Monday, May 10, 2010

Shale Gas Revolution Changes World Energy Balance

...the petro-states will lose lots of the muscle they now have in world affairs, as customers over time cut them loose and turn to cheap fuel produced closer to home.

The shale boom also is likely to upend the economics of renewable energy. It may be a lot harder to persuade people to adopt green power that needs heavy subsidies when there's a cheap, plentiful fuel out there that's a lot cleaner than coal, even if gas isn't as politically popular as wind or solar. _WSJ

Russia is not the only energy dictatorship that is concerned about losing global clout as a result of the discovery of giant new unconventional gas deposits around the world. Corrupt energy dictators from Venezuela to Iran to Saudi Arabia to Bolivia are growing frantic at the thought that some of their biggest customers may soon start producing their own energy -- from unconventional gas.
Over the past decade, new techniques have been developed that drastically cut the price tag of production. The Haynesville shale, which extends from Texas into Louisiana, is seeing costs as low as $3 per million British thermal units, down from $5 or more in the Barnett shale in the 1990s. And more cost-cutting developments are likely on the way as major oil companies get into the game. If they need to do shale for $2, I am willing to bet they can, in the next five years.

... One of the biggest effects of the shale boom will be to give Western and Chinese consumers fuel supplies close to home—thus scuttling a potential natural-gas cartel. Remember: Prior to the discovery of shale gas, huge declines were expected in domestic production in U.S., Canada and the North Sea. That meant an increasing reliance on foreign supplies—at a time when natural gas was becoming more important as a source of energy.

Even more troubling, most of those gas supplies were located in unstable regions. Two countries in particular had a stranglehold over supply: Russia and Iran. Before the shale discoveries, these nations were expected to account for more than half the world's known gas resources.

Russia made no secret about its desire to leverage its position and create a cartel of gas producers—a kind of latter-day OPEC. That seemed to set the stage for a repeat of the oil issues that have worried the world over the past 40 years.

...In the U.S., the impact of shale gas and deep-water drilling is already apparent. Import terminals for LNG sit virtually empty, and the prospects that the U.S. will become even more dependent on foreign imports are receding. Also, soaring shale-gas production in the U.S. has meant that cargoes of LNG from Qatar and elsewhere are going to European buyers, easing their dependence on Russia. So, Russia has had to accept far lower prices from formerly captive customers, slashing prices to Ukraine by 30%, for instance.

But the political fallout from shale gas will do a lot more than stifle natural-gas cartels. It will throw world politics for a loop—putting some longtime troublemakers in their place and possibly bringing some rivals into the Western fold.

...Shale-gas resources are believed to extend into countries such as Poland, Romania, Sweden, Austria, Germany—and Ukraine. Once European shale gas comes, the Kremlin will be hard-pressed to use its energy exports as a political lever.

I would also argue that greater shale-gas production in Europe will make it harder for Iran to profit from exporting natural gas. Iran is currently hampered by Western sanctions against investment in its energy sector, so by the time it can get its natural gas ready for export, the marketing window to Europe will likely be closed by the availability of inexpensive shale gas.

...In the end, what's important to understand is that shale gas may be the key to solving some of our most pressing short-term crises, a way to bridge the gap to a more-secure energy and economic future. _WSJ

More energy news: Despite Gulf oil spill, continued drilling is necessary
Opportunists flock to profit from oil spill tragedy
And just wait until the lawyers show up in force!

Cross-posted to Al Fin

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Blogger CLadd said...

Readers interested in learn more about the emerging developments in European shales and in particular, recent activity in Poland, may wish to visit

11:50 PM  

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