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Q&A: will shale revolutionise gas?


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'If shale gas fails to deliver on current expectations, then in 10 years or so, gas supplies could face serious constraints.'

So says Paul Stevens, a senior fellow at the international affairs think tank, Chatham House.

He's penned a report that raises serious doubts about whether shale gas will indeed deliver.

So what is shale gas, why is it such a big deal, and what will happen if it turns out to be one big wild goose chase?

What is shale gas?

Shale is a type of rock, typically found in a layer above conventional oil and gas deposits.

The rock contains natural gas that can be extracted.

So why all the excitement?

 A core of shale rock from which gas is a natural by-product US energy companies have become very successful in recent years at extracting gas from the shale alongside their existing conventional gas wells.

US shale gas production has increased from almost nothing in 2000 to a 20% share of gas production in 2009, with some analysts projecting a 50% share by 2035.

Shale reserves are also abundant in other parts of the world.

Is that why the gas price has fallen so much?


Gas prices have fallen sharply since 2008, but a lot of this is because of the recession.

And prices vary greatly from one region to another.

It is noticeable that in the US and Canada - where shale is having the biggest immediate impact - prices fell by more than half in 2008-09, much more sharply than in Europe.

Why has shale been such a big hit in the US?

The Chatham House report points to several factors specific to the US:

  • a high level of geological knowledge
  • tax credits
  • the technological innovation of 'horizontal drilling'
  • favourable environmental legislation
  • a strong oil and gas service industry
  • easy access to gas pipelines

So why can't it happen elsewhere?

Gazprom says that exploiting its gas shale deposits would be prohibitively expensive Drilling for shale gas is geologically complicated, and the geology varies greatly from one shale deposit to another.

This means the success so far in the US may not be easy to replicate with other untapped deposits - even other deposits within the US.

It is also expensive. Shale gas deposits are thinly spread and wells dry out very quickly, meaning a lot of wells are needed to capture the gas.

And shale drilling is inefficient, typically capturing only 8-30% of a deposit, compared with 60-80% for conventional gas drilling.

Gazprom estimates the cost of extracting shale gas in Siberia at about five times the cost of conventional gas, though the Russian company may be exaggerating the cost as shale gas represents a threat to its business.

What about here in Europe?

The UK already uses a lot of North Sea gas, and a switch to European shale gas would be a boon.

However, the report sees several obstacles:

  • European shale gas deposits are geologically much harder to extract than those in the US
  • drilling is quite land intensive, and this could be very disruptive in densely populated Europe
  • environmental legislation is much tougher than in the US
  • there is no comparable onshore oil and gas service industry to provide drilling rigs and other equipment
  • the gas transmission business in Europe is still dominated by giant national gas companies that may not welcome the new sources

What happens if shale lives up to its billing?

Pennsylvania called a three-year moratorium on the Marcellus gas project over environmental concerns Then it means cheap gas for everybody - or at least for everybody who has access to it.

The gas industry is still very regionalised, due to high transportation costs, although 'liquefied natural gas' (LNG) technology is making it possible to ship gas around the world, just like crude oil.

However, a shale gas boom could lead to serious environmental problems.

What are the environmental problems?

The 'horizontal' drilling technique used to extract shale involves pumping chemicals into the ground.

Those chemicals could push salt water to the surface, and they could also poison drinking water.

Already in the US there is a backlash against shale drilling, with Pennsylvania placing a moratorium on one major new project, while the US Congress is considering stricter legislation.

Shale may also present a problem for global warming, because it is an abundant fossil fuel that could be a cheaper substitute than many renewable energy sources.

However, carbon (and noxious gas) emissions from natural gas are much lower than from oil and coal.

So what happens if shale falls flat?

 Uncertainty over shale is depressing investment in other gas facilities such as liquefied natural gas This is the big concern in the Chatham House report.

They think that the low gas prices and the uncertainty caused by shale are weighing down investment in the gas industry.

Gas companies may be afraid to invest in new conventional gas wells or LNG facilities if they think future shale supplies could render them redundant.

Given the long lead-times on gas projects, investment decisions now will affect gas supplies in 10 years' time.

This means a shortfall of investment now could lead to a shortfall of gas - and higher gas prices - by 2020.

The Chatham House report also thinks the uncertainty about shale is undermining investment in renewable energy sources.

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