Global Shale Gas Resources Revolutionize the Energy Industry

Natural gas supplies a significant portion of America’s energy needs by heating buildings, running factories and providing energy to power plants that generate electricity.

Environmental concerns about burning coal to generate electricity, even when using the latest emissions reduction technologies, have made it difficult to gain a license for the construction of new coal-fired power plants. Natural gas, on the other hand, burns in a considerably cleaner manner that is favored by regulators. A reliable and reasonably priced supply of natural gas is absolutely vital to the U.S. economy, as well as the economies of many of the world’s nations. Heavy industry relies on natural gas both as a fuel for burners and as raw material in the manufacture of fertilizers, plastics and many other items. To a small but growing extent, natural gas is also used as a fuel for fleets of commercial trucks, cars and buses.

The energy industry has known for decades that shale formations hold high quantities of gas, but it was historically considered too difficult or expensive to produce. The shale tends to lie around 5,000 to 10,000 feet, where the gas permeates shale rock in tight formations. In the 1990s, a technique was perfected that drills long, horizontal holes reaching out from the drilling site. Drilling can extend from one drilling site for a significant distance in any direction after making a horizontal turn from the initial vertical hole. After drilling is completed, a process called hydrofracturing is performed, in which millions of gallons of water (along with chemicals) are fed down the well and forced into the shale under very high pressure. This process, also known as “fracking,” creates fractures in the shale, making the gas flow freely. The process includes the injection of grains of sand or tiny ceramic particles (“proppants’) to hold open the newly cracked rock formations. When the fracking water is pumped out, the gas that was trapped in the shale is released into the well’s pipe for recovery. In recent years, these advanced technologies were perfected to the extent that a frenzy of new drilling activity burst forth in the United States and Canada.

Shale Oil and Shale Gas, and the Advantages of Wet Gas and Oil Condensate:

Shale, a highly porous rock structure that is extremely widespread throughout the world, has the ability to capture hydrocarbons (oil and gas) easily. In some areas, such as the massive Bakken Shale area in North Dakota and the Eagle Ford of Texas, the shale primarily holds crude oil. In other areas, including the Barnett Shale near Ft. Worth, Texas and the Marcellus Shale Eastern states of the U.S., the production is primarily natural gas.

Also worth noting is the fact that many shale gas areas produce “wet” gas. This is gas from which liquids can be stripped. Those liquids are a primary source for butane, propane and other vital industrial resources, and are a primary feedstock for the petrochemicals industry. In addition, natural gas wells can produce what is known as “oil condensate.” This is crude oil that can be separated from the natural gas and gathered for refining.

Costs of drilling and completing a horizontal, hydraulically fractured well are much higher than the costs of a traditional vertical well. Despite the costs, these new techniques have made wells highly productive and profitable in zones where traditional vertical wells were economic failures due to modest output. There is a downside, however. While they may start off with extremely high output, shale wells tend to decline in production quickly.

Shale gas is playing an increasingly dominant role in the energy and petrochemicals sectors in America. There are multiple reasons why this is important. This shale gas is a domestic supply, not reliant on imports. Natural gas is easy to distribute: a massive pipeline and urban supply system is already in place in much of the U.S. This new production from shale generated tens of thousands of jobs, along with billions of dollars in yearly revenues for energy companies and state tax collectors.

Numerous shale gas areas are widespread across America. For example, there is the massive Marcellus shale field and the adjacent Utica and Devonian, running from New York southwest through several states to Kentucky and Tennessee. The New Albany lies in Illinois and Indiana; and the Fayetteville is in Arkansas, to name just a few of the known fields. Tax revenues from shale gas production are helping to bail out the budgets of many state governments. Depending on whom you ask, shale gas may have boosted U.S. proven and unproven reserves to between 2,000 and 3,000 trillion cubic feet (TCF), much more than a 100-year supply.

Growth in U.S. shale production as well as overall oil production was tremendous in recent years. Total U.S. oil production (on average) grew from 8.8 million barrels per day in 2017 to 13.5 million barrels per day in 2024.

Methane Hydrate May Be One Key to Natural Gas Supplies in the Distant Future:

An alternative source of natural gas is methane hydrate, a crystalline form of gas found in Arctic permafrost and on ocean floors, which is believed by researchers at the U.S. Geological Survey to amount to as much as 700,000 trillion cubic feet—enough to provide for much of the world's energy needs for decades. Methane hydrate is potentially a greater fuel source than all previously discovered oil and gas combined. The challenge with this substance is to harvest its gas despite the instability of the sediment that holds the methane hydrate, which could potentially unleash dangerous amounts of methane into the atmosphere. Many nations, including the U.S., hold potentially vast methane gas reserves. However, the cost of producing this gas will be extremely high. Consequently, it doesn't make economic sense in America, with its abundance of inexpensive shale gas.

On the other hand, it could be a tremendous opportunity for Japan, which has to import all of its natural gas at enormous expense. The Japanese government conducted a successful test off the country’s southern coast in which a rig drilled 2,000 feet below the sea floor. Specialized equipment lowered the pressure around the methane hydrate crystals and dissolved them into gas and water. The next step was to pump 4.2 million cubic feet of gas to the surface.

The Global Impact of Shale Oil and Gas: While the U.S. already has more than 20 known shale areas of significance, vast shale reserves also exist in many other nations worldwide. Leading oil and gas companies have leased shale production acreage around the world in recent years, but production outside the U.S. and Canada has been somewhat limited. Nonetheless, greater production of low-cost natural gas from shale is profoundly impacting global energy markets.

China’s National Energy Administration has set goals for significant levels feet of shale gas production. However, much of China’s reserves are buried deep, and they lie in parts of the nation that are hard to access. In addition, dry areas such as the Sichuan province do not have adequate water supplies for hydrofracturing. Meanwhile, wells drilled in the world’s newly developed shale areas lack the economies of scale found in fully developed fields in the U.S. and Canada.

Russia may contain the largest shale formation in the world. Called Bazhenov, it is located in western Siberia. This field, which is twice as large geographically as the entire state of Texas, has long been producing large quantities of oil via conventional wells.

Generally, the following challenges are holding back shale development in Europe, South America and Asia:

1) A lack of companies and personnel with experience and technical expertise in shale.

2) A lack of pipeline infrastructure in shale areas.

3) Higher costs of drilling and operating wells compared to costs in the U.S. and Canada.

4) A lack of sufficient water supplies for fracking.

5) A shortage of independent oil and gas companies willing to take risks.

6) Government restrictions, environmental concerns and consumer distrust of drilling technologies.

7) Relatively low market prices for oil and gas.

8) Last, but not least, is the fact that U.S. mineral rights below ground follow the ownership of the land at the surface. When individual landowners allow drilling, they are richly compensated. In many nations outside the U.S., however, governments control sub-surface mineral rights. This means that homes, businesses and other interested parties who must live with the disruption of drilling probably will not receive any money from the production.

Source: Plunkett Research, Ltd.

While many oil companies have expressed interest in producing shale oil and gas in Europe, the governments of major European nations have different ideas. Shale drilling has potential in Argentina, where the world-class Vacas Muerta shale field covers 7.4 million acres in the Neuquen basin. While few shale wells have been drilled to-date in Mexico, that nation holds several extremely promising shale fields that are potentially comparable to some of the most productive fields in the U.S.

Environmental and Logistical Questions: While shale oil and gas reserves clearly exist in massive quantities throughout the world, significant environmental and logistical questions loom. While consumers in the U.S. are enjoying a tremendous economic gift in the form of low energy prices, thanks to shale, many environmentalists have raised alarms about the methods used to produce from shale formations.

One of the main concerns about fracking relates to the massive amounts of water necessary for the technique to work (it takes millions of gallons of water to frack a single well). Most of this water is expelled from the well after fracking. Between 20% and 25% of that water outflow is laced with sand and chemicals that were used in the drilling/fracking process. Much of the balance of the expelled water is dirty and filled with salt that it is difficult to reuse. While well-water recycling technologies exist, they are expensive to use. Nonetheless, recycling of this water is a growing practice.

State regulators are beginning to place more stringent demands on shale production firms in three practices: 1) providing the public with information about the chemicals used downhole during fracking, 2) proper recycling and/or disposal of water that was used during fracking, and 3) protection of water tables and drinking water supplies when they are penetrated by drilling operations. At the same time, many cities are beginning to place more restrictions on the locations of new wells. For example, wells are likely to be forced to be at least 200 feet from homes, and even further from schools, churches or hospitals, in order to minimize the effects of noise and traffic on day-to-day life. Environmental activists have been extremely critical of the impact of shale gas drilling. In the U.S., some state governments, most notably New York, are reluctant to let shale gas drilling move forward.

Best practices for shale drilling are now clearly identified, including careful cementing of well casings so that fluids and gasses cannot leak, recycling of as much fracking water as possible and careful containment and disposal of drilling waste and fluids.

A study by the University of Texas at Austin found that water usage in fracking may be offset by the water saved when electricity is later generated by burning gas from the new well, instead of burning coal. Electricity produced using natural gas-fired plants needs only about 30% of the water required by coal-powered plants. Researchers estimate that for every gallon of water used in natural gas fracking, the state of Texas saves 33 gallons by using that gas for electricity generation rather than producing the equivalent amount of power with coal.

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