Shale Gas Confronts BP Oil Disaster Threat

Deepwater disaster expected to impact shale gas 

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By John Richardson

THE booming shale-gas industry could either benefit or suffer from the BP Gulf of Mexico oil-well disaster, with the end-result determined by the effect on energy prices of any long-term clampdown on deepwater and Arctic drilling.

Those for and against shale gas are lining-up to make their cases as to why the BP catastrophe will be a negative or a positive for what Daniel Yergin, chairman of IHS Cambridge Energy Research Associates, says is “the most significant energy innovation so far this century”.

An executive with a Houston-based oil and gas services company told the blog: “Shale gas may well enjoy an easier regulatory ride in the US in light of the fact that deepwater and Arctic drilling is going to be a lot more problematic.

“If you can’t get your energy from far out at sea or under the Arctic and the US still wants to improve its energy security, then shale gas is the obvious solution as it is onshore and therefore easier to deal if there is an incident. It’s also inherently safer than going offshore.”

And he pointed out that politicians will surely decide to pursue the path of least resistance.

“Once Deepwater Horizon has faded in the public imagination – i.e. when it drops out of the 24-hour news cycle – the focus of voters will return to the cost and availability of energy.

“The White House will face the choice of either seeing energy costs rise or letting the development of the perfectly-safe shale gas process continue.”

Last month, in a supplement on the natural-gas industry, the Financial Times quoted Scott Van Bergh, an energy expert at Bank of America Merrill Lynch, as saying that higher deepwater hurdles might make shale-gas exploration and production (E&P) easier.

Negative publicity towards shale gas looked as if it had slowed, he added.

But his comments came before two incidents at the Marcellus shale -gas field in Pennsylvania earlier this month. One involved a gas leak and the other an explosion which injured seven workers.

And the hydraulic fracturing or “fracking” process used to extract the gas from the shale remains under scrutiny because of emissions and groundwater pollution claims.

Congress has, as a result, asked the US Environmental Protection Agency to complete a comprehensive study into fracking.

The US-based Natural Resources Defense Council argues that the oversight and insufficient regulations that have occurred offshore are an equal concern onshore.

The outcome of this whole debate could have big implications for petrochemicals.

In the US, the big oversupply in US gas has helped to make ethane cracking a lot more advantageous.

The other factors behind the fall in US natural-gas pricing is liquefied natural gas (LNG) oversupply and the drop in gas demand resulting from the economic crisis.

To date, the benefits delivered to US petrochemicals by the rise in shale-gas production have been indirect through its contribution to the drop in overall gas prices.

Continued E&P is seen as crucial to fulfilling the current forecast that US total gas reserves will last a further 100 years. Before the shale-gas technology breakthroughs, reserves were only expected to last 30 years.

Plus, there may be opportunities for direct feedstock supply from shale gas via any fields which prove to be rich in natural-gas liquids (NGLs).

And overseas, there’s huge interest with feasibility studies taking pace in countries such as China, the UK, Austria, Germany and Poland.

The studies in Poland have indicated that shale-gas reserves could raise total European natural-gas reserves by 50%. But questions have been raised about the accuracy of these estimates and how quickly and effectively Polish and other reserves can be developed.

Still, though, the shale-gas revolution – provided it is not stymied by regulations – could benefit petrochemicals outside the US through advantaged feedstock.

This possibility has arisen as the Middle East gas advantage erodes, raising the chance of new places to build super-competitive crackers.

In the end, energy costs and energy security seem certain to set the future of shale gas globally, as well as in the US.

The unfeasible alternative is a radical change in consumer behaviour and lifestyle expectations.

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