Shale gas refers to natural gas that is trapped in small pores inside shale rock. Since the pores are not connected and shale is relatively impermeable, it is not possible to extract large amounts of shale gas by using conventional technologies. Therefore shale gas is called an unconventional hydrocarbon. The emergence of cost-effective technologies for extracting shale gas has caused a surge in its production in the US over the past few years. There is no precise estimate of how much shale gas exists world wide, but the US Energy Information Administration (EIA) estimates that the US and the 41 other countries have a total of 7,299 trillion cf of technically recoverable shale gas. This represents 37% of the world’s total technically recoverable gas resources.

Shale Gas Extraction
Shale gas extraction became cost-effective thanks to two inventions: horizontal drilling and hydraulic fracturing, also referred to as fracking. Using horizontal drilling technologies, a typical shale gas well extends hundreds of meters vertically and up to 2,000 meters laterally. Hydraulic fracturing is a technique whereby the reservoir rock is cracked in order to increase the flow of gas or oil to wellbore. In order to fracture the formation, a fluid containing mostly water and sand or other granular material but also various chemicals is injected to well under high pressure. Sand holds fractures open and chemicals are used to kill bacteria, inhibit corrosion, and reduce friction. A perforating tool is used to create holes in the casing of well through which fluid can flow to formation and later gas can flow inward during production phase.

Shale Gas in the US
In 2011, 7.994 trillion cf of shale gas was produced in the US, mostly in the plays of Haynesville, Barnett and Marcellus (1). Whereas in 2000, shale gas accounted for only 4.1% of the US natural gas production, in 2012 it reached almost 40% (2). As a result of the shale boom, the mining, oil and gas industry was the fastest growing US sector in 2006-2011.

According to EIA forecasts, 16.7 trillion cf of shale gas will be produced in the US in 2040, which will account for 50% of the country’s total gas production. It has also been predicted that the US may overcome Saudi Arabia as the world’s bigger supplier of hydrocarbons by 2020 and surpass Russia to become the largest gas producer (3).
The shale boom has made the US self-sufficient in natural gas. Additionally, the country’s dependence on oil imports has dropped from 60% to 39% since 2005 as it has partly shifted from oil to gas. (4) According to a BP forecast, the western hemisphere will become virtually self-sufficient in energy by 2030, largely thanks to growth in shale supplies. (5) Some experts have labeled the surge of shale production in the US a “shale revolution”. The shale industry has received the firm support and praise of US President Barack Obama.

According to a report by IHS, shale gas production created more than 600,000 jobs in the US in 2010 and contributed to the country’s GDP by more than USD 76.9 billion (6). By 2015, IHS forecasts these numbers to grow to 870,000 and USD 118.2 billion respectively. According to IHS, for every direct job created in the shale gas sector, more than three indirect jobs are created. This occurs as abundant gas supplies result in lower prices, which benefit manufactures and industries reliant upon gas.

Thanks to shale gas replacing other fuels such as coal, the US has seen its greenhouse gas emissions diminish. The energy-production related CO2 emissions increased almost every year from 1990 to 2007, but since 2007 have fallen by an estimated 13% (7). Nevertheless, many environmentalists oppose shale extraction, due to risks associated with hydraulic fracturing, including groundwater contamination and small earthquakes.

Recently, the US government approved three LNG export terminals that are permitted to export gas to countries that do not have a free trade agreement with the US. At full capacity, the three terminals can handle 8% of US gas production (8). It is hoped that gas exports will improve the country’s poor trade balance, especially since gas prices are much higher abroad.

Even though US LNG exports have not yet begun, the country’s shale boom has significantly impacted the global energy market. Many foreign companies are investing in the country’s shale sector. Additionally, decreased US gas imports have freed some Qatari gas for Europe, reducing its dependence on Russian gas. Europe’s dependence was further reduced by the fact that the shale boom allowed the US to export more coal at a reduced price, starting what some have called a “coal renaissance” on the continent (9).  With Europe less interested in Russia’s gas, the country has decided to focus more on the Asian market in the future.

Shale Gas Worldwide
At present, only the US and Canada commercially produce shale oil and gas despite vast shale resources worldwide. According to the EIA, China has the world’s largest technically recoverable shale gas reserves (1.115 trillion cf), followed by Argentina (802), Algeria (707), Canada (665) and US (573). In Canada, production is still small, but there are several shale gas projects in the early stages of development. Due to environmental concerns, the province of Quebec has imposed a moratorium on fracturing.

Outside of North America, countries are seeking to develop their own shale resources. In July, Argentina’s national energy company YPF signed a USD 1.24 billion deal with Chevron to develop the country’s shale resources. Additionally, energy majors such as ExxonMobil, Apache and Total have exploration rights in Argentina’s giant Vaca Muerta shale field. By 2017, YPF expects to produce ca 106 million cf of gas per day from the field . (10) Other Latin American countries have significant shale resources, including Chile and Mexico, who have expressed interest in developing their shale gas reserves.

In the EU, some countries such as France have imposed a moratorium on fracking, but the European Parliament has rejected a union-wide ban. Other EU countries have promoted shale exploration. Poland seems to be the strongest shale supporter, having given more than 100 exploration licenses to companies, including Chevron. However, no company has been able to extract shale at an economically viable rate. Some companies, including ExxonMobil, have suspended shale exploration in the country, citing difficult geology and regulatory hurdles. The UK is also seeking to develop the country’s shale resources. The government lifted a ban on fracking in December 2012 and in July proposed a tax reduction on shale gas profits from 62% to 30% (11).

The Ukraine is eager to develop its large shale resources in order to reduce dependence on Russian gas. In January, the Ukrainian government signed a USD 10 billion 50-year Yuzivska shale gas field development and production sharing agreement with Shell. According to Ukraine’s energy minister, ca 250-700 billion cf of shale gas could be produced from the field in 2018 (12). Chevron and ExxonMobil are in the process of concluding similar deals. 

Doubts Cast on Shale Potential
Despite the noted benefits of shale gas, concerns have been raised over the long-term potential. The EIA admits that there is considerable uncertainty regarding the size of shale gas resources. This is reflected by the fact that the agency recently downgraded the US’s technically recoverable shale resources by 43%, to 665 trillion cf from the 1.161 trillion of 2011. Such uncertainty is largely caused by the fact that only limited proportions of shale formations have been extensively production tested. Additionally, it is unknown what part of the technically recoverable reserves can be extracted cost effectively as this hinges on future innovations.

Recently, concerns have been raised that US shale potential has been overrated. A report by Post Carbon Institute points out that 88% of the US shale gas production comes from just six plays, concluding that high-productivity shale gas plays are not ubiquitous (13). It also highlights that shale gas field production rates typically decline very quickly. Due to the low natural gas price, most shale gas producers are losing money, “states a report by the Energy Watch Group. It is very likely that the shale gas boom in the USA has reached its peak and that the excessive development of wells will decline. Recent drilling statistics indicate that this slowdown has already started (14).”
Reports by the Post Carbon Institute and Energy Policy Forum accuse Wall Street of promoting shale gas in order to profit from mergers, acquisitions, and other transaction fees. According to the Post Carbon Institute, the shale boom was partly caused by “held-by-production” arrangements, which required companies to produce in order not to lose their land even when it was not perhaps economical due to low gas prices. Thus far, Shell is the only major producer to announce a significant shale write-down in the US. The company wrote down about USD 2 billion, mainly associated with the shale gas projects that do not produce liquids as a byproduct and are hence uneconomical. Shell is also considering selling some of its US shale properties. Some analysts predict that several other companies need to write down their shale assets too. 

Conclusion
Although many countries are trying to unlock their shale gas resources, experts are increasingly skeptical that they will succeed in the near future. The International Energy Agency, which in its 2011 report suggested that the world is entering a “golden age of gas”, recently said that gas growth will be slower than previously estimated because countries across the Atlantic are failing to replicate North America’s shale gas success (15). Even in the US, the future of shale gas remains unknown, as Shell has written down its shale assets. Despite the uncertainties, many countries are seeking to develop their shale resources so there is no doubt that shale gas will continue to play a vital asset in the energy sector for years to come.

1. EIA, “Annual Energy Outlook 2013. Market Trends – Natural Gas.” April-May 2013.
2. Hughes, D. “Drill Baby Drill.” Post Carbon Institute, February 2013.
3. Bellelli, J. “The Shale gas ‘revolution’ in the United States: Global implications, options for the EU.” European Parliament, April 2013.
4. Bellelli, J. “The Shale gas ‘revolution’ in the United States: Global implications, options for the EU.” European Parliament, April 2013.
5. Engdahl, F. W. “The Fracked-up USA Shale Gas Bubble.” Global Research, 13 March 2013.
6. IHS. “Shale Gas Supports More Than 600,000 American Jobs Today; by 2015, Shale Gas Predicted to Support Nearly 870,000 Jobs and Contribute $118.2 Billion to GDP, IHS Study Finds.” 6 December 2011.
7. Vihma, A. “The shale gas boom: The global implications of the rise of unconventional fossil energy.” 20 February 2013.
8. Stafford, J. “This Week in Energy: Another move forward on US LNG exports.” OilPrice.com, 9 August 2013.
9. Vihma, A. “The shale gas boom: The global implications of the rise of unconventional fossil energy.” Finnish Institute of International Affairs, 20 February 2013.
10. “Chevron Signs $1.2 Billion Deal With Argentina In Hopes Of Shale Oil Jackpot.” Fox News Latino, 17 July 2013.
11. “‘Generous’ tax breaks for shale gas industry outlined.” BBC News, 19 July 2013.
12. “Ukraine signs landmark $10 bln shale gas deal with Shell.” Reuters, 24 January 2013.
13. Hughes, D. “Drill Baby Drill.” Post Carbon Institute, February 2013.
14. Zittel, W. et al. “Fossil and Nuclear Fuels – the Supply Outlook.” Energy Watch Group, March 2013.
15. “International Energy Agency: No gas revolution before 2020.” The Carbon Brief, 14 June 2013.

By Laura Raus and Maya Moseley