Is the world on the cusp of a shale-gas revolution? Who will be the leaders in using this new technology? And what are the upsides and the downsides? For some answers, RFE/RL correspondent Bruce Pannier spoke to Ed Reed, senior editor at Scotland-based NewsBase Ltd., which tracks global energy developments.
RFE/RL: Shale gas has been called a "game changer." How accurate is that characterization?
Ed Reed: It's certainly been a game changer in North America. There were predictions in the early 2000s that by about this time, the U.S. would be a net importer of gas, [that] it would be taking a lot more LNG [liquid natural gas] and therefore [would] become more reliant on other countries.
The fact that the shale-gas boom has happened in such a way -- kind of coming to prominence in 2007-2008 -- has meant that now there's no LNG import planned for America. And in fact it's really now looking at exporting LNG. In addition, the U.S. is now the top producer of gas in the world. It overtook Russia in 2009, so it's really been very important for the U.S. and for North America.
RFE/RL: People have known about shale gas for some time, but it was too expensive previously to extract. Has the technology become better and so much cheaper, or is it the case that natural-gas prices have risen so much that recovering shale gas is now an economical venture? Or is it a combination of both?
Reed: It really is a combination of both. The technology allowing it to be produced viably was really a very recent invention. I think the turning point was really in 2001 or 2002 when Devon Energy, a U.S.-based company, bought another U.S.-based company called Mitchell Energy. Mitchell pioneered the process of fracking and Devon managed to combine this process with its horizontal drilling knowledge – the two key elements of shale-gas extraction. So really we only saw the fruits of this labor in the second half of that decade.
So really only in 2007 and 2008 did we suddenly see a massive increase in shale-gas production, and that's really why we know so little about it because it’s such a recent technology. It's now cheaper to produce the gas and in fact I've seen some calculations that some shale gas can be produced cheaper than conventional gas in America. That's still a hotly debated issue, but we are seeing extremely low prices in North America.
RFE/RL: Could you walk us through the steps needed to recover shale gas?
Reed: It starts off as a conventional process of looking for oil or gas – carrying out seismic [tests] and drilling. But once you've drilled your well -- and as I said, often this would be a horizontal well going sideways to the gas seam -- companies would then carry out the process called fracking, which involves pumping a lot of water down the well to physically break apart the rocks and free the gas trapped in this shale to allow it to flow to the surface.
Fracking generally takes about a week or 10 days and it consumes a lot of water. It’s something like 4 [million] to 19 million liters per day to frack a well, so this is clearly an interesting problem for arid regions.
Another thing that should be borne in mind when considering shale-gas drilling is that there are very high decline rates from these wells. So companies need to refrack old wells or drill new wells. So what we're seeing is a high amount of wells drilled on a small amount of land, which would obviously have knock-on impact when looking beyond America to more densely populated countries such as in Europe.
RFE/RL: Which countries in the world are currently developing this resource?
Reed: Because shale gas has been talked about so much, it's attracted a lot of attention from all over the world. I've spoken to officials from a number of countries who have shown eagerness in trying to develop this resource. A handful that spring to mind [include] Algeria, Argentina, Australia, China, Egypt, Hungary, Poland, South Africa. I've seen some reports that India is going to be working on a shale-gas bid in the near future. So really there are a lot of countries interested, but it's a long way to go yet.
RFE/RL: Which countries are wary of pursuing shale-gas extraction?
Reed: Particularly in Western Europe, we're seeing a lot of reticence about how best to go forward with it. Recently, there were some worries in the U.K. about a company drilling in the north that's raised some eyebrows, shall we say. The French, I think, have imposed a moratorium on [fracking] over concerns of groundwater contamination and various other issues.
So I don’t know of a place that's outright banned it, but I think we are seeing a push-back from countries and indeed even states in the U.S. We've seen worries from Pennsylvania and New York that this fracking process is leading to environmental problems and a lot of people are very worried about it. In fact, in the U.S., the Environmental Protection Agency is working on a study of the process at the moment and that should be very revealing when the results of that come out.
RFE/RL: Is the technology affordable for most countries or will this resource be reserved for industrialized nations that can fund it?
Reed: I think that is the key question: to what extent can these gains that have been seen in North America -- to the extent that it has been a shale-gas revolution -- to what extent can these be replicated? I think it's a very open question, and if I had the answer I'd probably be a very rich man.
If you look at the U.S., there are some quite clear reasons why the shale-gas boom has occurred. It’s the most explored country in the world, and there's a strong local market and group of companies and sort of a critical mass of technology that really allowed this to happen that I don’t think you really have in other parts of the world, at least to the same extent. Similarly, the question of mineral rights is probably going to be a very important one, especially when looking at how shale gas can be exported to Europe.
In the U.S., if you say own land in the Barnett shale [deposit in Texas] or the Marcellus [deposit] then you are eligible to receive money from these companies producing gas from your land. That isn’t the case in Europe. It's much more difficult because the state owns the mineral rights, so the state benefits from the production under your land if you have, say, farmland in the U.K. or Germany or Poland. So this is going to be a key problem in terms of deterring people from agreeing to let people operate on their lands and that's going to be one to watch, I think. That's going to be a real problem.
Another reason that progress has happened so rapidly in the U.S. is that there are more lax environmental standards, and I think now looking at places like France, which has imposed this moratorium on hydraulic fracturing, that's going to be a problem as well. I think knowing what we know and looking at the American example, it's going to be very hard to carry out the same level of processes at the same intensity.
RFE/RL: Shale gas has been called a "game changer." How accurate is that characterization?
Ed Reed: It's certainly been a game changer in North America. There were predictions in the early 2000s that by about this time, the U.S. would be a net importer of gas, [that] it would be taking a lot more LNG [liquid natural gas] and therefore [would] become more reliant on other countries.
The fact that the shale-gas boom has happened in such a way -- kind of coming to prominence in 2007-2008 -- has meant that now there's no LNG import planned for America. And in fact it's really now looking at exporting LNG. In addition, the U.S. is now the top producer of gas in the world. It overtook Russia in 2009, so it's really been very important for the U.S. and for North America.
RFE/RL: People have known about shale gas for some time, but it was too expensive previously to extract. Has the technology become better and so much cheaper, or is it the case that natural-gas prices have risen so much that recovering shale gas is now an economical venture? Or is it a combination of both?
Reed: It really is a combination of both. The technology allowing it to be produced viably was really a very recent invention. I think the turning point was really in 2001 or 2002 when Devon Energy, a U.S.-based company, bought another U.S.-based company called Mitchell Energy. Mitchell pioneered the process of fracking and Devon managed to combine this process with its horizontal drilling knowledge – the two key elements of shale-gas extraction. So really we only saw the fruits of this labor in the second half of that decade.
So really only in 2007 and 2008 did we suddenly see a massive increase in shale-gas production, and that's really why we know so little about it because it’s such a recent technology. It's now cheaper to produce the gas and in fact I've seen some calculations that some shale gas can be produced cheaper than conventional gas in America. That's still a hotly debated issue, but we are seeing extremely low prices in North America.
RFE/RL: Could you walk us through the steps needed to recover shale gas?
Reed: It starts off as a conventional process of looking for oil or gas – carrying out seismic [tests] and drilling. But once you've drilled your well -- and as I said, often this would be a horizontal well going sideways to the gas seam -- companies would then carry out the process called fracking, which involves pumping a lot of water down the well to physically break apart the rocks and free the gas trapped in this shale to allow it to flow to the surface.
Fracking generally takes about a week or 10 days and it consumes a lot of water. It’s something like 4 [million] to 19 million liters per day to frack a well, so this is clearly an interesting problem for arid regions.
Another thing that should be borne in mind when considering shale-gas drilling is that there are very high decline rates from these wells. So companies need to refrack old wells or drill new wells. So what we're seeing is a high amount of wells drilled on a small amount of land, which would obviously have knock-on impact when looking beyond America to more densely populated countries such as in Europe.
RFE/RL: Which countries in the world are currently developing this resource?
Reed: Because shale gas has been talked about so much, it's attracted a lot of attention from all over the world. I've spoken to officials from a number of countries who have shown eagerness in trying to develop this resource. A handful that spring to mind [include] Algeria, Argentina, Australia, China, Egypt, Hungary, Poland, South Africa. I've seen some reports that India is going to be working on a shale-gas bid in the near future. So really there are a lot of countries interested, but it's a long way to go yet.
RFE/RL: Which countries are wary of pursuing shale-gas extraction?
Reed: Particularly in Western Europe, we're seeing a lot of reticence about how best to go forward with it. Recently, there were some worries in the U.K. about a company drilling in the north that's raised some eyebrows, shall we say. The French, I think, have imposed a moratorium on [fracking] over concerns of groundwater contamination and various other issues.
So I don’t know of a place that's outright banned it, but I think we are seeing a push-back from countries and indeed even states in the U.S. We've seen worries from Pennsylvania and New York that this fracking process is leading to environmental problems and a lot of people are very worried about it. In fact, in the U.S., the Environmental Protection Agency is working on a study of the process at the moment and that should be very revealing when the results of that come out.
RFE/RL: Is the technology affordable for most countries or will this resource be reserved for industrialized nations that can fund it?
Reed: I think that is the key question: to what extent can these gains that have been seen in North America -- to the extent that it has been a shale-gas revolution -- to what extent can these be replicated? I think it's a very open question, and if I had the answer I'd probably be a very rich man.
If you look at the U.S., there are some quite clear reasons why the shale-gas boom has occurred. It’s the most explored country in the world, and there's a strong local market and group of companies and sort of a critical mass of technology that really allowed this to happen that I don’t think you really have in other parts of the world, at least to the same extent. Similarly, the question of mineral rights is probably going to be a very important one, especially when looking at how shale gas can be exported to Europe.
In the U.S., if you say own land in the Barnett shale [deposit in Texas] or the Marcellus [deposit] then you are eligible to receive money from these companies producing gas from your land. That isn’t the case in Europe. It's much more difficult because the state owns the mineral rights, so the state benefits from the production under your land if you have, say, farmland in the U.K. or Germany or Poland. So this is going to be a key problem in terms of deterring people from agreeing to let people operate on their lands and that's going to be one to watch, I think. That's going to be a real problem.
Another reason that progress has happened so rapidly in the U.S. is that there are more lax environmental standards, and I think now looking at places like France, which has imposed this moratorium on hydraulic fracturing, that's going to be a problem as well. I think knowing what we know and looking at the American example, it's going to be very hard to carry out the same level of processes at the same intensity.
