When the US independents (oil and gas producers without refining operations) began growing US natural gas production, nobody thought they would flood the market. But in recent years, new technology and expertise has grown production to the extent that the industry has worried in recent months that there would be no more room to store it in the US. Indeed, companies have started to contemplate exporting natural gas from the US.
This is an about-face from expectations of even a few years ago. In 2003, Alan Greenspan, then chairman of the Federal Reserve, noted the alarming rise in natural gas prices in the face of growing US demand and decreasing access to US supplies. That led to a concerted drive to build LNG facilities. In 2006, Wood Mackenzie, the energy consultancy, predicted North America would be the world’s biggest importer of liquefied natural gas (LNG) by 2010.
But that is not the way it turned out. The US now has enough of its own supply to last 100 years at current usage rates, according to the industry. And Mark Whitley, a senior vice president at Range Resources, an independent producer, says the US has the potential to develop fields as big as any in the Middle East. He notes that the Marcellus Shale field, estimated at about 100,000 square miles – is about the size of Greece – and could turn out to be a bigger boom than the Haynesville Shale field or the Barnett Shale field – now the biggest producer of US gas.
Indeed, production has grown to such an extent that the major oil companies, which once focused their efforts internationally, are moving back into the US. In December, ExxonMobil, the US’ biggest oil company, signalled a significant shift in strategy with a deal to pay $31bn (£19bn) in stock for XTO Energy, which will give it a big position on domestic natural gas. The deal, which includes a further $10bn in XTO debt, gives Exxon an increased foothold in difficult-to-tap gas reserves trapped in shale rock and greater access to a cleaner-burning alternative to coal. But Exxon was not the first major to move into the area. Russ Ford, Royal Dutch Shell’s executive vice president for onshore gas, says:
I consider the Haynesville one of our core areas. Shell has placed a big emphasis on north American gas; it’s an area of growth for us. We’ve invested, something like $15bn since 2004 in the onshore. What you develop here, you’d like to export to the rest of the world.
Indeed, BP and BG Group of the UK; StatoilHydro, the Norwegian energy company; and Eni, the Italian oil company, have bought into the US gas industry in the past year or two to gain access to the boom and learn from the independents. Chesapeake Energy has formed a global partnership with Statoil to prospect for new shale opportunities in 14 different areas around the world. In the words of Kevin Shaw, a partner focusing on energy for Mayer Brown, the law firm:
They’re looking around in all the dark corners, where nobody thought they could profitably exploit the resource.
Shale exists throughout the world, in many geologic basins, and the industry should be able to exploit it. John Curtis, director of the Potential Gas Agency at the Colorado School of Mines, which is affiliated with the Potential Gas Committee – a group considered by industry and government for expert information on the gas resource base – notes there is nothing magical about the shale in the US. That said, the US does have an edge in that it is well suited for rapid development, with much gas in lightly populated areas and a web of existing infrastructure to bring it to market. And the world experts at getting to this resource are in the US – something nobody in the industry is downplaying. In the words of John Pinkerton, chief executive of Range Resources:
The technology used to access natural gas from shales is as complex and sophisticated as that used in the Apollo Space Programme. Each shale play is like children – totally different. Not only the thickness, but in per centage of gas trapped in the rock, what pressure is required to fracture it, and so on, forcing changes on each play with drilling, which runs $3m-$5m a well. But the industry is always improving the process. Every six months or so there is some tweak that makes the wells incrementally better, incrementally cheaper. And that opens new areas to production.
At this rate, the industry would do well to convert the natural gas import terminals into export terminals to get ready for the next stage in this boom.
Louisiana’s shale gas bonanza (FT Magazine)
Fracking defended, just in case anyone planned to regulate it (FT Energy Source)
10 top energy questions for 2010: Hydrocarbons edition (FT Energy Source)