrocarbons:

Conventional hydrocarbons migrated from the bedrock to the reservoir rock and -depending on the porosity and permeability conditions- the gas flows relatively easily from the rock to the well and, through drilling, to the surface. In general, this «easily» is a common characteristic of so-called conventional hydrocarbons.

In principle, unconventional hydrocarbons are those that are not housed in porous and permeable rocks and do not have the capacity to flow without intervention. The tight gas is the natural gas contained in very compact rocks, sandstones and/or limestones, with very low permeability values. «They are not mother rocks, they are “storage” rocks although very compact. Therefore, the gas has not been generated in them, has migrated from the “mother” rock and is contained in microfractures and in the low matrix porosity of the rock.«

Shale gas, like shale oil, is a subset of shale formations. The literal translation would imply that it is a gas that is found in shale, however, a broad interpretation of the word should be made, it should include «the lithologies that constitute the mother rocks of hydrocarbons: rocks with very fine grain size, rich in organic matter and with low levels of porosity and matrix permeability«.

The exploitation of shale gas can be carried out through various techniques, including those used for conventional hydrocarbons; However, due to the low permeability of the rock, the primary methods of exploitation (and economically efficient) involve the combination of two technologies: 1) horizontal drilling and; 2) Fracking techniques, whose name is due to the fact that this technique involves breaking the stone with a large flow of water mixed with other components. Both exploitation techniques result in higher costs associated with non-conventional hydrocarbons, compared to conventional ones.

Possible economic impacts:

The exploitation of shale gas in the United States was successful with two fundamental variables for its economy: 1) reduced natural gas prices below US$/MMBTU 5 and; 2) allowed to reduce the natural gas imports through LNG. Hence, many countries in the world want and, in many cases, need to promote this type of project. Evidently the environmental costs for new projects and the little experience, diminish the strength with which these two impacts could benefit the economies that so decide.

Now there is no definitive conclusion regarding the impact on employment, wages and economic growth due to the different positive, negative and interrelated conclusions that may exist. One of the main impacts of the new production of natural gas is the creation of new jobs within the industry. However, these could be challenged by other studies that point to a modest and focused impact.

Regarding the positive impact of shale gas development in local communities, the following potential links are identified: 1) investment in the construction and operation of wells could indirectly increase the demand for other goods and services (vehicles, gravel, concrete, fuel, etc.), as a result, the industries that provide these goods or services could increase the employment and income of their workers, however, in some regions of US highly paid jobs were given to mobile and trained personnel of the companies; 2) land owners usually receive payments that could be spent within the region; 3) taxes paid during the exploitation stage could activate the regional economy; 4) Workers who receive income from activities derived from the exploitation of shale gas could improve economic activity.

There are also some dangers: 1) the arrival of new workers in the region could increase the demand for housing and therefore the rents could increase; 2) due to heavy truck traffic the need for improvements in transport infrastructure is not necessarily met by local governments; 3) extraction of natural gas could discourage tourism in the region; 4) the factors indicated above could decrease the value of the properties not related to the exploitation of shale gas and; 5) a «natural resources curse» effect could be created within the regions.

Shale gas and environment:

Water and health, in one hand, water is transported from the rock to the surface with a high content of hydrocarbons; On the other hand, the production of unconventional involves the injection of chemicals into the formation as an auxiliary technique.

Air, during fracking operations, there is the possibility that methane quantities may «find their way» to the surface or groundwater, in addition to the possible fractures in cementation (underground) some fractures can also be present in pipelines. In addition, some volatile organic components are related to the exploitation of hydrocarbons, apparently the shale gas ventures are an important source of environmental contamination near the field, in any case, they are results are still preliminary.

The exploitation of shale gas has two important and important features: 1) the decline rate of wells production is more pronounced than in the case of conventional exploitation and; 2) the surface area used is also higher. The combination of both characteristics means that, for a company to maintain a reasonable production profile it is necessary to drill an increasing number of wells, which implies an extensive use of the land.

Biodiversity, the characteristics of exploration and exploitation of shale gas can have an important impact on biodiversity, given the increasing use of soils and the amount of water used in the processes.

The exploitation of shale gas may require that agricultural ventures must relocate, which in turn affects other regions not directly related to the exploitation of shale gas. «Fugitive» emissions of greenhouse effect could cancel the positive effect that natural gas has about the use of coal or oil. However, due to the decrease in prices of natural gas, many electricity industries began the process of migration from coal to natural gas, decreasing the greenhouse emissions of the electricity sector. Thus, if methane «emissions» are kept at low levels, natural gas can reduce global greenhouse emissions.

Regulatory conditions:

According several authors, the factors that allowed the development of unconventional hydrocarbons exploitation in the USA were: 1) Geological experience, 2) many shale gas deposits had important liquid components, 3) in 1980 the Crude Oil Windfall Profit Tax Act offered a reduction of tax credit to the production of unconventional, 4) Energy Act of 2005 explicitly excluded the hydraulic fracturing of the Environmental Protection Agency’s Clean Water Act, 5) the property of horizontal drilling and hydraulic fracturing technologies are with US companies, 6) in USA there is a dynamic and competitive service industry that can meet the additional needs for the exploitation of hydrocarbon resources unconventional.

Some market conditions are: 1) producers have access to a very good network of gas pipelines; 2) the gas can be sold easily, due to the existence of several buyers and sellers; 3) in 2008 gas prices reached US$/MMBTU 10; 4) the industry was dominated by small and medium enterprises and; 5) capital markets are more likely to finance gas and oil projects.

Shale gas in Latin America:

According to USA Energy Information Administration (EIA) in Latin America the estimated conventional reserves reach 326.353 million barrels, which represents almost 20% of the world reserves. On the other hand, shale oil reserves represent 72,800 million barrels, approximately 21% of the total shale oil in the world. With these figures it can be inferred that, if considered shale oil, the total oil reserves of the region could increase by 22.3%.

At the global level, LAC has 3.8% of the reserves of conventional natural gas; However, with respect to the global reserves of shale gas, the region’s share is 27.4%, therefore, the potential of Latin America in this last resource is not negligible; in fact, unconventional reserves almost quadruple conventional natural gas ones. The countries with potential shale gas reserves are Argentina, Mexico and Brazil, which together explain a little more than 80% of the total reserves of LAC with 1,592 TCF.


According to EIA report, Argentina has the third (technically recoverable) reserve of shale gas in the world, after USA and China. These reserves reach 802 TCF located in: 1) The Neuquén basin in the Los Molles and Vaca Muerta formations with technically recoverable reserves of 583 TCF; 2) San Jorge Basin in the Aguada Bandera and Pozo D-129 formations with 86 TCF; 3) Austral Magallanes basin with the Inoceramus and Magnas Verdes formations and 130 TCF, finally; 4) Chaco-Paranaense Basin with Ponta Grossa and 3.2 TCF.

Currently the development of shale in the country is in the formation called Vaca Muerta located in Neuquén basin at the southwest of the country, with an area of ​​36,600 SK with ample potential to produce natural gas and oil. According to Di Sbroiavacca (2013) with an average annual investment of US $ 16,000 million (amount equivalent to the import value of natural gas) the development of shale gas could achieve self-sufficiency in the country as of 2022; situation that does not occur with shale oil, given that even with the development of unconventional, it is not possible to achieve self-supply of this resource.


In November 2013, Brazil concluded the auction of concessions exclusively on land and in areas with potential to produce natural gas and unconventional natural gas, through hydraulic fracturing. The 12th round, approved by CNPE Resolution No. 6 of June 25, 2013, offered 240 blocks of exploration and exploitation of oil and natural gas distributed in 7 sedimentary basins. Of the total offer, 72 blocks were awarded, the winners were: 1 ) Petrobras with 49 to explore and exploit areas with possible gas reserves; 2) Trajectory Oil & Gas obtained four concessions after offering approximately 1.3 million dollars for rights over blocks located in the Sergipe-Alagoas basin; 3) the French GDF Suez was part of a winning consortium with Petrobras; 4) the Canadian Alvopetro with four concessions and; 5) the Geopark group with a concession.


In the Colombia Round 2012 the ANH offered and awarded the first contracts for the exploration and exploitation of unconventional hydrocarbons. In Type 2 (E & P) Blocks, 12 were offered and 5 were awarded; while in Type 3 Blocks (TEA) 18 were offered and none was awarded. For the 2014 Round, 18 Blocks were offered: 1) Sinú-San Jacinto Basin 1 Block; 2) Upper Valley Basin 3 Blocks; 3) Cuenca Valle Medio 2 Blocks y; 4) Cuenca Cordillera 13 Blocks, see the following Figure.


The Mexican State is currently carrying out reforms within the hydrocarbon sector in the country. One of the central aspects of the Mexican reform is Round 0, given that through it the areas of hydrocarbon interest that will remain with PEMEX were defined. According to information published by the CNH on August 13, 2014, the Energy Secretariat granted Petróleos Mexicanos 120 assignments that give it the right to continue carrying out hydrocarbon extraction activities, which together account for 71% of national production. of oil and 73% of national gas production. In terms of reserves, the fields granted have 68% of the 1P reserve and 49% of the country’s 2P reserve. The allocations granted, as of August 13, 2014, correspond to production fields of the conventional type.


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