The exploration of unconventional gas in Hungary is set to receive new momentum with the entrance of a Serbian partner into the ongoing Makó trough project. The share of unconventional gas is expected to double in the gas mix in the coming decades, which is evoking concerns about its impact on the environment.
TXM Olaj- és Gázkutató and Serbian peer Naftna Industrija Srbije (NIF) signed a letter of intent allowing the latter to drill three exploration wells in the so-called Algyő play in southeastern Hungary. The area is a “prospective, pervasive, hydrocarbon-bearing sandstone found predominantly between 2,500 and 3,500 meters from surface,” meaning there is a good chance of finding natural gas there.
NIS will earn a 50% interest in production from each prospect if the discovery well is tied in and placed on production, the expenses of which will be covered by the Serbian firm. After the drilling of the three wells is completed, NIS has the right to acquire a 50% interest in production from the entire Algyő play, the companies said.
The area involved in the agreement is part of the Makó trough, a basin in the southeastern region of Hungary estimated to hold huge volumes of natural gas. In 2006, the Scotia Group appraisal company estimated that the trough holds around 600 billion cubic meters of extractable gas, but even later assessments found that more than 340 billion cubic meters are to be found below the earth. TXM, a fully-owned subsidiary of Canada’s Falcon Oil & Gas, received a production license for the area in 2007.
“For our company this project is first of all the project of seeking for technology. Working closer with Falcon on this hydrocarbon system we want to look at their ongoing unconventional activities,” said Denis Sugaipov, chief operating officer of NIS. The technology and knowledge he is referring to is becoming more important globally and could in fact represent the near future of gas production.
The International Energy Agency (IEA) distinguishes three unconventional gas types: tight gas, shale gas and coal bed methane or CBM. What they have in common is that they are found in layers of the earth deeper – kilometers deeper – than where normal, or conventional gas is extracted from, making them difficult to get to. So difficult in fact that even though experts already knew of the existence of these deposits decades ago, the technology at the time led them to believe that it would never be possible or economically viable to extract the reserves.
Unconventional exploration is still in its infancy, but significant advances have been made especially in the United States, which extracted around 360 billion cubic meters of gas this way in 2008. An IEA prediction indicates the amount will increase to 670 billion cubic meters by 2035.
Yet, the necessary technology is still expensive. “We have spent approximately $500 million to date on the Makó project,” head of TXM and chairman of Falcon’s board György Szabó told the Budapest Business Journal. The company has yet to start extracting gas it could sell.
A golden age
The IEA has just released a report predicting that in response to global energy demand overall gas output is expected to rise to 16,800 million tons of oil equivalent (Mtoe) in 2035 from approximately 12,300 Mtoe in 2008. The document, entitled “Are we entering a golden age of gas?” indicates that about 25% of the total will be coming from unconventional sources as opposed to the 12% share they have today.
Although only the United States and Canada have been able to develop unconventional extraction to degrees that are commercially viable, China, India and Poland all have their sights set on boosting their natural gas outputs.
Poland in particular is making headway, acting upon a political drive to lessen its dependence on Russia, the main supplier of natural gas to the eastern parts of Europe. There is an estimated 5.2 trillion cubic meters below the country’s surface, which adds up to more than 300 years of domestic consumption. Already, the Polish prospects have attracted leading energy companies such as Exxon Mobil, Chevron and Talisman Energy.
Though these companies have amassed plenty of experience in best practices at home, there is never any guarantee of success. “Every venture requires a case-by-case approach,” Szabó said. Recounting Falcon’s experiences he noted that for instance, the layers at its project in Australia are 1.5 billion years old, as opposed to 10 million in Hungary, which lead to vast differences in conditions and geological composition. “The basic procedures have been around for 50 years. Refining them to suit each project is where success or failure is decided,” he added.
The IEA report envisioning the greater role of natural gas in the global energy mix in itself caused worries, since although it is cleaner, it is still a fossil fuel and thereby harmful to the environment. The agency also noted that if its “golden age” scenario became a reality, it would lead to a global temperature rise of over 3.5 degrees Celsius by 2035 due to the increase in emissions.
Unconventional drilling is receiving heavy criticism as it is, with the US Environmental Protection Agency recently finding that these explorations come with substantially higher methane emissions than conventional methods.
There are also concerns that hydraulic fracturing, or fracking (see box), the common method to unconventional exploration, will lead to the contamination of water supplies. This was motivated by the fact that up until recently, exploration firms were not required to publish the chemical composition of the substances they used to fracture the rock layers. Also there have been several reports in the US of residents being able to light the water coming out of their taps, which was associated with nearby fracturing activity and assumptions that gas entered the water wells because of damages to the ground.
Szabó believes that the worries are completely unfounded. “It is perfectly common for underground water wells to contain some volumes of gas,” he said, explaining the cases of flaming tap water. If proper safeguards are in place, as they are in Hungary, the use of separators makes sure that the naturally present methane gas does not reach consumers, he added.
His views are shared by former US Secretary of Homeland Security and gas industry advocate Tom Ridge. “There has not been a single proven instance that has been related to hydraulic fracking,” he said.
Hydraulic fracturing, or fracking as it is commonly called, is the method most commonly used to extract natural gas from rock formations in depths of 1,500 to 6,100 meters. The process consists of first drilling a wellbore. Then large quantities of liquid, usually water or the combination of chemicals are pumped into the wellbore at high pressure, which causes fractures in the rockbed, allowing the trapped gas to exit. In order to keep the crack and the flow intact, after the fracturing a proppant, usually a kind of sand is injected making the fracture a conduit for the gas to pass through the wellbore.