by stuart on August 31, 2010

The US has certainly put the cat among the pigeons of the natural gas world! Hosting a 2 day conference in Washington, some 20 nations fell over themselves to attend as the US offered its full cooperation to develop shale gas and coal bed methane projects around the world. Press articles in the Economic Times of India and others are heralding the US offer as if it were a free meal, and in a way it is. The US intention is to wean power hungry developing countries off polluting coal and onto far less polluting natural gas. Shale gas has the potential to supply decades of natural gas replacing billions of tons of coal from being burned for electricity generation.

Only a year or two back European oil companies were paying hundreds of millions of dollars to buy their way into US exploration companies to secure the technology.

Quietly in the corner, natural gas producers like Russia and Qatar who have invested billions in developing gas pipelines and LNG processing facilities must be concerned that their business plans are beginning to look less solid. Of the 20 countries attending, many were from Asia – Qatar’s growing market and also from Eastern Europe, including Armenia, Bulgaria, Estonia, Georgia, Lithuania, Poland, Romania and Ukraine, all currently totally reliant on Russian gas.

In the US, an API report advised that thanks to the arrival of shale gas since the middle of the last decade the United States has a future supply of natural gas of over 2,000 Tcf. At current consumption rates, this is enough natural gas to supply the nation for the next hundred years. This is an increase of more than 35% in just the last 5 years and it is rising every year as new resources are qualified.

American oil and gas firms have been working with national oil companies in a number of countries for several years. Houston based Newfield Exploration started working with China’s PetroChina evaluating shale gas reserves in Sichuan as far back as 2007 but the potential has barely been quantified in China never mind realized. A Reuters article reported that China’s Ministry of Land & Resources had set a target earlier this year for the country to identify 50-80 shale gas prospects and 20-30 exploration and development blocks by 2020. This with an aim to identify one trillion cubic meters of recoverable shale gas reserves and build 15-30 billion cubic meters of production capacity sufficient for 8-12% of China’s natural gas demand by 2020.

Individual state petroleum corporations in China have set their own targets over even shorter time frames. CNPC aims to produce 500 million cu meters of shale gas by just 2015 and Sinopec on even more ambitions combined shale gas and coal bed methane target of 2.5 billion cu meters over the same time frame. Some Chinese reports estimate the country may hold up to 30 trillion cu meters of shale gas – a massive resource but still only about half of US estimated reserves.

Shale bed fracking technology is unquestionably an industry the US leads the world. US companies will not be giving their services for free so this is a significant business opportunity for the US as well as a clever strike for the environment. Having seen the rapid benefits the technology has brought in the US, developing countries know development costs will pay for themselves many times over. They are just eager to get their hands on the technology. Environmentalists would still rather see developing countries spending their money on wind and solar because of fears that shale bed fracking could pollute water resources but realistically the rate at which emerging markets are ramping up power consumption they are never going to achieve reductions in Co2 without natural gas playing a part.

–Stuart Burns


Buck