Shale Gas is a Solution to the World’s Energy Needs

Posted in Finance Articles, Total Reads: 1022 , Published on 01 April 2013

The looming extinction of oil and doubtful commercialization of renewable sources has shifted attention towards the unconventional sources of energy. A significant increase in share of shale gas in US’s gas production has made it a possible solution to the world’s energy needs. Even China and European countries are looking forward to the shale gas revolution. However, stricter environmental compliances in Europe, seismic activity associated with shale gas production and unpopular public perception have stalled its development. Improved drilling techniques, growing public awareness and rising demand of energy will make shale gas revolution unstoppable.

Over reliance on oil for the last two centuries has brought us to the juncture where life without oil seems incomprehensible. Everything from a small plastic part to flying big airplanes is unimaginable without oil. Now with the looming extinction of the conventional sources, the world has started shifting its attention to the unconventional and renewable sources of energy.

While renewable sources have become a fashionable world, their commercial utilization is still in question. Governments across the world have spent billions to commercialize these resources but nothing significant has been achieved. Barring nuclear power, all other have failed to make an impact on a larger scale. In the wake of recent catastrophic accident in Japan, even the future of nuclear energy looks bleak and several European countries including Germany have put a moratorium on its production.

With the rapid development of new state of the art technology and innovative practices, unconventional sources of energy like shale gas, oil sands and methane hydrates have caught everyone’s eye. The exorbitant increase in world oil prices has made their exploration both economically viable and justifiable. The huge reserves of oil sands found in Canada have made it a net exporter of oil. However, oil sands exploration has been a controversial issue due to widespread environmental concerns. Moreover, due to presence of oil sands limited to Canada and certain parts of South America, oil sands will not be an answer to conventional oil extinction. The commercial utilization of methane hydrates is still in question and more research would be required to commercialize them.

With its growing popularity in US and proven reserves found in other parts of the world, shale gas is hailed as the long term solution. According to a report released by the US Energy Information Administration (EIA) in 2011, improved drilling and hydraulic fracturing technology have doubled the estimates of the technically recoverable shale gas resources in US. In the last one decade, the shale gas contribution to the US’s gas production has increased from a mere 1% to a significant 20% level and is stated to reach 46% by 2035. This incredible growth has turned US from a large gas importer to a modest gas exporter.

The shale gas revolution is bound to spread to other parts of the world. China is believed to have huge reserves of shale gas. To secure its energy needs, diversify its energy mix and reduce its dependence on coal, China is aggressively looking forward to the shale gas opportunity. Also the European Union is eager to dismantle the monopoly of Russia over the gas supplies to Europe.With the recent ban on nuclear energy by some leading European nations, Shale Gas extraction seems a lucrative alternative. Energy experts at International Energy Agency (IEA) further predict global gas production to increase by 50% in the next two decades, with shale gas accounting for the major chunk of it.

However, the road is not as smooth as it appears for shale gas development. Apart from US, the shale gas revolution has not really taken place in other geologies. America's shale-gas revolution has been majorly a result of combination of factors like open access pipeline regulation, abundant drill-rigs, world proven technology and strong property rights, which allows landowners to gain from minerals found beneath their holdings. These conditions are not prevalent in other parts of the world.

Due to stricter environmental compliances in Europe and strong public objection, Governments have been reluctant to launch shale gas development at a larger scale. Moreover certain events which unfolded in recent years have further added to this skepticism. A number of earthquake tremors were detected near the drilling site in parts of UK. The current technology which uses large pools of water and toxic chemicals to recover methane trapped in shale rocks can endanger the surface and groundwater resources. Another major worry is the escape of greenhouse gases during shale-gas exploration and production. According to the report published by the IEA, the shale-gas production emits 3.5% more greenhouse gases than conventional gas exploration techniques and 12% more when it involves venting excess gas. These emissions primarily consist of powerful greenhouse gases which play a major role in global warming. Owing to above risks, certain European countries like France and Bulgaria have banned shale gas extraction by hydraulic fracturing. Moreover, China has been constrained by its shortage of water, causing a major impediment to its extraction plans.

The shale gas production through hydraulic fracturing has some risks, but they are over exaggerated. The proper sealing of well shafts and the necessary precautions in drilling can minimize the risk of groundwater poisoning. Also by eliminating gas leakage and controlling venting, greenhouse gas emissions can be reduced to an acceptable level. Hydraulic fracturing was suspended in UK after it seemed to cause a couple of very minor tremors. However such risks are present in conventional oil-and-gas extraction too.  According to the subsequent review by the UK’s energy department, the risk of earthquakes can be easily mitigated by monitoring. The IEA says such precautions would add 7% to the overall cost of a shale-gas extraction—a small price for a healthy industry.

The use of shale gas over coal in gas fired power plants will reduce the greenhouse gas emissions. Moreover, shale gas has proven to be a technology that has very limited and temporary local impacts, especially when compared to technologies like wind turbines.

A greater level of public understanding and openness by the shale gas industry is necessary to overcome negative public perception. Until the development of renewable energy becomes cheaper and more reliable, shale gas and other hydrocarbons will remain the best hope. Some incidents do have occurred in the US, but with over 100,000 shale gas wells drilled in the past five years alone, problems have remained manageable. Further the improvement in technology that makes hydraulic drilling more environmentally safer and boosts the recovery of gas from wells will add to the growing popularity of shale gas. It will take some time for the rest of the world to catch US, but shale gas revolution is here to stay. The world can safely think of other immediate problems than worrying over oil extinction.

This article has been authored by Ankur Goyal from IIM A.


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