Shale gas: The new, cheap, abundant energy form?

By Money Matters Editors

You know the business press and general public have finally recognized a trend when they give it a label.

Case in point: unconventional natural gas – previously hard-to-access natural gas that now can be captured by new technologies. Some are calling it the natural gas revolution, with the downward price pressure a ‘shale shock.’

Money Matters first wrote about it on September 23.  Estimated U.S. natural gas reserves have increased 35 percent, mostly on the ability to access these new sources, with estimated reserves totaling 2,074 trillion cubic feet in 2008, up from 1,532 trillion cubic feet in 2006, according to the Potential Gas Committee, The New York Times reported. Natural gas closed Friday down 19 cents to $4.77 per million BTUs (MMBtu).

New technology, including hydraulic fracturing and drilling horizontally, has opened hundreds of previously cost-prohibitive natural gas sites. U.S. drilling has been going on in earnest for more than three years, but global drilling has only just begun.

How significant is unconventional natural gas in the nation’s and world’s energy policy? Oil/energy analyst Daniel Yergin, co-founder of Cambridge Energy Research Associates (CERA), has called unconventional natural gas “the biggest energy innovation of the past decade.” 


Further, even the most conservative estimates point to an large increase in natural gas reserves, based on the new extracting technology: at least a 20 percent increase in the world’s known natural gas reserves, The New York Times reported. Further, one recent study by CERA calculated that recoverable, unconventional natural gas, also called shale gas, outside North America could turn out to be the equivalent of 211 years worth of natural gas consumption in the United States at present demand levels, and possibly as much as 690 years! To put that in a global perspective, the low estimate is 50 percent of the world’s known gas reserves; the high estimate, 160 percent.

Big impact in Europe

In Europe, companies are leasing huge tracts of land, The Times reported, and early forecasts point to 40 percent increases in natural gas reserves by country, on average, on the continent. If there’s that much shale gas in Europe, that could reduce Europe’s dependence on Russian natural gas.

In Asia, the prospects are just as promising. Emerging market, high-growth economies China and India appear to have large potential for shale gas production.

The climate change implications of the above for the Americas, Europe, and Asia are significant; natural gas is the cleanest fossil fuel. Abundant, relatively cheap shale gas could encourage countries to switch from coal to natural gas for electric power generation and, in some nations, from gasoline to natural gas for vehicles. In the U.S., natural gas could become dominant in residential heat in all regions of the country.

Will unconventional gas / shale gas become the new, inexpensive, abundant energy form of the next decade? It’s far too soon to tell, given the infancy of the technology used to extract the fuel. Further, if the law of supply and demand applies with new natural gas (it doesn’t seem to currently apply to oil), shale gas’s price will rise as systems convert to the energy/fuel and demand rises. Or, it may not rise as much – or may rise but remain comparatively cheaper than other energy forms. But that’s getting ahead of the shale gas development curve: first, let’s see if the large increases in natural gas reserves forecast begin to materialize in the next two years ahead. Money Matters will also keep an eye on natural gas prices.

But if there is as much shale gas is in the ground as geologists believe, shale gas could represent a breakthrough energy form for the U.S. and world – and a cleaner one that can act as a bridge between fossil fuels and renewable energy forms.

In addition, for the United States, shale gas has the potential to reduce the use of crude oil: any cleaner, competitive energy form that reduces U.S. crude oil use is a move toward energy independence – one that also enhances foreign policy flexibility.