Now that France’s Total and China’s Sinopec have invested $4.5 billion in two of this country’s premier natural gas developers, common wisdom is suggesting that the fate of shale-gas here will outshine all competing energy forms. But is that logic well considered?

Estimates are that at least a century’s worth of shale-gas is now recoverable from underneath America’s feet. Some are betting that such volume will drive down the cost of that fuel, making the alternatives unattractive.

“With the new abundance and lower prices, lower-carbon gas seems likely to play a much larger role in the generation of electric power,” writes Daniel Yergin, in his new book “The Quest.” By comparison, nuclear would seem expensive while coal would appear to be more carbon intensive. Meantime, it creates “a more difficult competitive environment for wind projects.”

Yergin, however, is admonishing policymakers not to rely exclusively on shale-gas. That’s because too many factors can disrupt markets and include everything from politics to environmental and natural disasters.

Shale will not just become a U.S. phenomenon. But it will also have a great impact around the globe. Global proven reserves are estimated to be at 6,600 trillion cubic feet, according to the U.S. Energy Information Administration. China and the United States have the most supplies at 1,275 and 862 trillion cubic feet, respectively. In this country, for example, shale gas has grown 48 percent a year from 2006 to 2010. It now makes up a third of all natural gas supplies.

The other countries sitting atop huge swaths of shale gas are Argentina, Mexico, South Africa and Australia. And while France has such potential, the regulatory environment there is unfriendly to developers and instead, it is choosing to maintain its reliance on nuclear power. For that reason, Total sees a future in the United States where it has invested $2.32 billion in Chesapeake Energy in Ohio’s Utica shale region. China’s Sinopec placed a similar amount in Devon Energy.

“This is consistent with our strategy to develop positions in unconventional plays with large potential and, in this case, with value predominantly linked to oil price,” says Yves-Louis Darricarrere, with Total. “Total is conscious of the environmental aspects linked to developing shale acreage.”

Diversifying Risks

In “Quest,” Yergin points to the Japanese nuclear accident and the Arab Spring that caused oil prices to spike as two geo-political events simultaneously occurred. Both had a tremendous effect on the energy economy. But the energy analyst adds that shale-gas is most impacted by the environmental issues here.

To extract the shale-gas that is embedded inside of rocks, a concoction of water, sand and chemicals is pumped a mile beneath the earth’s surface. Not only does it take a huge amount of water but the mixture that comes back to the top is filthy. Many communities have therefore expressed concern about their water quality.

Another major fear is that the production process is more carbon-intensive than that of developing conventional natural gas. And that unease has been underscored by the International Energy Agency in France that cautions against unguarded heat-trapping emissions and is suggesting more investment in clean technologies.

According to the BP Energy Outlook, global energy consumption will rise by 1.7 percent a year until 2030. The contribution to energy growth of renewables from solar, wind, geothermal and biofuels is predicted to increase from 5 percent in 2010 to 18 percent by 2030.

At the same time, the outlook says that natural gas is projected to be the fastest growing fossil fuel while coal and oil are likely to lose market share as all fossil fuels experience reduced growth rates. Fossil fuels’ contribution to primary energy growth is projected to fall from 83 percent to 64 percent.

An advisory board that includes Yergin reported in the fall to the U.S. Department of Energy that jitters centered on shale-gas development can be addressed by increasing the level of transparency: “Regulators will have more complete and accurate information, industry will achieve more efficient operations and the public will see continuous, measurable, improvement in shale gas activities.”

Shale’s rise will undoubtedly make a dent in the U.S. market place. Part of its ascent will come at the expense of coal and part will affect wind and solar. But if the country mitigates its risk by diversifying its energy interests, green power will also innovate and see an upswing in production.


EnergyBiz Insider is the Winner of the 2011 Online Column category awarded by Media Industry News, MIN. Ken Silverstein has also been named one of the Top Economics Journalists by Wall Street Economists.

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energybizinsider@energycentral.com

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