AMANDA PAUL

Shale gas: changing the energy game?

Just a few years ago nobody ever talked about shale gas, then it suddenly exploded »»

Just a few years ago nobody ever talked about shale gas, then it suddenly exploded onto the scene. In the US the impact of shale on the gas market was so massive it became known as the shale gas revolution. According to a recent report by the London-based think tank Chatham House, shale gas rose from less than 1 percent of domestic gas production in the US in 2000 to over 20 percent by 2010, with projections showing it will account for around 46 percent of the US gas supply by 2035. For consumers, this has been a big plus because it has caused gas prices to drop to their lowest levels in decades.

So what is shale gas? Shale gas is natural gas trapped in specific rock formations that have the ability to soak up gas and oil rather like a sponge. Along with coal-bed methane, tight sandstones and methane hydrates, shale gas is part of what is termed as unconventional gas. However, it is only in the last decade that new technology, such as horizontal and directional drilling, hydraulic fracturing (more commonly known as fracking) and micro-seismic imaging, has made it economically viable for large-scale shale gas extraction.

Following the US, the rest of the world became more interested. China is estimated to have the world’s largest reserves, while in Europe there are an estimated 639 trillion cubic feet with significant deposits in Poland, Ukraine, France, the UK, Lithuania and Turkey. However, Europe has been far more cautious than the US, not least because of safety and environmental concerns over fracking. Hydraulic “fracking” is a means of natural gas extraction employed in deep natural gas well drilling. Once a well is drilled, millions of gallons of water, sand and proprietary chemicals are injected, under high pressure, into the well, known as the “blitzing technique.” The pressure fractures the shale and opens fissures that enable natural gas to flow more freely out of the well. It is quite a controversial procedure, with environmental concerns such as water contamination, land pollution from the chemicals used, air pollution as a consequence of large amounts of methane and wastewater issues becoming considerable obstacles to the developing of the shale gas industry.

The US advised the EU to keep an “open mind” on shale’s potential, with US Special Envoy for Eurasian Energy Richard Morningstar stating earlier this year: “The EU should not let politicians hijack the precautionary principle the way it did with genetically modified organisms [GMOs]. If you insist on a ‘zero risk’ principle, nothing will happen because you can’t prove a negative.” Still, while a report from the International Energy Agency (IEA) released in May has called for more regulation on shale gas extraction, including limitations on the depth of hydraulic fracturing, to counteract the potential risks, the European Commission has said that shale gas-specific legislation is not necessary.

Nevertheless, some countries such as France and Bulgaria have banned fracking. However, others such as Poland, which is heavily dependent on both Russian gas and air-polluting coal, have shown considerable interest, with Warsaw becoming an EU front-runner. Polish officials say that at least another 41 wells will be drilled in the country this year. Yet there have been big disappointments related to the quality and quantity of the gas found. In June, ExxonMobil declared it was pulling out of Poland after tests failed to find gas in commercial quantities.

In the UK, too, there has been considerable interest with the UK having significant reserves, both on shore and offshore. With offshore reserves possibly exceeding one thousand trillion cubic feet, this would put the UK in the top 20 countries for shale reserves. Of course having the reserves and recovering them are two different things, but even if only around 20 percent of offshore reserves are recovered, it would still make UK energy self-sufficient. However, the UK has also suffered problems, with environmentalists linking a small earthquake in Lancashire last year to a nearby shale gas exploration site.

Beyond the environmental aspect, there is also the property rights issue. Private individuals in the US own the minerals under their land. However, in Europe these minerals are usually under the control of the state. This makes the procedure much more difficult. After all, why let the government dig up your land if you are not going to make a fortune out of it? Moreover, unlike in the US where shale exploration more often than not takes place far from residential and urban areas, in Europe many of the sites are located near to where large numbers of people live, which is also a concern.

Realistically, the success of European shale gas will depend on developing more efficient and safe techniques for fracking to reduce environmental concerns. Still, the combination of soaring shale gas production in the US and an increasing global capacity for liquefied natural gas (LNG), combined with the ongoing global economic crisis, has turned the world gas market on its head, which can only equal good news for consumers.

2012-08-21

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Columnist:: AMANDA PAUL