Possible effects of shale operations on the global sensor market
15 December 2014
Sensors play a critical role in monitoring and controlling numerous parameters (flow, level, pressure and temperature) and are an integral part of oil and gas production. Sankara Narayanan of Frost & Sullivan looks at how the expansion of shale gas and oil operations could affect the global market for advanced sensors.
Increased globalisation in the energy industry and the pursuit of operational efficiency has gathered pace in recent years, as a result of intense competition and increasing energy prices. This trend has been particularly visible in the oil and gas industry, where companies have continuously invested in automation and sensor solutions to improve efficiency.
Automation leads to better use of assets, reduction in maintenance costs and enhanced process monitoring, as well as providing a faster return on investment (ROI). Though the initial investment is high, the long-term benefits are evident. This is expected to increase the demand for sensors in the oil and gas industry.
Increasing global fuel demand is driving development of both conventional and unconventional resources. Shale gas is an example of the latter, and one that is increasingly identified as a potential game changer.
Additionally, many countries wanting to be self-sufficient in energy are looking to minimise their hydrocarbon imports and shale reserves have been identified as a prime source of domestic production. In Europe, this has been driven by factors such as the perceived unreliability of gas imports from Russia and the rising costs of traditional sources of energy.
Those countries exploring this energy source are inspired by the transformation of the energy situation in the USA, where the large-scale exploitation of shale gas resources by hydraulic fracturing (fracking) has led to a significant reduction in dependence on imported hydrocarbons. The fracking process involves injecting large amounts of water, sand and chemicals under pressure down a well to fracture the shale and release the oil and gas contained within.
The role of sensors in the shale industry is fundamental. They are typically used for critical wellhead, fracking and separation operations, where sensors feed back information to a central console, and wellhead automation, where the process variables are kept in sync to ensure optimal production.
Sensors can also be used to address several complexities in fracking such as fracture orientation, distance and geometry, and lateral and vertical extent. Microseismic fracture-mapping sensors can enhance the accuracy of fracking by providing seismic imaging detail, while sensors installed in the well provide data on fracture characterisation during drilling. As more fractures open during the process, the sensors installed on the drilling device help to identify new drilling directions.
Level, pressure, flow and temperature sensors (that have long played a critical role in conventional oil and gas operations) are also used in shale gas operations. These sensors have critical applications in wellhead, fracking and separation operations.
Radar & TDR level sensors, PT100 & PT1000 temperature sensors, magnetic, coriolis and ultrasonic flow sensors (including multi-phase), and piezoresistive, ceramic & capacitance pressure sensors are the various sensor technologies used.
Flow, level, pressure and temperature sensors are used in all these applications. However, the share of these four products in the three applications vary. Flow sensors dominate in all three applications and are used to measure oil and gas throughput, while pressure sensors are used on the wellhead site to keep the borehole open or closed as required. Temperature sensors tend to be used for minor control purposes only.
While the conventional oil and gas industry has been one of the biggest users and largest market in terms of revenues for several types of sensor, the opportunities for sensors in shale industry is nascent at this stage and faces several challenges and potential restraints.
The shale industry's future is challenged by:
• Uncertainty as regards government policies and regulations
• Environmental concerns over the effects of fracking
Critical shale gas applications and the use of sensors
• Uncertain commercial viability of shale gas operations
• Unfavourable geological characteristics in some shale formations
Government policies and regulations are a key factor in influencing the future development of shale gas. Governments in many countries have been sceptical about the potential environmental impact of shale gas development. In Europe, for example, Poland and the UK have shale development programmes under way, while France and The Netherlands have effectively outlawed the fracking process.
But even in countries that are notionally supportive of shale exploitation, such as the UK, public opposition has disrupted operations at a number of exploratory well sites.
There is also lack of consensus in some countries, for example Canada, where provinces such as British Columbia and Alberta are allowing fracking, whereas Ontario, Quebec and Nova Scotia have banned the process.
Environmental groups oppose fracking mainly because of :
• the difficulty of waste water disposal after extraction
• contamination of ground water during the extraction process
• earthquake risk from fracking operations
Also, many countries have shale reserves in densely populated areas, beneath industrialised zones or near ecologically sensitive areas. In these places seismic risk, infrastructure degradation and air and water pollution are even more of an issue.
As a result, many countries have imposed a ban or a moratorium on shale exploration until the fracking process is proven safe for the environment.
While in some countries shale gas exploration activities are being encouraged, there is still significant uncertainty over the commercial feasibility of shale oil and gas production. This is hindering investment in the market by oil and gas companies.
Their concerns include:
• that it is too early to predict the actual recoverable volumes of shale oil and gas
• the need to conduct studies of possible environment impact for every shale project, which increases costs
Share of different sensors in shale operations
To accurately estimate the recoverable volume of shale oil and gas and to start commercial production takes five years. These factors significantly reduce the commercial viability of shale exploration.
In the United States and western Canada the shale boom has been spectacular, thereby fuelling a parallel growth in the sensor market in North America. As a result, North American sensor manufacturers have also seen a boom, and they will be in a good position to take advantage of any eventual expansion in shale operations elsewhere in the world.
Sensor manufacturers could also position themselves as solution vendors rather than sensor component vendors to gain a greater share of the global market.
In North America there are large stretches of sparsely populated land, continuous shale formations and relatively shallow hydrocarbon reservoirs. But in a number of those countries seeking to emulate the US, particularly in Western Europe, reserves are in populated areas with far less favourable geological conditions, quite apart from more stringent environmental constraints.
As a result companies seeking to develop shale operations in Europe are likely to focus primarily on Eastern European countries in the first instance.
China is thought to have the largest reserves in the world, 70% more than the USA, but recently that country reduced its shale ambitions. In 2012, the National Development and Reform Commission said it expected China would produce between 60 billion and 100 billion cubic metres of shale gas a year by 2020. Earlier in 2014 this was revised downward to 30 billion cubic metres, due mainly to geological factors.
In China very few shale fields are expected to come online over the next few years. To date, only Sinopec has a commercial shale gas project up and running.
The story is similar in Mexico, which is also credited with large reserves. Currently fewer than 25 shale wells have been sunk, whereas there are thousands over the border in south Texas.
With many governments still undecided as to whether fracking should be allowed to proceed, and oil and gas companies uncertain about the feasibility of commercial shale production in many regions, the sensors market in the shale industry has remained relatively small outside of North America.
This situation is only likely to change if and when the negative factors affecting those countries interested in developing their shale assets are neutralised.