10 May 2010

Revolution in Unconventional Gas Disrupts Dictators' Plans

...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 Energy


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Blogger Hell_Is_Like_Newark said...

its not just shale... Ultra Petroleum a few years back dug a deep hole (over 10k ft) in Appalachia which isn't supposed to have recoverable gas at great depths. Most of Appalachia's wells (pre shale days) are shallow and lower producing. Ultra hit a huge find.

Earlier this year, Ultra Petroleum Corp., a Houston company best known for drilling in Wyoming, sunk an 11,000-foot well in Pennsylvania's Tioga County. The first well in its Appalachia exploration program, the results couldn't have been better. The well was turned on in late May and soon began flowing nearly four million cubic feet a day under extraordinary pressure. By comparison, Appalachia's shallow wells might flow about 20,000 cubic feet a day.

"It takes their wells 200 days to produce what my well does in a day," says Ultra Chief Executive Officer Michael Watford. "It's a whole different profile of production."

Exploration also has picked up elsewhere in Appalachia, but generally without the same degree of success. In West Virginia, companies are tapping into coal seams to unlock natural gas with some good results.

Monday, 10 May, 2010  
Blogger al fin said...

Right. I usually prefer to call the new natural gas "unconventional" gas, rather than strictly shale gas.

Deep drilling on both land and seafloor will become more common, as exploration geologists start to get a clue about what is down there.

Obama - Pelosi might shut the US out of the action, but it is doubtful whether many other countries have quite the clownish leaders as the US currently finds itself with.

Monday, 10 May, 2010  
Anonymous Anonymous said...

Even with all the environmental talk over the last few years, the transportation program for natural gas expired. The program gave a federal tax credit of $0.50 for every gallon of petroleum based fuel that was displaced by natural gas.

The program expired at the end of 2009. If it isn't extended, that will be a pretty good indication of the administration agenda.


Monday, 10 May, 2010  

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