Sunday, June 03, 2012

America's Big Shale Gas Boom: Is It Exceptional?

America’s gas boom confers a huge economic advantage. It has created hundreds of thousands of jobs, directly and indirectly. And it has rejuvenated several industries, including petrochemicals, where ethane produced from natural gas is a feedstock....

...Between 2005 and 2010 the country’s shale-gas industry, which produces natural gas from shale rock by bombarding it with water and chemicals—a technique known as hydraulic fracturing, or “fracking”—grew by 45% a year. As a proportion of America’s overall gas production shale gas has increased from 4% in 2005 to 24% today. America produces more gas than it knows what to do with. Its storage facilities are rapidly filling, and its gas price... dipped below $2 per million British thermal units (mBtu): less than a sixth of the pre-boom price and too low for producers to break even. _Economist

Shell and Sasol are planning large new gas to liquids (GTL) plants in Louisiana to take advantage of the huge price spread between natural gas and oil, and as explained in the Economist article, new liquified natural gas (LNG) terminals are being planned for shipping US gas overseas, where higher prices can be charged. In addition, several vehicle fleets in North America are looking into using compressed natural gas (CNG) in place of gasoline, as a cost-savings move.

But can other regions copy this North American success story?
The shock waves of America’s gas boom are being felt elsewhere. Development of Russia’s vast Shtokman gasfield, in the Barents Sea—a $40 billion project which was intended to supply America with LNG—has stalled. Qatari LNG, once earmarked for America, is going to energy-starved Japan. Yet a bigger change is expected, with large-scale shale-gas production possible in China, Australia, Argentina and several European countries, including Poland and Ukraine.

America’s shale-gas boom was fuelled by a coincidence of factors: “open access” pipeline regulation, which inspired wildcat exploration; abundant drill-rigs and other infrastructure; and strong property rights, whereby landowners own the rights to minerals beneath their holdings. Few of these conditions exist elsewhere.

Europe has a good pipeline network, which in theory is open to all. Yet the pipes get tied up years in advance. European landowners typically do not own the minerals under their land, so they have little incentive to encourage exploration. Also, Europe is crowded, so its NIMBYs are noisy.

China has a different sort of problem: a shortage of water, of which millions of gallons can be required to frack a single well. The Argentine government’s recent decision to grab control of the country’s largest oil firm, YPF, will scare off the foreign investment its shale industry needs.

Such hurdles will make the pace, and perhaps scale, of America’s boom hard to equal. And even a big increase in supply might not bring down the European gas price much. Unlike the price in America, it is tied to the oil price, thanks to long-term Russian and Norwegian export contracts.

...So long as well-shafts are properly sealed, there is hardly any risk that fracking will poison groundwater. By eliminating venting, methane emissions can be kept to an acceptable minimum. And the risk of earthquakes, which has long been present in conventional oil-and-gas extraction, is modest and mitigated by monitoring. The IEA says such precautions would add 7% to the cost of a shale-gas well—a small price for a healthy industry. _Economist

It is estimated that for every shale oil & gas job created, 3 other jobs elsewhere in the local economy are created as a result of the oil & gas jobs. That number may actually be too low, since besides the large number of service and support jobs generated, entire new manufacturing enterprises have been sprouting up to take advantage of the low energy costs brought about by the shale bonanza. And each of those new manufacturing jobs will likewise help create multiple other jobs . . . And so it goes in a healthy economy, where the private sector is actually encouraged by government policies to function and grow -- a condition that the US has seen very little of through most of the Obama years thus far.

More: Russia's Gazprom chairman asserts that all of this nonsense about a North American shale energy boom is nothing more than a public relations stunt.

With much hand-waving, Gazprom's Alexei Miller assures us that "these are not the massive shale gas reserves that you've been looking for." What is the Russian expression for "whistling past the graveyard?"



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