Lost amidst the doom and gloom over global warming and energy dependence on the Middle East and Russia is the fact that new technologies and drilling techniques are allowing recovery of gas trapped in shale and gradually but inexorably transforming the global energy security equation. For all the hopes of transitioning to renewable energy sources, as the Copenhagen climate talks underscore, the reality is that fossil fuels will continue to be predominant for the coming decade and probably longer. And as the cleanest of fossil fuels, natural gas will likely remain the fuel of choice.
The good news is that the price of liquefied natural gas (LNG) has dropped by roughly half, and US gas imports have dropped precipitously as these technologies have been deployed over the past two years or so. Now Europe is beginning to focus on its own shale deposits to reduce Russia’s hold on Europe’s gas market. And not least, as gas is the cleanest of fossil fuels, producing about 40% of the GHG of coal, it could provide some benefit in the effort to mitigate climate change.
What is known as unconventional gas (shale gas, coalbed methane, tight gas) already accounts for nearly 40% of US gas production, which has risen by nearly 20% in the past two years –this, after having been thought to be in decline. Current projections by the Department of Energy’s Energy Information Agency (EIA) suggest US gas production from shale may account for 62% of the total by 2030. The EIA also projects that China, which has a similar geology, may be producing 48% of its gas from shale, and Australia, some 50% within the next two decades. Prospective shale gas may nearly double estimates of global natural gas reserves. (For more background seeDOE’s “Modern Shale Gas Development: A Primer” [ PDF]).
One potential concern, however, is the environmental impact. The gas trapped in shale rock formations has, until recently, been too difficult and expensive to be commercially viable. But new horizontal drilling techniques, combined with a process known as hydraulic fracturing (“fracking”) — which breaks the rock, allowing the gas to escape — have made large-scale production possible.
The process involves pumping large amounts of water and chemicals (including benzene) into the shale which shatters the rock. This fracturing technique has been in use since 1948, and industry sources say the procedure has been used in a million gas wells in the years since. But the practice has expanded in the past few years as energy companies began exploring shale formations mainly in Texas and Pennsylvania.
The concern of those on and around land where the shale gas production is concentrated is of contamination of the water supply and possible pollution caused by chemical use. However, shale rock is located several thousand feet below the surface, well below the water aquifers. There is currently congressional legislation pending that would require more transparency by drillers about what chemicals are employed and also shift some of the regulatory function, now under state laws to federal supervision.
An Energy Gamechanger?
If even a significant fraction of the potential for shale gas development – and some estimates suggest it could double the amount of proven reserves – is realized, many energy analysts think it may be a game changer. That is to say, shale gas could have substantial impact on the gas market, the role of gas relative to other energy sources and not least, the geopolitics of energy security.
Already US shale gas production is altering global gas markets, with most projections for continued low prices as far out as 2013. The new bounty of gas in the US, at a time when LNG projects initiated at the beginning of this decade are coming on line allows LNG,sold on the spot-market to gravitate to Europe and other markets.
If high-end estimates of shale gas production prove accurate it may alter the energy mix in the US and other nations. If high-end projections on shale gas production are realized and gas prices (particularly if a price on carbon is implemented) remain low, utilities may consider switching from coal to gas for some electric power production. Depending on prices, it is also conceivable that natural gas could become something of a transport fuel, with buses and government fleets using gas instead of oil. And if, over the coming two decades, China begins large-scale shale gas production, that would have a significant impact on what many see as increasingly uncertain world gas markets.
The prospective geopolitical implications are also intriguing. Widespread shale gas production holds the possibility of reducing Russian control over Europe’s supply. Europe itself has modest shale gas potential, and regulatory and legal questions further cloud its potential for shale gas production. But if shale gas becomes a larger factor in world gas markets, Europe could find access to relatively cheaper LNG supplies outside of Russia from Qatar, offshore Africa, and elsewhere. What impact such an eventuality might have on EU-Russia relations makes for interesting speculation.
Moreover Russia and Iran, which combined possess more than 40% of current proven gas reserves, may find that shale gas make it less attractive for foreign investors, whose technology can be critical, to develop those reserves. Iran, in particular has proven a vexing and problematic place to invest (quite apart from the political risk factor), especially so in its energy sector. If both petro-states have less gas revenue to bankroll their respective foreign policies, their efforts to expand in influence in the former Soviet space in the case of Russia, and the Middle East/Central Asia in the case of Iran, that would likely impact geopolitics on both areas.
All this is, of course, is for now, in the realm of speculation. But there is a loud buzz about shale gas being a game-changer among energy analysts that is difficult to ignore. In any case, shale gas has already injected great uncertainty into the future of gas markets and changed the US gas picture. Whether it rises to the level of being a game-changer is a judgment that will remain premature, probably until well into the coming decade.
Robert Manning is a senior advisor to the Atlantic Council. The views expressed here are solely his own, not those of any U.S. government agency.