THE GEOGRAPHY OF

UNCONVENTIONAL
ENERGY PRODUCTION
Companies are tapping into reserves of shale oil and natural gas
worldwide. Knowing how to manage this complex task in remote
areas is the key to success.
When it comes to the boom in unconventional energy production, North America gets most
of the headlines. After all, that region has developed at an accelerated pace and contains the
world’s largest reserves of oil and gas, which are now exploitable using methods such as
hydraulic fracturing (“fracking”) and horizontal drilling.

However, unconventional exploration and production is by no means limited to North

America. It is also underway in Argentina, Australia, China, Russia, Indonesia, and India, to
name just a few of the countries that are benefiting from the technology.

“The rest of the world has seen what a step-change this has made to the U.S. economy,”
says Jonathan Shortis, Vice President of Energy for Europe, the Middle East, and Africa
(EMEA) with DHL. According to a recent report on unconventional oil and gas supply chains
by IHS Economics, oil and gas derived from shale are expected to contribute $468 billion
annually to U.S. gross domestic product by 2020.

For many developing countries, especially those still struggling to recover from the worldwide
recession of 2007–2008, the lure of unconventional energy sources is impossible to resist,
because it is driving energy independence and bringing in much-needed revenue. Major
activity is in progress in many parts of the world:

Latin America holds strong potential for unconventional energy production, Shortis says.
Argentina, in particular, has undertaken a “massive development” of its resources, with
reserves that could rival those of the U.S.

In North Africa, Algeria and Libya contain large deposits of shale oil and gas, which could
be exploited once political stability has been achieved. South Africa, too, is moving ahead
with production, with license applications pending for exploration in the Karoo National Park.

Oil-rich Saudi Arabia is deploying unconventional techniques to tap much-needed reserves

of natural gas. The “supermajors” (the largest and most influential oil companies) are also
exploring potential sources of shale gas in countries such as Oman.

Europe, which is just beginning to get into the game, has identified significant reserves of
shale gas in the United Kingdom, Denmark, and Eastern Europe, with exploration advancing
in countries such as Romania, Poland, and Ukraine. Whether those countries will move
ahead with production depends on individual government policies on development, Shortis
says.

Additional areas with large deposits of shale oil and gas include Russia, Australia, Mexico,
and China’s Sichuan Province.

Remote locations pose real challenges

The extraction of shale oil and gas from remote regions presents significant logistical
challenges for producers. Frequently the task requires the creation of basic infrastructure,
including roads and rail, before the first piece of drilling equipment can even arrive at the site.
In Ukraine, for example, DHL had to bring in concrete road slabs – literally laying the
groundwork for the development of access roads and well pads.

Other challenges are administrative in nature. The surge of unconventional energy

production has brought about a global shortage of engineering resources, a problem that is
even more acute in developing countries. Oil companies are responding by keeping their
own personnel focused on core responsibilities and by outsourcing certain tasks, especially
the movement of key equipment and supplies, to trusted third-party providers and
integrators.

Dealing effectively with governments and neighboring communities is vital to the success of
unconventional drilling operations. Interactions with officials are often face-to-face and
require an intimate knowledge of local communities’ business standards as well as attitudes
toward energy development, Shortis says. Fracking, in particular, is a controversial process
that can meet with stiff opposition from local environmental groups.

Such issues are beyond the control of a service provider, but once the decision to go ahead
with exploration and development has been made, a lead logistics provider (LLP) can step
in. Oil producers rely heavily on such organizations to help them tackle the challenges of
managing remote well locations and ensuring a consistent material flow into and out of the
well sites. For instance, it is often up to outside partners to supply the necessary drivers and
 vehicles as well as the logistics scheduling tools to support the well engineering and drilling
teams in the field.

Additionally, lengthy supply lines and inadequate communications infrastructure make it

difficult to maintain visibility over the movement of people, equipment, materials and
information to the well-head. An LLP with both global coverage and local expertise can help
to overcome those obstacles.

The LLP, also known as a fourth-party logistics (4PL) provider, can also help the energy
producer to maintain standardized systems and processes, which otherwise might vary
widely from location to location. The trick lies in finding a partner with both global reach and
an intimate knowledge of local conditions. The latter is essential for dealing with
subcontractors and maintaining the quality of workers’ operational and safety performance
on the ground.

An LLP might be called on to hire multiple subcontractors and train them on such key
elements as health and safety, vehicle maintenance, and even the proper loading and
strapping of a vehicle. Auditors in the field follow up to enforce compliance with operating
procedures and ensure that drivers are properly trained and licensed. At the same time,
drilling sites must be in strict compliance with ever-changing regulations, imposed by local
officials as well as by national authorities.

Even the best-qualified partner can have trouble accessing critical information in remote
areas. To ensure oversight of all data and operations, DHL recommends the creation of a
“control tower” staffed by individuals with a strong local knowledge base and appropriate
language skills. Technology can help as well, in the form of intelligent vehicle-monitoring
systems that track shipments and key milestones.

All of this requires a significant investment on the part of the oil company, but Shortis says it
is well worth the effort. “You don’t go into shale gas for a short-term gain,” he says. “You’re
investing in the future.”

Further reading:
 Building the Smarter Energy Supply Chain. A DHL whitepaper.
 Supplying the Unconventional Revolution: Sizing the Unconventional Oil and Gas
Supply Chain (IHS Economics) www.ihs.com/shalesupplychain

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