America’s bounty: Gas works

America’s bounty: Gas works

The Economist is one of our favorite weekly reads. It is packed full of news and information and well-written. That it has a European take on things is an advantage in our eyes becuase it brings a different viewpoint. This week it looks at the changing prospects for the U.S. as the oil and gas boom continues to out pace expectations and policy. It makes a good companion reading with our post yesterday linking to Walter Russell Mead’s disquisition on America’s future.

“Now shale contributes a third of America’s gas supplies. By 2035 the country’s share of total supplies (which may by then have risen to 820 billion cubic metres a year) could be nearly half. The rise has been helped along by a variety of factors, such as the liberalisation of access to existing pipelines by third parties that started in the 1970s, a deep and liquid gas market that allowed the risks of drilling to be hedged, ready access to capital, America’s home-grown oil industry and the entrepreneurial zip that provided the men and equipment. But the biggest difference was down to the efforts of one man: George Mitchell, the boss of an oil-service company, who saw the potential for improving a known technology, fracking, to get at the gas. Big oil and gas companies were interested in shale gas but could not make the breakthrough in fracking to get the gas to flow. Mr Mitchell spent ten years and $6m to crack the problem (surely the best-spent development money in the history of gas). Everyone, he said, told him he was just wasting his time and money.

“The technology is in use in the Marcellus, Haynesville, Barnett, Utica and other shale beds (see map), to startling effect. It is also being used for shale oil, which can be extracted from some shale beds in the same way as gas. Some wells also render valuable natural-gas liquids (NGLs) such as butane and propane along with the gas. Oily parts of the Eagle Ford are giving up the black stuff in big quantities. The Bakken shale in North Dakota, a state with little else to boast about, now contributes around half a million barrels a day (b/d) of oil. Some reckon that in a few years the oily shale beds might produce as much as 3m b/d, around a third of America’s current imports.

“The cost of getting at the gas has come tumbling down as techniques have become more efficient. Drilling multiple wells from a single pad, up to six at a time, has made operations cheaper. Three-dimensional seismic imaging has made it easier to find sweet spots where gas might flow in large quantities. Horizontal drilling sections have got longer. Break-even costs have plummeted,” the Economist says.

It concludes: “The fossil-fuel industry is only a small slice of America’s economy, but the relative drop in gas prices is so dramatic that it could boost a manufacturing renaissance. That might add 0.5% a year to GDP over the next five years, says UBS, a Swiss bank. Meanwhile low gas prices are already fattening American wallets. According to IHS Global Insight, a research outfit, they are saving the average American household $926 a year.

“Not everyone will win. Some coalminers, for instance, will have to find new work. But Mr Obama says that fracking might support 600,000 jobs by the end of this decade. Not bad for a business that barely existed ten years ago.”

Via Mark Green at the EnergyTomorrow Blog, who says: “The point here, as noted by The Economist, is that the United States is on the cutting edge of shale energy development through hydraulic fracturing. Generally, there’s support for this kind of energy development from the public, government (see here and here) and our way of life – private property, entrepreneurship and a history of pioneering energy development. Still, there are some who want to stop the revolution in its tracks. Instead of safe and responsible natural gas development, they want to halt development altogether – while offering little in the way of realistic alternatives to abundant, reliable natural gas.”

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