Chevron Warns of Challenges for Fracking Abroad

George Krikland, head of Chevron’s (NYSE:CVX) oil and gas production, has warned that multiple technical and logistical issues have to be solved before shale exploration could take off in geographies outside the U.S. He said that the company would take at least 3 to 5 years before deciding on whether it would begin any shale exploration outside America and that gas production from such projects would at least be a decade away. ^[1] Kirkland stated that sufficient data was not available for players to start investing in plays in Europe and in other countries like China. Chevron and Exxon Mobil (NYSE:XOM) have actively sought to drill exploratory wells in countries like Poland in the recent past to explore shale opportunities outside of North America.

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Delayed adoption

While agreeing there is a reasonable chance of successfully extracting shale gas in Poland, Kirkland warned that companies have no necessary data or knowledge to successfully drill the gas. ^[1] According to him, shale exploration has been more successful in the U.S. because of information accumulated by drilling through the formations over the past few decades. He said that there are still many questions as to whether the shale reserves in Poland would respond to hydraulic fracturing in the same manner as shale reserves in the U.S.

Chevron has actively participated in license auctioning for shale exploration in Poland, and has also drilled a well there, but it has not made its results public. Rival Exxon reported that it has to date drilled two unsuccessful wells in the country.

The Chevron executive also highlighted logistical challenges associated with the production of shale gas. Gas is generally transported to markets via pipeline networks.

The pipeline networks in Europe and China are still underdeveloped, adding to the difficulties in exploiting the reserves. ^[1] Much of Chevron’s increase in gas production over the next few years will come from unconventional sources in the U.S. and from massive LNG projects in Australia. Shale exploration outside the U.S. will only have a marginal impact on the company’s output in the long term.

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1. Chevron puts damper on shale gas hopes, FT [↩] [↩] [↩]