LUKOIL is heading to discover shale America

23.03.2011 — Analysis

The oil company LUKOIL intends to make investment in oil and gas projects in the USA to take advantage of shale-based technology in hydrocarbon production. The company's top managers state that they have decided to turn to unconventional oil sources in Russia. Western Siberia has unique, but hard to recover oil reserves, development of which is put on hold because LUKOIL does not have the adequate industrial technology. The attempts to create it through the company's own efforts have not been successful so far. Experts think that Americans will not be able to help Russian oil producers: once BP specialists admitted that foreign technologies are not applicable in Russia. As "RusBusinessNews" columnist has found it out, LUKOIL is searching in the wrong place: Russia already has home-developed technology of oil production from the Bazhenov formation, and it is quite profitable at the current prices for black gold.

The high oil prices surging past 100 USD per barrel have placed the issue of development of hard to extract deposits back on the agenda. Vagit Alekperov, head of the LUKOIL Company, told journalists about his intention to produce oil from shale. This production requires special technology, which the Russian oil producers expect to receive in the USA. LUKOIL is willing to make investment in one of the American projects aimed at development of shale deposits. After the oil company acquires the specific technology, it intends to apply it in Russia to extract oil from unconventional sources. The first steps have already been made in this area: the Russian Innovation Fuel and Energy Company (RITEK) - LUKOIL's subsidiary, is using gas heating of oil-bearing formation to extract oil from low-permeability reservoirs in Western Siberia. V. Alekperov believes that the investment project in the USA will help LUKOIL to speed up oil-bearing shale development.

Experts got interested in the statement of the head of the leading Russian oil producer. Many of them have for a long time been addressing the issue of development of deposits with hard to extract "black gold" reserves. According to Russian scientists, the production of readily accessible oil in Russia will drop to 50 million tons a year - against 500 million tons required by consumers. In the near term, supplies can be replenished through heavy oil, extraction of hydrocarbons from low-permeability reservoirs and bituminous sands.

According to the estimates of experts from the All-Russian Petroleum Research Geological Exploration Institute, low-permeability reservoirs are most typical of Western Siberia; they have up to one third of the oil reserves, heavy oil accounting for 6% and high-viscosity oil - 9%. Russia has no bituminous sands comparable with deposits in Canada and Venezuela in terms of reserves and quality. The bituminous field in Anadyr is located in an adverse area; therefore, it cannot be developed in the near term. Logically, Russian companies should turn their attention to Siberian low-permeability reservoirs rather than to American oil shale; however, everything is different in practice.

Viktor Kovalenko, Deputy Head of the Technical Department of the Drilling Division at Surgutneftegaz OJSC, says that very few companies are involved in development of the Bazhenov formation: the production process is very complicated and costly, and easily accessible oil reserves are still available. Surgutneftegaz has a lot to do in further exploration of conventional deposits; therefore, it does not even intend to extract hydrocarbons from shale.

Vladimir Koltsov, Head of the Technological Department of Nizhnevartovsk NIPIneft, OJSC, asserts that companies embark on development of heavy oil deposits only when they have no other choice. Such production implies a lot of problems: it is necessary to think over how to pump and arrange flows of viscous hydrocarbons, look for adequate corrosion inhibitors, etc. All these issues can be solved, yet there are problems related to production. The Nizhnevartovsk Institute does not work with LUKOIL; V. Koltsov has heard nothing about any achievements in development of shale-based oil extraction technology.

Viktor Petersilie, Deputy Director of the All-Russian Research Geological Petroleum Institute, states that LUKOIL has not moved far in development of unconventional sources of hydrocarbons. The most famous heavy oil deposit in Western Siberia - Russkoye - is still undeveloped. Different methods of production are being tested: heating of the formation, horizontal drilling, etc.; however, the scientist has not heard that at least one of them would be feasible.

Georgi Bulatov, Head of the laboratory at the Russian State Oil and Gas University named after I.M. Gubkin, notes that thermo-gas method, which was adopted by RITEK, is being used only experimentally: the company has not achieved any tangible results so far. The commercial technology can be brought to discussion only after one-year field tests, which sometimes brings rather surprising results: there can be oil at first, but then the production output goes down. That is why a lot of time is spent on further development of the technology that often falls short.

The scientist thinks that Vagit Alekperov is not knowledgeable enough about achievements of Russian researchers concerning the production of hard to recover oil; therefore, he is interested in US experience. In the meantime, G. Bulatov states, the Russian State Oil and Gas University has developed the technology of oil production from bituminous sands, oil shale and depleted fields. It was tested in Orenburg by state-owned companies and received good reports. Undoubtedly, the development of unconventional hydrocarbon sources costs much more than the development of standard deposits; however, with the price for oil coming to 100 USD per barrel, the production is quite profitable.

A number of experts think that LUKOIL is heading to the USA to increase the company's capitalization rather that to acquire technologies. The boom that is being observed around shale-based oil production encourages a fast increase in the number of oil-bearing sites, thus attracting players from all parts of the world.

Vladimir Terletsky