The Great American Shale Boom

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Plenty of land and water, a pipeline network, fracking and horizontal drilling specialists and competitive gas prices are key factors behind the success of shale exploration in the US

The shale gas bonanza in the US is such that every nation with this resource now wants to repeat it. With rising shale gas production, the US, the world’s biggest energy consumer, is now tipped to become the largest producer of hydrocarbons.

US imports of natural gas and crude oil have fallen 32 per cent and 15 per cent, respectively, in the past five years, narrowing the country’s trade deficit, thanks to the shale energy boom.

Boosting output

The US’ shale gas output jumped from 1,293 billion cubic feet (BCF) in 2007 to 7,994 BCF in 2011, according to the Energy Information Administration.

Last year, shale gas accounted for 39 per cent of all natural gas produced in the US, compared with 15 per cent in Canada and less than 1 per cent in China.

The agency expects US natural gas production to increase 44 per cent between 2011 and 2040, mostly driven by shale gas.

Key factors for the success include abundant land and water; adequate pipeline infrastructure; specialised service companies for fracking and horizontal well drilling; competitive gas prices, and potential shale formations.

“Geological data base and low-cost funding are also vital components for shale success in the US,” says Walter Vandevijver, CEO, Shale Gas Business, Reliance Industries. The Mukesh Ambani-led conglomerate acquired shale gas assets in the US in 2010 for $3.45 billion and had invested $5.7 billion in joint ventures till the June 2013 quarter

But the leading players in the US shale gas space are small and medium sized companies such as Occidental Petroleum, Pioneer Natural Resources, Whiting Petroleum and Chesapeake, while giants like Chevron and ExxonMobil are continuing to focus on conventional hydrocarbon fields. Barnett, Woodford, Fayetteville, Marcellus, Haynesville and Eagle Ford are the most important shale fields in the US. The country also has a fairly strong regulatory system. Shale gas production is regulated under a comprehensive set of federal, state and local laws.

The US Environmental Protection Agency (EPA) administers most of the federal laws, while development on federally-owned land is managed primarily by the Bureau of Land Management (part of the Department of the Interior) and the US Forest Service (part of the US Department of Agriculture).

Each state separately has regulatory agencies that administrate wells, including their design, location, spacing, operation, and abandonment, as well as environmental activities and discharges, including water management, waste management, air emissions, underground injection, wildlife impact, surface disturbance and worker safety.

Price factor

These factors led to the US shale boom. But critics say the future of the shale gas industry in the US will be primarily determined by the commodity price.

Low gas price affects the commercial viability of shale gas production, a fact reflected in the recent fall in the rig count, which measures the number of rigs being used to drill gas wells.

Favourable commodity prices and technological improvements are necessary for new players to emerge and the existing ones to continue to enjoy a sustainable model, say analysts.

(This article was published on November 10, 2013)
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