GIS Dossier: The shale gas revolution

Dr Carole Nakhle

GIS Dossiers aim to give readers a quick overview of key topics, regions or conflicts. This survey reviews the consequences of a “game-changing” hydrocarbons extraction technology that continues to rock the energy business around the globe. It is based on a selection of reports by Dr Carole Nakhle, CEO of Crystol Energy, and others.

Natural gas is the lightest hydrocarbon resource, wrote GIS energy expert Dr. Carole Nakhle. Per unit of volume, it contains only 1/1000th the heat energy of oil. Early on, when oil companies came across natural gas during exploration, it was seen as a disappointment: such gas wells were called “dry holes” in those times. Gas recovered while extracting oil could not be profitably sold and was burned off at the well site. Today, such “flaring” is illegal in most places and natural gas is considered a strategic source of energy.

Its importance in the global energy mix has been increasing gradually since the oil crisis of the 1970s. This process is driven by the need, firstly, to achieve greater security of supply by diversifying the sources of energy, and, more recently, to meet the climate change agenda. Natural gas is by far the cleanest fossil fuel.

Then, early in the 21st century, the world had to learn a new technical energy term: shale gas.

Shale gas is natural gas trapped in sedimentary rock – or shale – formations. The extraction technology is hardly new. Horizontal drilling began in the 1930s and a well was first fracked (a technique of fracturing rock with pressurized liquid) in 1947. However, the large-scale development of “unconventional gas” in the United States began in earnest only in this century.

Initially, much cynicism surrounded shale technology, which was dismissed as overhyped, expensive and short-lived. But doubters have been proven wrong. Since 2009, when shale-derived energy began to reach the market in large quantities, U.S. oil and gas production staged a remarkable recovery, reversing decades of decline and reducing the country’s reliance on imports. As a result, shale gas not only revolutionized the energy sector in the U.S. but also became the tipping point for fundamental change in global gas markets. There have been winners and some losers, too.

GIS’s coverage of the phenomenon began in 2011. In the first of several reports on shale gas, GIS expert Dr. Frank Umbach quoted leading U.S. energy scholar Daniel Yergin:

“This revolution arrived with no fanfare, no grand opening ceremony, no ribbon cutting. It just crept up.”

Born in the U.S.A.

Rapidly expanding production of shale gas transformed the U.S. from the world’s largest import market of liquefied natural gas (LNG) to a self-sustaining gas producer and a net gas exporter.

A combination of three factors – falling demand linked to the global recession, an increase in U.S. shale gas production and the arrival of new LNG delivery capacity – created a rapid shift, the expert explained. These factors led to a sudden LNG overcapacity that made it cheaper than pipeline gas, based on long-term contracts. It also contributed to the de-linkage of gas prices from oil prices, benefiting gas consumers.

“This has global dimensions and may extend the present worldwide gas glut to at least 2017- 2020, longer than previously anticipated,” Dr. Umbach correctly predicted. Later in the report, he focused on Europe’s potential for developing its own unconventional gas.

In her June 2012 report, Dr. Nakhle described the impact of shale gas development on LNG exporters like Qatar. LNG producers were taken by surprise by the global market change, she wrote. Qatar, however, successfully reallocated its cargoes and secured long-term contracts with other clients, like China and India. Such contracts have reduced Qatar’s exposure to volatility in spot LNG prices.

In the same month, GIS expert Dr. Stefan Lippert described the early impact of the shale gas/LNG shift on Asian countries, particularly Japan, whose thirst for gas energy followed the decision to shut down its nuclear power stations after the Fukushima nuclear accident in March 2011. Japan paid a steep price for the imported gas: $17-18 per million British Thermal Units (BTU). That was more than seven times the U.S. price.

Beginning in August 2012, GIS ran a six-part series of reports by Dr. Umbach on the key facets of the shale gas revolution. In Part 1, the author described the challenge posed by environmental concerns over the fracking technology and possible ways to handle the perceived and real threats. Part 2 was devoted to listing the impressive economic benefits and strategic gains that shale gas was affording the U.S.

Read the full article

Related Analysis

The U.S. shale revolution continues to alter gas markets”, Dr Carole Nakhle, Apr 2019

Shale energy shows the power of markets”, Dr Carole Nakhle, Feb 2017

Related Comments

Oil and Gas Market Outlook: What Does 2019 Hold?”, Access for Women in Energy, Jan 2019

Share this:

Recent Posts