The unique structure of the US natural gas industry enabled development and rapid deployment of new shale gas technology, and the lack of that structure is complicating efforts of other countries to follow suit.
That’s according to Laszlo Varro, head of the Gas, Coal & Power Division at the International Energy Agency, speaking at the Center for Strategic & International Studies recently.
He pointed to shale exploration done by his own country, Hungary, with ExxonMobil. All drilling equipment had to be shipped in from Houston, he said. While Europeans are experienced in off-shore oil and gas production, as there is virtually no on-shore upstream capability.
Varro contrasted that with Texas, where the hydraulic fracturing and horizontal drilling technologies were married to tap shales, and land-based natural gas and oil drilling have been going on for a century. Texas producers could tap both skilled labor and a full supplier chain, he said.
Supply Side Capacity
Developing shale plays requires “intense” activity and expertise, and companies or countries undertaking it must build “supply side capacity,” Varro said.
Didier Houssin, IEA Director of Energy Markets & Security, said shale exploration in many countries is being undertaken by governments that see energy security advantages to finding domestic shale supplies. In the US, shale development was carried out on private land by private entrepreneurs who saw profit in the new resource.
However, if large fossil importers like China and Poland can develop domestic shale and displace liquefied natural gas and coal imports, it would shift world strategic balances, Houssin said.
Also shifting the balance would be entry of the US and Canada as “significant” LNG exporters, Houssin said. Right now, he noted, natural gas is “very cheap” in the US, more expensive in Europe, and most costly in Asian countries where it is imported as LNG at up to five times the US price.
For more on the potential of LNG exports from the US and the risks to consumers, read an analysis from Breaking Energy here.
The Energy Information Administration this week lowered its 2012 average US domestic price forecast to $3.53/mmBtu, a drop of nearly 50 cents from a year ago, as shale wells continue to be highly productive. With prices so depressed, US shale producers are seeking permits for liquefaction facilities so they can export their surplus to more rewarding markets.
And, Houssin noted, fracking faces public resistance elsewhere over environmental fears. France has pre-emptively banned it.
Director of the CSIS Energy & National Security Program Frank Verrastro asked whether, if shale production were slowed by such concerns in the US, the country would swing back to more reliance on coal.
Varro said such a change could mean the oldest coal plants keep operating a bit longer, but the differential between gas and coal prices is now so large that gas prices have considerable room to rise before new coal plants would be economic.
The IEA is planning to report on the five-year global outlook for natural gas in June.
Photo Caption: Shale gas drilling in the United Kingdom.