The New York Times has run a disturbing article about the potential for the shale gas explosion being a bit of a fizzle. If you want to get an idea of how important this question is bear in mind that shale gas is presently projected to provide 38% of North America's natural gas needs 2035, up from 13% now. This number is even more impressive when one considers that this is in the context of much larger demand than exists now. This is all outlined in a report prepared for KM LNG and filed with the National Energy Board as a part of the application for the approval of the export of natural gas through the Kitimat LNG facility (see pages 14 and 15 of the report for a tidy summary of the supply situation with a great graphic on page 15).
I suspect the science is out on this one for a bit but I have to say that I am a bit suspicious of anything that requires a lot more work and a lot more investment being able to produce gas at the same or lower costs than traditional gas production. This concern is somewhat offset by the fact that as gas reserves have declined the technology used has evolved toward what is now fracking (part of the technique now used to get shale gas out of the ground) but still if shale gas really were as cheaper or cheaper than conventional gas why have we been pumping gas 5000kn across North America and building LNG terminals on the Eastern Seaboard?
What is important to observe about this issue is that there are a lot of decisions being made on the assumption that shale gas production in eastern North America could or is going to completely displace or significantly reduce the demand for western gas in the east. The most obvious decision that presses for is to open up the large fields in Quebec and New England for production. Promoters will say that the decades of low priced local natural gas that will be produced and can be burned cleanly will more than outweigh the environmental damage caused by the surface infrastructure and underground fracking. If this argument carries the day it will be a bit of shock if the plays peter out after five to ten years after the rural countryside of Quebec, New York and Pennsylvania is turned into Alberta and Texas with bushes (no, not that kind, the leafy kind).
There are also decisions that will be made concerning alternative energy supplies that are being determined on the basis of shale gas providing a stable natural gas base for Canada and North America out for the next 25 years. For example, the viability, timing and pricing of the Muskrat Falls development will be very much affected by the question of whether or not New England can satisfy its electrical needs by putting a straw into the ground behind a gas generation station or two or has to bring hydro-electric power in from Canada. Newfoundland may want to be careful about committing to any further pricing arrangements based on current market projections as ultimate prices will be much higher if shale gas turns out to be a bust.
The Kitimat LNG terminal is another example of a decision that is being made on the basis of positive projections about shale gas production in North America. The export of natural gas to Asia makes perfectly good sense (from a public policy perspective) if there is an effective glut of gas in North America. From an economic point of view companies have substantial investments in western gas plays (particularly shale gas plays) and it makes little sense (it is said) to wait until the North American supply declines to develop this. Shareholders are not investing for the distant future; they are investing for returns in a time frame extending from the next quarter to the next five years. However, if it turns out that the Great Eastern Shale Gas Glut is a bust investing large amounts of money in export infrastructure and committing significant chunks of our natural gas supply to Asia in long term contracts may turn out to be not such a great idea.
Maybe before we plan the next 25 years on the basis that we are all going to be afloat in shale gas and that the environmental wreckage is worth the price, we should take a good hard look at those production numbers and really assess if there is a prize to be won here at all?