According to the Annual Energy Outlook 2013 published by the American Energy Information Administration (EIA), the extraction of shale gas in the US will rise by 113% between 2011 and 2040 – a figure that is nothing short of a revolution! In 2011 it accounted for 34% of total natural gas production in the US; by 2040 the EIA experts calculate its share of the total will reach 50%. According to the EIA, production of shale gas amounted to 222.3 billion cubic meters in 2011; by 2040 it will be 473 billion cubic meters. In 2000, shale gas only accounted for 2% of all natural gas supplies. Twelve years on, that figure is nearly 40%. Although still dominant, production of electricity from coal has sunk significantly and with it emissions of greenhouse gases such as carbon dioxide (CO2): Coal has become too expensive thanks to the large scale extraction of shale gas. The cost of gas in the US in 2012 was just a quarter of the price in Europe while electricity was half the price.
Welcome to an energy Eldorado
As a result, investors in ‘Old Europe’ have started to transfer energy-intensive production lines to the new Eldorado for cheap energy. Some projects have already been completed: BMW is producing the carbon fibers for the body of its recently launched i3 electric car together with its partner SGL in a joint venture in Moses Lake, Washington – with electricity generated from hydroelectric power and not shale gas! BASF is taking advantage of a history of low gas prices in Louisiana to produce methylamine and formic acid there. A survey conducted by the international management consultancy Accenture plc concluded that 58% of the leading business managers questioned believed that in three years’ time, European industry would no longer be able to compete in terms of energy against the US, China and Russia. Chris Bryant, Frankfurt correspondent for the Financial Times, quoted Kurt Bock, Chairman of the Board at BASF, who said that foreign companies regard the creeping competitive handicap caused by the ‘Energiewende’ with a certain ‘Schadenfreude’, leaving these terms in German in his English statement.
Natural gas for economy and ecology
A rosy outlook for the US economy and environment? President Barack Obama has committed his government to cutting greenhouse gas emissions to 17% below the 2005 level by 2020. Wind and solar energy as well as gas-powered cars are helping to achieve this goal, as is the fact that the US produces more natural gas than any other country in the world. “It has brought growth and new jobs for our economy, which cannot be outsourced abroad,” said President Obama in a speech on climate change given in June 2013 at the University of Georgetown in Washington, DC. “We have driven our carbon pollution down to its lowest levels in nearly 20 years. No other country has been able to reduce pollution to a similar extent as we have since 2006.”
Not everyone shares Obama’s optimism. Critics doubt it is possible to combine economic prosperity brought about by cheaper energy with a significant drop in pollution, and one of them is the geologist J. David Hughes from the Post Carbon Institute, Santa Rosa, California. He may have named his study on the energy question published in February 2013 ‘Drill, Baby, Drill’ but followed it with the question whether unconventional fuels can really lead us into an era of unlimited energy. Hughes has put 30 shale gas fields with a total of 65,000 wells (and 21 shale oil deposits) under the microscope: Output at five of the ten largest fields is already declining while production at only three gas fields is rising and is expected to remain stagnant at a further two fields.
Costly measures to make up the shortfall
According to Hughes, in order to at least make up the shortfall in production output, numerous new wells are required. In the biggest gas field in Haynesville, which already recorded a decline in output of 68% by the end of the first year of production, a total of 774 new wells have had to be drilled (total currently over 2,800). Annual operational costs are currently nine million USD; to make up the production shortfall, a further seven million USD will have to be invested. It is a similar story for other shale gas fields. Moreover, fracking is beginning to encounter popular resistance in the US. All of these factors are making shale gas unprofitable. When compared to its lowest point in 2012, the price of shale gas has nearly doubled and is still far below the level for profitability. Many analysts and fund managers doubt whether the continued low price being demanded for shale gas even covers the cost of its extraction. The amount of electricity produced from coal is rising again.
Just how little the projections made so far can be trusted in their estimates of the extent of shale gas reserves is shown by Ani Aprahamian, Professor of Nuclear Physiks at the University of Notre Dame, Indiana. “Shale gas will dominate for ten to 100 years.” She explains that this broad estimate is based on an analysis of the various political positions and does not reflect actual reserves in the ground. Deborah Rogers, a former investment banker and analyst, suspects that the shale gas boom with its low prices reflects a desire on the part of the multinationals to drive smaller producers out of the market so that they can then dictate the price. Drill, Baby, Drill? The question mark at the end can no longer be ignored.
Just enter your email address and start receiving the International Trade Newsletter, free of charge, to your email inbox.