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The Promise of Shale


Advanced drilling techniques have enabled the probing for vast amounts of shale oil and gas. This newfound energy wealth has transformed the US industry and is considered by many as a means to fuel much of the country’s electric generation for decades to come, and reversing the US’s oil dependence. The Shale Gale is now rolling out across the globe.


By Guy Isherwood


THE SHALE REVOLUTION has fundamentally altered the outlook for both oil and gas availability and prices. Starting in the US, interest in shale extraction is spreading fast. Heralded as a “game- changer” by supporters and “environmentally pernicious” by critics, this controversial energy source is increasingly on the agenda globally. The ‘transformative’ impact that shale extraction


has had on US energy markets is well documented. This shale success story has led to heightened speculation over the potential for it to transform energy markets in other regions – for both oil and gas. The spotlight is now on Europe and China where exploration is underway. And capital is flooding in. “However, a number of issues indicate that


the experience in the US may not be replicated in Europe,” according to a report from Ernst & Young (E&Y).1


Furthermore, the rapid growth


in shale oil and gas production has resulted in a corresponding increase in concerns about public health and the environment. Accordingly, opinion on the environmental impact of shale developments and their role in the future energy supply mix has become increasingly polarized. China’s oil giants are perhaps the most


interested in learning more about the drilling and hydraulic fracturing techniques that have unlocked this US bounty. For example, Platts recently reported that US and Chinese experts have completed the first joint evaluation of a shale gas basin in China’s Liaohe basin in northeastern Liaoning province as part of a shale gas cooperation pact between both countries. PetroChina and China’s National Energy Administration are working with the US Geological Survey on the study, with the Liaohe basin considered the third most prolific in China, with estimates of reserves at 15 billion barrels of oil. The most powerful endorsement of US shale


potential is the international nature of the sponsors. Notable ventures include France’s Total linking with Chesapeake, BG Group with Exco Resources, Sinopec with Devon Energy, and India’s Reliance with Atlas Energy and Pioneer resources. “These international players are seeking more than just


600 500 400 300 200 100


0 1990 Source: EIA


increasing strongly. The reference case predicts an almost fourfold increase in shale gas production from 2009 to 2035. By then, shale gas production in the US is forecast to total 342 billion cubic meters. Shale gas will probably account for 49% of total


US dry gas production in 2035 the US Energy Department estimates. Today the US uses 65 bcf of gas per day (25-30% of which comes from shale). It supports around 600,000 jobs. And at current prices, US gas is the equivalent to oil prices of around $15/bbl. The ‘shale gale’ sweeping North America has


more than doubled the size of the discovered natural gas resource – enough to satisfy more than 100 years of consumption at current rates. But over-optimism is being tempered. For example, the


March 2012 57 1995 2000 2005 2010 2015 2020 Shale Gas Tight Gas Lower 48 Onshore Conventional Alaska


Lower 48Offshore Coalbed Methane


2025 2030 2035


a share of US gas; they are seeking to identify best practices that can be scaled globally,” according to Bora Bariman, Associate Director, Oil and Gas with LLyoyds Bank.


Made in The USA ‘Unconventional’ production in the US has


increased at a rapid pace. According to the US Energy Information Administration (EIA), the annual average growth rate in shale gas production was 48% between 2006–2010. This has resulted in the US becoming largely self-sufficient in natural gas. According to the EIA’s Annual Energy Outlook 2011, shale gas production is expected to continue


US Gas Production Outlook 800 700


Bcm per year


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