Shale Resources Reviving Energy Sector, Industrial Opportunity

The Opening of Tight Oil and Gas Reserves in the U.S. Is Reshaping the Energy Sector

By Jim Montague

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The only constant may be change, and the global energy sector has been getting more than its fair share lately. Principally, hydraulic fracking in U.S. deposits is freeing up so much natural gas and oil that it's turning traditional process industries, infrastructures and economies on their heads. Even adding up all the types and locations of this turmoil is a daunting task, so it's fortunate when someone like Mark Peters, publisher of Oil & Gas Financial Journal, can draw a detailed portrait of all these events and issues, and put them into an understandable and useful context.

Peters presented "Hydrocarbon Processing Industry in a Changed Global Environment" this week at the Yokogawa Users Group Conference & Exhibition in Houston. He reported that shale oil and gas is one of the primary factors shaping energy expansion for the next decade. It's increasing U.S. petrochemical production, pushing the need for gas processing capability, and will even turn the U.S. into a liquified natural gas (LNG) exporter in the next few years. Other factors influencing the energy landscape are growth in world population, multiplying geopolitical changes and energy security issues.

"We're seeing significant jumps in oil and gas recovery in the U.S., mostly in the past five years," said Peters. "The theory of peak oil has been discredited because when more production and capacity is needed, new technology improvements make it possible, just like in other industries. In fact, recent development of shale gas reserves is causing a 15-year pause in climate change because natural gas produces less carbon emissions than coal. This is why the U.S. will have three or four major LNG plants coming online soon, which will help it become a net exporter of LNG by about 2017.

Shale Resources Ascendant in U.S.

"Likewise, new technology for recovering tight gas and oil is turning formerly non-producing areas into producing areas. This is increasing our energy security, but it's also requiring the U.S. to make changes in transportation systems and infrastructures. Recent geopolitical events as with Russia and the Ukraine and with the Islamic State of Iraq and Syria (ISIS) have a tangential influence on energy resources, but they can't be ignored, especially since Russia produces about 30% of Europe's oil and gas."

Besides the emergence of shale gas, Peters reported that the energy price spikes that began in 2007 encouraged development of everything from offshore resources to refining. Beyond the U.S., Central and South America are ramping up production, especially in deepwater locations and often doing it with the help of large investments from China. Some ultra-deepwater wells may soon get down to 20,000 feet below sea level, he said.

Despite these activities, the United States' reversal of fortune remains the big news for now. "The U.S. is presently reversing 40 years of oil production declines. If someone had told me 10 years ago this was going to happen, I would have asked what they were smoking," said Peters. "Also, we've recovered from the Macondo spill, and deepwater activity in the Gulf of Mexico is increasing again. So while oil prices appear to be range-bound between $100 to $120 per barrel, U.S. natural gas is poised for further long-term recovery. In fact, oil production in Texas in 2017 will surpass the state's all-time high in 1972. Nationwide, the U.S. has already surpassed Russia as the world's largest gas producer and even surpassed Saudi Arabia as the world's largest oil producer. The downside on shale gas is that its fields can start strong and decline rapidly, but shale is still having a big impact on global refining, LNG, pipeline capacity and petrochemical activity."

Game Changer

U.S. shale gas remains a huge game changer because it affects energy producers and consumers on so many levels. "Again, carbon emissions are decreasing as cheap gas in the U.S. shifts power production from coal to natural gas, but shale is also enabling increases in the nation's petrochemical production and allowing increased use of natural gas for automotive fuel, starting with fleets," added Peters. "The U.S. is also succeeding with shale due to its unique geological structures and some other unique advantages compared to other countries.

"For example, shale structures are found worldwide, but the U.S. is the only country that gives landowners mineral rights. So, while some people are getting rich here, shale gas will be slower to develop in other regions. In addition, the U.S. has a fully developed infrastructure service industry to handle the shale plays, including all the trucks and pipelines needed for processing. So, where you might not be able to get 200 trucks through a community in Europe without some residents objecting, it's more likely that it can be done here. Also, shale is further aided by the fact that the EPA wants power generators to switch from coal to natural gas, especially in the Ohio Valley."

Similar to natural gas, shale oil is also rapidly changing the U.S. oil industry. "U.S. dependence on imported liquids is dropping from 60% in 2005 to a projected 32% in 2040," said Peters. "And, though there's some controversy about whether we should become a net exporter of liquids, we also need to create jobs and grow our economy. Liquid consumption is being driven more and more by the developing world because there are a lot of people who want to live the way we do, and that's going to require a lot of energy too."