Today, it is widely recognized that domestic shale/tight gas and hydraulic fracturing (or “fracking”) represent a key resource and technology to the future energy supply and economy of the United States. What does foreign shale gas represent for the future U.S. energy supply and economy? That’s what’s unconventional in the contemporaneous debate about the unconventional gas “revolution”.

The domestic debate about the safety of fracking has escalated strikingly of late. Although the future of this industry in the United States looks bright given its potential to yield substantial supplies at competitive costs, there are short term uncertainties that cloud the sector – mainly regulatory uncertainty.  Safety concerns led policy makers to require EPA to study this practice. The investigation is currently under way and observers don’t expect legislative and regulatory clarity until after EPA publishes its findings. What seems clear is that fracking is unlikely to be banned, but compliance and environmental costs will increase.

Meanwhile, inspired by the American unconventional gas boom, other big energy-hungry, import-depending regions are hard at work in exploring their resources and laying the ground to develop unconventional gas production of their own. Both the European Commission and the International Energy Agency estimate total recoverable reserves in Europe at between 1,165 to 1,342 trillion cubic feet (Tcf), of which 424 Tcf is tight gas, 530 Tcf shale gas and 283 Tcf coalbed methane. For reference, the U.S. unconventional gas reserves are estimated at more than 600Tcf.

The Chinese government estimates that its shale resource base exceeds 900 Tcf, and American geologists who have been studying Chinese shale basins agree with Chinese geologists that China’s shale resource base may rival that of the Unites States. The FT reports today that last year, China overtook the United States as the world’s biggest energy user.

These potential unconventional gas resources provide a great commercial opportunity for American companies which enjoy a first mover advantage by having developed and mastered the fracking technology and knowhow. In fact, a Sino-U.S. Shale Gas Resources Cooperation Initiative was signed in 2009, and agreements, joint ventures and other forms of cooperative arrangements are already happening between American and Chinese companies.

Nonetheless, experts agree that “There are a number of significant differences between the situation in the US and in Europe that form a barrier to the successful and rapid development of an unconventional gas industry in Europe”. The main ones are: (1) lack of knowledge about the resource base; (2) institutional arrangements: often, European landowners do not hold property rights for the mineral resources underneath their property, disincentivizing them to allow exploration and production on their land; (3) greater population density, which cause “NIMBY” problems (i.e., “not in my back yard”); (4) lack of a complementary service industry; (5) a less liberalized and competitive market structure, still overwhelmingly dominated by long term contracts, and where companies not always enjoy fair and non-discriminatory access to trading hubs.

While the above Europe-specific factors may delay the development of the European shale plays, American firms’ expertise and ingenuity may help them overcome some of the mentioned hurdles, in a mutually profitable relation. For example, technological improvements like horizontal drilling allow for a reduced surface footprint, easing the NIMBY issue. Furthermore, the lack of a European complementary service industry offers an appealing business opportunity for the American one.

The lack of legislative and regulatory certainty here in the United States is often blamed for the relative immaturity of domestic “green” industries vis-à-vis European and Chinese ones.  In the unconventional gas arena, it is this kind of uncertainty that provides a valuable opportunity for American firms to expand abroad, thus strengthening these companies as world leaders and expanding the global natural gas supply. Bottom line: foreign unconventional gas is beneficial both for the future U.S. energy supply and economy.

Source: Schlumberger

Previous Post  

Next Post

Greenpeace versus Greenland
September 2, 2010

Selective environmentalism
August 26, 2010

Why Rare Earths Are Not Like Oil
August 23, 2010