There is a new gold rush taking place. Not for the precious metal or “black gold”. This time the race is on for shale gas - a major game-changer in the energy sector. But it’s not without its complications. Joanna Andrews reports.
The global energy landscape is changing courtesy of a shale gas boom. Shale gas is a natural gas produced from shale – a type of sedimentary rock. The gas has become an increasingly important source of natural gas in the US over the past 10 years – and interest is spreading around the world.
Shale gas is transforming the US energy sector and its economy. The impact of the revolution has created hundreds of thousands of jobs and ignited a surge of drilling across America. It has also helped drive natural gas prices to historic levels over the past few years. Gas prices have dropped from $12 per million British thermal units to just $3, giving Americans some of the lowest energy costs in the world and the prospect of renewed energy self-sufficiency within a few years.
Today shale gas contributes to one-third of the United States’ gas supplies. By 2030, it might provide half, according to experts. It has transformed the US from the world’s largest gas importer to a budding exporter.
Infact, according to the International Energy Agency (IEA), the US could overtake Saudi Arabia to become the largest oil producer within a few years.
The boom in natural gas production has turned many Americans, who have either sold their property or allowed drilling on their land, into millionaires practically overnight – earning them the label ‘shaleionaires’. And international investors want in! The US Energy Information Administration (EIA) - not to be confused with the IEA - says that some 20 per cent of the $133.7 billion in investment in the US shale gas industry between 2008 and 2012 included joint ventures by foreign companies. Norway’s Statoil and China’s Sinochem are two examples of international firms jumping on the shale gas bandwagon - each pursuing major stakes in the US shale industry.
The Organisation of Petroleum Exporting Countries (OPEC), who initially played down the threat of the shale boom on the oil industry, is monitoring developments closely – particularly from Gulf member countries (Qatar, Saudi Arabia, Kuwait and United Arab Emirates). Mohammed bin Dhaen al-Hamli, the UAE’s former energy minister, told an OPEC meeting recently that the US shale energy revolution is a “big issue”.
And a recent report from OPEC said it expected increases in North American oil production would trim another 100,000 barrels per day from the forecast demand of crude this year. Saudi Arabia’s oil minister Ali Al-Naimi discussed the impact of rising shale oil production with OPEC Secretary-General Abdullah al-Badri at a meeting in Riyadh in January, Saudi state media reported without giving details of the talks.
Saudi Arabia is planning to drill about seven test wells for shale gas this year according to Al-Naimi. Speaking at a conference in Hong Kong earlier this year he said, “We know where the areas are… We have rough estimates of over 600 trillion cubic feet of unconventional and shale gas so the potential is very huge and we plan to exploit it.” However the biggest obstacle for Saudi is the lack of water to extract the gas.
In another sign that the Saudis are taking shale seriously, Mohamed al-Mady, the CEO of the state-owned Saudi Basic Industries Corp - the Kingdom’s biggest petrochemical firm - said he was considering whether to invest in the US shale gas boom. “We have to participate in the shale gas business and we have to participate in other sources that can also be competitive,” he said.
China is reported to have huge, untapped reserves – estimated to be the world’s largest with about 1275 trilllion cubic feet. The EIA estimates that China’s technically recoverable shale gas resources could be 50 per cent bigger than those in the US. But progress on China’s shale frontier has been slow and while its shale gas deposits are large, they are remote (under the mountains of Sichuan province, the deserts of Xinjiang, and elsewhere). And in most places there is not enough water to provide for hydraulic fracturing, or fracking, a technique used to create cracks that unlock gas trapped in the rock.
PROS AND CONS
Shale gas is a cleaner source of energy than coal. It has nearly half the carbon emissions – and no mercury. However, it is not without its problems. It is an unconventional source of natural gas that requires a special process to extract it.
Fracking, the process of extracting the gas, involves breaking the shale with vast amounts of pressurized water, sand and chemicals. It’s being described as one of the biggest developments in energy in a long time.
However methane is released in the extraction process. Methane, a potent greenhouse gas that traps 25 times more heat than CO2, escapes from natural gas wells in unknown quantities. Those methane leaks, which some activists say may be very large, could offset its role in cutting carbon dioxide emissions.
History dictates that any major change in the global energy sector often triggers a new round of economic development. There are some fears that the rise of shale energy could in the long term pull down oil prices and slow growth in demand for supplies from the Gulf. It has already reduced natural gas prices to a 10th of their highs – reducing western dependence on foreign supplies. But that’s not all, as the US increases its dominance in the global energy mix, there are questions as to how this will change foreign policy as it loses its reliance on the traditional energy-rich nations. The world is waking up to the fact that the world’s biggest energy consumer is on track to become the largest producer of hydrocarbons – and it’s watching with interest.