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The slow rise of global unconventional shale gas

The world has 7,300 trillion cf of shale to exploit. Development has been slow outside North America, but momentum is building

Blackpool, a down-at-heel resort on England’s rainy northwest coast, hardly feels like an energy capital-in-the-making. In the UK, it is famous for its tower, its tat and its windswept pier.

But global renown may be on its way. The area around Blackpool probably holds 1,300 trillion cubic feet (cf) of shale gas, making it far bigger than the UK’s conventional reserves, says the British Geological Survey. Spurred by the size of the prize and generous new tax breaks from the UK government, drillers are piling into the area. British press have already labelled Blackpool the “new Dallas”.

It isn’t there yet. Exploration has barely begun. Protesters are still trying to hold up drilling. No one yet has any idea how easy the geology will be to exploit. Meanwhile, the country keeps sucking in Qatari liquefied natural gas (LNG) while subsidising costly renewables. British shale gas remains a virtual source of supply, not a real one.

That’s true in every other country outside North America. As Petroleum Economist’s survey on shale gas this month shows, the US unconventional surge – a key part of that country’s recovery from the financial crisis – has yet to be repeated overseas.

Some of the progress – or lack of it – has been truly disappointing. In Poland, seen just a few years ago as the likeliest major shale-gas producer in Europe, several drillers have left the country. Complex geology is partly to blame. But, as our piece on Poland argues, vested interests have also emerged to stymie plans that could have freed the country from Russian gas supplies.

Governments elsewhere in Europe are doing their best to ignore the economic opportunity offered by shale gas. France has banned hydraulic fracturing (fracking) outright – a decision that panders to fear-mongers’ misinformation about shale gas and would look silly even if the French economy were thriving, which it is not. Germany’s coalition government is also suspicious of fracking. Bulgaria has put a moratorium on the practice. Romanian protesters are trying to stop drilling. And so on. Meanwhile the EU continues to preach about climate change to the rest of the world while the continent’s coal use rises. (By contrast, the substitution of coal with shale gas in the US has sent its emissions tumbling.)

Different barriers have arisen to stall shale elsewhere. Two years ago, Algeria was shale gas’s next big thing. International firms have signed some agreements, but little is being done in its remote plays. Politics has left Mexico’s abundant shale-gas reserves untapped, even while the boom continues across the border. South Africa hasn’t figured out a strategy to fracking its promising reserves. State-owned firms in China haven’t shown much nous in opening up the country’s shale. 

Top 10 countries with technically recoverable shale gas

Even in Canada, where drillers have found and proved much gas, the sector is now in neutral. The surfeit of supply in the US has decimated Canadian exports, forcing down its production.

Vive la revolution!

But only a true shale Pollyanna would think the sector is not progressing. And it was never going to happen overnight. American engineers and geologists took decades to hone hydraulic fracturing and horizontal drilling into viable shale-busting techniques. The good news is that the hard, technological progress has been made. But drillers will still need patience as they figure out how to apply the methods to shales that can be vastly different from country to country.

But things are moving. China is a good example. Government targets for shale-gas output will not be met. But the sector, including gasfield services, is beginning to take shape. As our lengthy article on the country’s shale gas says, the reserves are too big – the world’s largest – and the government too determined to exploit them. Eventually, China will be a major shale-gas producer.

Elsewhere, shale-gas prospects are growing daily. Who five years ago would have expected Saudi Arabia, home of easy oil, to be fracking the kingdom’s unconventional gas deposits? Argentina was heading for a brutal energy crunch not too long ago. Now it sits atop one of the world’s most highly prized oil and gas shales and international firms, long wary of the country, are circling.

For all these hopeful producers, and especially for those with economies to fix, the US is a shining city on a hill of shale. The sector supported 600,000 jobs there in 2010, says IHS Cera, a consultancy, and the number will reach 870,000 by 2015. In the same time, shale gas will add $118bn to the country’s GDP. After years of decline, its petrochemicals sector is undergoing a shale-led revival, too. No other shale-rich country can ignore those statistics.

International development, slower than hoped so far, will gather momentum. As it does, scores of new opportunities will arise. Services firms (the kind that operate rigs as well as the kind that draw up contracts) will especially benefit from this, as they move from a saturated market in the US to immature plays and less-experienced producer countries.

Table 2 - wet natural gas production and resources

This should eventually cause another disruption to global energy, even if we know now not to predict how quickly it might happen. It was only ten years ago that Federal Reserve chairman Alan Greenspan warned Congress about the impending shortage of gas in the US, saying the country needed a “major expansion of LNG terminal import capacity”. Even in 2005, Lee Raymond, then boss of ExxonMobil, was proclaiming that “gas production has peaked in North America”.

After a slow start, a new phase in global unconventional gas is beginning. With 7,300 trillion cf to be exploited, only a brave man would now bet against the emergence of a truly global shale-gas industry. 

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