Arguably the biggest story in the United States energy scene, and de facto for the rest of the world, has been the development of shale gas. Natural gas production in the United States was flat from about 1995 to 2005, standing at about 2 Tcf per month. But over the last five years, production started going up (see graph) moving to around 2.3 Tcf per month. The entire increase is because of shale gas, contributing at least 17 percent of domestic production. This is remarkable, considering that shale gas accounted for an estimated 2 percent just a few years ago.

U.S. gas reserves double

In its latest update, U.S. Crude Oil, Natural Gas, and Natural Gas Liquids Reserves, a summary of its Annual Energy Outlook 2011, the EIA reports U.S. natural gas reserves, driven almost entirely by shale gas additions, increased by 11 percent in 2009 to 284 trillion cubic feet (Tcf). That’s the highest level since 1971. The EIA now projects technically recoverable unproven shale reserves standing at around 827 Tcf, 474 tcf above its 2009 projection – twice as much as previously estimated.

Elizabeth Campbell, associate policy fellow at the Americans for Energy Leadership project, suggests that this is, “enough to power every American household’s electricity consumption for over 73 years.” The US Geological Survey agrees. A spokesman for the USGS confirms, “Assuming one per cent recovery, these deposits [in U.S. territory] could meet the natural gas needs of the country [at current rates of consumption] for 100 years.”

Apart from the obvious benefit of reducing, what only a few years ago was considered as certainty in the near future, massive liquid natural gas (LNG) imports to meet declining domestic production, natural gas has many other positives. It is certainly the cleanest of all fossil fuels and, for those concerned about greenhouse gases, natural gas means a reduction of between 20 and 50 percent over coal emissions. Though it won’t be enough to keep the Planet Gore eco-warriors happy (little would), it represents a quantum leap over the feeble achievements of bureaucratic interference amidst the wreckage of the carbon credit market. Texas oil magnate T. Boone Pickens has even described how abundant gas reserves could make the U.S. the “Saudi Arabia of natural gas”.

EIA’s Administrator, Richard Newell, identifies, “Louisiana, Arkansas, Texas, Oklahoma and Pennsylvania [as] leading states in adding new proved reserves of shale gas in 2009”. Louisiana announced a net increase of 9.2 Tcf (77 percent), mostly through its Haynesville Shale development. Arkansas’s Fayetteville Shale and Pennsylvania’s Marcellus Shale developments both almost doubled their reserves with increases, respectively, of 5.2 and 3.4 Tcf.

Less than a decade ago, an economically viable reservoir exploitation strategy of gas extraction from shale rock remained elusive. But drilling horizontal wells with a very large number of transverse fractures, properly spaced and with proper zonal isolation, has made shale both accessible and economically attractive. Although some have lamented the impact that lower natural gas prices, hovering around $4 per MMBtu, might have had on shale gas production, the industry has responded admirably. Range Resources published the break even prices for natural gas production in a number of US shale formations, many of which fall below $4.

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But the shale gas revolution not only offers the power to help refloat the U.S. economy – it is good news for the world, too.

European energy ‘Grinches’

Global shale gas is looking set to be the energy story of the 21st century, and for a very good reason. Overnight, it has changed the global natural gas and energy narrative from lack to glut, switching focus from supply to demand. By 2014, Canada will be a major producer and exporter of shale gas. Within just a few years, the U.S. could (and if it has its energy act together, it should) join Canada as a key natural gas exporter.

The impact on Europe, suffering under Russian dominance for natural gas supplies, could come even quicker – if it were not for environmental ‘concerns’ which all too often paralyzes EU energy thinking. Poland, in particular, has potentially large reserves of shale gas. Analysts Wood Mackenzie predicts that Polish shale deposits alone could increase European gas reserves by as much as 50 percent. An additional problem for Europe derives from much higher costs for drilling and hydraulic fracturing than the streamlined and optimized costs in North America. Europe would need a massive re-orientation both politically and logistically to exploit its shale gas resources.

The UK has in recent weeks discovered a “substantial flow” of shale gas a few miles from its ‘Dancing with the Stars’ capital, Blackpool, on the north-west coast of England. But other English counties further south are believed to be sitting atop their own shale gas reserves.

Typical of the ‘let’s highlight the risks and downplay the benefits’ thinking endemic in European energy circles, the British Geological Survey report plays up the possible environmental risks to such an extent that the government is not likely to back serious exploitation anytime soon. The reality is, as one report suggests however, that the UK could save over $46 billion on current gas imports from places like Qatar. Currently the UK is forced to import more than half of its gas needs.

In October, Schlumberger’s CEO, Andrew F. Gould, confirmed how the development of shale gas and oil would likely meet with far more political and environmental roadblocks in Europe than in America. If true, it won’t be the first time Eurocrat ‘Grinches’ have got their energy priorities wrong. Elsewhere, however, the scramble to check out domestic reserves is on.

In early December, Argentina’s president Cristina Fernandez de Kirchner announced a huge shale gas find that could supply the country’s gas needs for 50 years. A Moroccan delegation has already called upon U.S. shale expertise to help develop its resources. And, speaking at the World Shale Gas Conference in Dallas-Fort Worth in November 2010, Ukraine Government ministers proudly proclaimed their country had “the biggest shale gas deposits in the world”.

Meanwhile, China and India have been quick to spot the game-changing qualities of domestic shale gas development. China’s deposits could exceed 1000 Tcf (Wang and Economides, Paper SPE 133458, 2010.) Last year, China signed the U.S.-China Shale Gas Resource Initiative, the latter already perceiving the U.S. as the world leader in shale gas technology.

That the global energy landscape is switching in favour of gas is also confirmed by developments at the energy majors. In an interview with Fortune magazine, asked about the future strategy of Big Oil, Shell President Marvin Odum stated that by 2012 Shell would be producing more gas than oil.

We will return to this theme in the near future and we will address a number of issues including the topic of hydraulic fracturing, one that has generated controversy from environmental groups.