Growing role of Shale Gas

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Table of Contents

Introduction
Technology analysis
Commercial Consideration
Shale Gas versus Conventional Gas
Shale Gas Development in USA
Conclusion
Reference List

Introduction

Background

Adequate, affordable and reliable supplies of energy are essential for social-economic development of any nation. Global energy demand has been rising consistently. High demand for energy in the recent past has led to general increase in global oil prices. Frequent energy crises in the recent decades have motivated innovation in energy sector.

Most recent research studies in energy are oriented towards developing alternative source of energy to supplement or replace fossil fuel. National and international consumption of fossil fuels are anticipated to rise over nest several years. The increase in consumption is however expected to be slower that in the recent years.

Projected increase in fossil fuel consumption in the U.S is, among other factors, as result of anticipated increases growth domestic unconventional gas supplies (Haines, 2006, par 7). According to the Energy Information Administration (EIA) Annual Energy Outlook 2009, there is high anticipation of increase production of oil, coal and natural gas in the country (Ziff, 2009, par 2).

Increased production of shale gas is expected to bring high impact in energy mix not only in the United States but also in other parts of the world. The report addresses effect of increasing production and consumption of Share gas in the country. It focuses on technological impact, commercial consideration, and implication of use of Shale gas to conventional gas.

Unconventional natural gas is at the top in national energy discussion. The increasing importance of unconventional natural gas on national energy has led to significant impact on the country’s energy. The significance of unconventional natural gas is not felt only in the U.S but also in other parts of the world such as Australia, Canada, China and some countries in Europe (Fortson, 2009, par 15).

Debate on conventional natural gas is relatively new. In 2000, unconventional natural gas contributed less than 1% of the countries gas consumption. The impact of the unconventional natural gas was not felt until about 2007-2008, but reached its peak in the second half of 2009. Currently, unconventional natural gas is considered as one of the important innovations in energy sector and one that has high potential energy supply in the future.

Shale gas leads as the unconventional natural gas that has significant impact on national and global energy (New Standard Energy, 2010, par 5). It is natural gas derived from Shale. Shale is natural gas potential rock made up of mud that is composed various clay minerals and other minerals.

Shale gas has developed significantly as source of energy in the country in the recent years. Due to its scale, shale gas is considered as one of the sources of energy that need assessment for development. With development in technology for developing Shale gas, the unconventional natural gas is considered to lead to a paradigm shift in national and global energy in the future.

The figure below shows natural gas production in United States:

Natural gas production in United States.

Source: Natural Gas Production By source.

Unconventional natural gas, particularly shale gas has led to a revolution in energy sector. The impact of shale gas is already being felt in the US and globally. The unconventional natural has led to a transformation in supply and price forecast for natural gas. It has also led to significance on competition among various options for energy.

Today Shale gas contribute to about 20% of gas used in United states, a rise from about 1% 2000 (Kuuskraa, 2007, par 3). It is anticipated that Shale gas and other unconventional natural gases will continue to grow contributing to about half of gases used in the country by 2035. Such an increase will have high impact on energy sector in the country.

For instance, unconventional natural gases contributing 50% of national consumption enable electric power industry to increase is natural gas consumption to about 35 Billion cubic billion per day, up from 19 Bcf currently. Abundant resource for natural gas will have effect o various sectors of the economy. It will have significant influence on choice for power generating technologies.

Considering the consistent growth in demand for electricity and pressure to replace some of the current plants, shale gas and other unconventional natural gas will contribute highly on the overall energy mix (Whitney, Behrens, Clover and Hederman, 2010, p. 108). Shift to unconventional natural gas will affect the relative cost of handling greenhouse gas emissions.

The abundant supply of Shale gas could also have effect on transportation fuels. It could lead to focus on natural gas vehicle while the gas could be used to run power stations that could be used for recharging batteries for electric vehicle.

Revolution in energy sector brought by unconventional natural gas has influenced consumption of natural gas. It has lowered price outlook for natural gas, gas as a source of energy to be more competitive. The Abundance in supply for the unconventional natural gas has boosted confidence on security of supply for natural gas (Jolly, 2008, par 7). This is a great shift from high natural gas insecurity experiences some few years ago.

As gas consumption is expected to raise, greenhouse regulation with become more of a reality than a possibility. Although there is high expectation for impact of Shale gas and other unconventional natural gas, the limit is subject to relative economies of fuels. Other factors that are expected to affect shale gas consumption include structure of the transport system, configuration for power systems, and public policies such as Greenhouse gas emission control.

Figure shows outlook for unconventional Natural gas

Outlook for unconventional Natural gas.

Source: United States Unconventional Natural Gas Outlook.

Technology analysis

Although unconventional natural gases are widely available, they were ignored in preference of conventional natural gas. Shale gas deposits in particular were ignored by producers as they sought deposits with higher concentration. The producers mainly preferred high concentration reserves in order to optimize returns from their heavy investments.

Although Shale gas mining has been there for a long time, it was not considered a viable source of sustainable natural gas (Westervelt, 2010, par 5). It is through technological improvement in Shale gas mining that is has become a competitive source of natural gas.

Cost effectiveness of modern drilling, well simulation and conversion has turned Shale gas to potential source of natural gas. The significance of new Shale gas mining technology is evident in increase in Shale gas in the market thus reducing import for Liquefied Natural Gas (LNG) in the country and its demand globally.

Shale gas production is significantly different from production in conventional petroleum reservoirs. Petroleum reservoirs mainly rely on pressure oil-dissolved gas and gas-cap during early stages of development. Mining also depends on upward hydraulic pressure from water trapping the reservoir.

The production is therefore easier and cost effective due to the nature of the reservoirs. This method of production where water drives and pressure of natural gas is referred to as conventional drive (Curtis, 2002, p. 37). When conventional drive drops due to reduction reservoir’s production, pumping is required in order to bring the petroleum to the surface.

Artificial lift, as the process is referred, leads to increase in production cost. As a reaction to cost effectiveness of artificial lift, drilling companied started to induce hydraulic pressure. The technology helped to increase a well’s production, effectiveness, and reduce cost. Today, advancement in drilling technology has led to a shift from reliance of vertical drilling to horizontal directed to reservoir formation (Mccallum and Womack, 2010, par 13).

Horizontal drilling has not only led to high production but also allows drilling of more than one well from a single well pad. This not only helps in cutting cost but also reduce environmental effect (Sumi, 2008, par 4). Hydraulic fracturing and directional drilling has played a significant on Shale gas production; making it a major competitor to conventional natural gas.

Shale gas production has to consider some factors for it to be successful. The most important factor to be considered in Shale gas extraction is the level of gas in Shale gas reservoirs. Since Shale has low permeability, commercial production of Shale gas requires fracturing in order to produce permeability.

Although natural fractures are sometimes available, they cannot be able to support commercial production making artificial fracturing to be necessary (Ghosh and Prelas, 2009, p. 73). Modern technology in hydraulic fracturing has enabled Shale gas extraction to be commercially viable leading to the current boom. Most of the current Shale gas wells are horizontal. Horizontal drilling and need for hydraulic fracturing tend to make cost for Shale gas production to be higher that in conventional wells.

Horizontal drilling and hydraulic fracturing are very important to Shale gas production. Horizontal drilling allows production of Shale gas from a wide geographic area without having to sink many vertical wells. Through the technology, gas production can be done below surrounding farms, schools, airports and other natural and man made features, without interference. Hydraulic fracturing increases gas production making Shale gas production to be commercially viable.

Commercial Consideration

Until recently, Shale gas was not consideration for commercial use. Various factors in energy market such as price increase and instability, together with advancement in hydraulic technology has changed the situation. Today Shale gas makes up about 20% of natural gas consumption in the United States (Lashley and Hobbs, 2010, par 4).

Other countries such as Australia, China and some European countries are considering Shale gas as substitute to natural gas. As unconventional natural gas, extraction of Shale gas is challenging. Difficulty in extracting Shale gas has been the major factor limiting production of Shale gas and other unconventional natural gas.

Hydraulic fracturing required for extraction of the gas was expensive making cost of production to be extremely high. The high cost of production made produced Shale gas to be expensive than imported liquefied natural gas. Therefore, importation was preferred way of acquiring fuel gas.

Horizontal drilling and advancement in hydraulic fracturing have reduced Shale gas production substantially making Shale gas as a major competitor to liquefied natural gas (Congressional Research Service, 2009, par 9). Cost effectiveness of the Shale gas production has therefore made economically viable.

The high rate of growth of Shale gas in the country is a major threat to conventional natural gas. Not only is Shale gas reservoirs in the country large but also the gas can be sold at competitive prices. Shale gas therefore has been able to emerge as potential source of energy for the future. The large reservoir for Shale gas and improving effectiveness of Shale gas production is having high impact in national and global natural gas market.

The United States has been relying almost entirely on imported liquefied natural gas. Relying on importation meant that any effect in production in source countries has high implication to the United States. The US currently consumes about 21percent of global natural gas.

This is a large portion from an individual country. Considering the US’s high consumption of natural gas, increase in Shale gas usage in the country will have high implication on global natural oil industry. Considering the countries high potential in Shale gas, the US might turn as an exporter of natural gas in the future (Durham, 2010, par 9).

Currently, the US has shale gas potential capable in supplying the country with natural gas for the next a hundred years. The effect of Shale gas has already started to be witnessed. Before Shale gas revolution in 2009, world prices for natural gas were in constant fluctuations. High commercial production of shale gas has led to stabilization of the prices.

Anticipated growth in Shale gas production in the country is anticipated to exert more pressure on liquefied natural gas. Other countries such as Australia and China are also taking moves to increase Shale gas production in the counties. The national and global increase in Shale gas production is likely to major effect on OPEC (Arthur, Langhus and Alleman, 2008, par 6).

The high monopoly and control in natural gas is likely to change. Russia is the country that will be affected most by the changes. Russia and other oil producing and exporting countries will have implement major changes in the natural gas exportation in order to remain competitive.

Shale gas has competitive advantage over conventional natural gas. The gas has less carbon content relative to conventional natural gas. As urge environmentally friendly fuel alternative continues, Shale gas will be preferred over conventional natural gas. Shale gas is not only environmentally friendly is considered to commercially superior to conventional natural gas.

Exploration for Shale gas is relatively cheap as compared to natural gas. New production technologies have lowered the cost of producing Shale gas substantially making it highly competitive. In addition, Shale gas reservoirs are easily available as compared to natural gas.

Shale Gas versus Conventional Gas

Horizontal drilling and hydraulic fracturing has made Shale gas to be a boom in natural gas market. Analysis is HIS CERA has found Shale gas resource base of about 2,000 Tcf. It is also estimated that additional 3,000 Tcf is going to be discovered in the near future. Shale gas potential in other countries is also high (Lewis and Lawler, 2010, par 8).

For instance, in Canada Shale gas resources is estimated to be more than 500 Tcf. The high potential in Shale gas has major impact on conventional gas. Shale gas is a substitute to conventional natural gas. This mean that increased demand for Shale gas has negative impact on demand for conventional natural gas.

In United States, Shale gas consumption has risen to about 20 percent up from about 1% in 2000. The effect of this increase is already being felt in natural gas market. This has led to stability in prices for natural gases while outlook for future prices indicate price fall.

Many countries are considering Shale gas. Other countries, which have shown strong interest on Shale gas production, include Australia, China, Canada and some European countries such as Poland. Full-blown production of Shale gas will have severe effect on Liquefied Natural Gas (LNG).

Shale gas might replace LNG as the dominant natural gas. Low cost of Shale gas production enabled by new production technology has made Shale gases a potential source of natural gas. Worldwide production of Shale gas will exert competition on LNG leading to drop in prices. The increased Shale gas production will have negative effects of LNG producing countries such as Russia. The countries may loose revenue due to drop in natural gas export and reduction in prices.

Shale Gas Development in USA

United States among the countries that have shown great interest in Shale gas production. Shale gas is considered a solution to natural gas problems in the country. Although Shale gas extraction started in early 1820s in Fredonia, New York, it is not until recently that is has gained popularity as a potential source for natural gas (U.S. Department of Energy, 2009, par 5).

The country has high reserve for Shale gas. Currently Barnett Shale is the largest reservoir for Shale gas and the most active. Other potential Shale producing areas are also being explored. For instance, there has been exploration in West Texas. The country’s Share gas resources are estimated to be about 600 Tcf, a high potential for natural gas supplier (Paltsev, Jacoby, Ejaz, Morris and Kragha, 2010, par 9).

Investments in Shale gas has increased with new and more effective share gas producing technologies. In total, the country has about 35,000 producing Shale-gas wells. Many companies have shown interest in Shale gas. Among the major investors in this area, include Royal Dutch Shell, Contango Oil Co., Chesapeake Energy Corp., Denbury Resource Inc., Devon Energy Corp., Noble Energy Corp. and Murphy Oil Corp (US Energy Information Administration, 2008, par 11). Investment in Shale gas is continuing to attract more investors mainly because high profitability prospect.

Currently US Shale gas consumption is about 20% of natural gas consumed in the country. The consumption is estimated to continue to rise as more investments are made in the area. It is anticipated that about half of the country’s natural gas will be produced locally from Shale gas by around 2030. The high investment in Shale gas might may turn the US as a major exporter in natural gas in the future. This will be a major contrast of the current situation where the US consumes about 21% of world’s natural gas, mainly imported.

Conclusion

Source of energy is very crucial for development of any country. Recent energy crises have demonstrated the importance of sustainable source of energy. Many research studies in energy sector have focused of on coming up with alternative source of energy to ensure stability in energy supply.

Shale gas provides one of the most viable alternatives to conventional natural gas. Technological advancement and high investment in Shale gas has made it one of the potential supplies for natural gas. In United State, Shale gas is estimated to contribute about 50% of the country’s natural gas consumption. The impact of Shale gas is expected to be felt in global natural gas production.

Reference List

Arthur, D., Langhus, B. and Alleman, D. 2008. An overview of modern shale gas development in the United States. Web.

Congressional Research Service. 2009. Unconventional Gas Shales: Development, Technology, and Policy Issues. Web.

Curtis, J. 2002. Unconventional Petroleum System. American Association of Petroleum Geologists Vol. 86 No. 11, pp 1921-1938.

Durham, L. 2010. Prices, Technology Make Shales Hot. Web.

Fortson, D. 2009. Shale gas blasts open world energy market. Web.

Ghosh, T. and Prelas, M. 2009. Energy Resources and Systems: Fundamentals and non-renewable resources. New York: Springer.

Haines, L. 2006. Shale Gas. Web.

Jolly, D. 2008. Europe starting search for shale gas. The New York Times. Web.

Kuuskraa, V. 2007. A Decade of Progress in Unconventional Gas. Web.

Lashley, M., and Hobbs, D. 2010. Fueling North America’s Energy Future. The Wall Street Journal. Web.

Lewis, B., and Lawler, A. 2010. Analysis: Oil major model challenged by shift to gas. Web.

Mccallum, k., and Womack, J. 2010. Mitsui Bets on U. S. Shale-Gas Project. Web.

New Standard Energy. 2010. What is Shale gas? Web.

Paltsev, S., Jacoby, H., Ejaz, Q. Morris, J., and Kragha, O. 2010. The Future of U.S. Natural Gas Production, Use, and Trade. Web.

Sumi, L. 2008. Shale Gas: Focus on the Marcellus Shale. Web.

U.S. Department of Energy. 2009. Modern shakes Gas Development in The United State: A Primer. Web.

US Energy Information Administration. 2008. Top 100 oil and gas fields. Web.

Westervelt, A. 2010. Shale Gas Booming Globally, Despite Chemical Dangers. Web.

Whitney, G. Behrens, C., Clover, C. and Hederman, W. 2010. Energy: Natural Gas: The Production and Use of Natural Gas, Natural Gas Imports and Exports, Epact Project, Liquefied Natural Gas (LNG) Import Terminals and Infrastructure Security. New York: The Capitol Net Inc.

Ziff, P. 2009. Shale Gas Outlook to 2020. Web.

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