Shale Gas and a Green Economy: A plausible irony

By Jabraan Ahmed, on 7 March 2013

gas supply (c) UCL Energy

gas supply (c) UCL Energy

Shale gas is often touted as the fuel for our salvation and independence from non-renewable energy sources. Furthermore, economists predict it will enable self-sufficiency and be the driving force behind the environmentally conscious Green economies of the world.

What is striking about statements such as these is the irony of how a fossil fuel, shrouded in controversy due to environmental mishaps, is proclaimed to be the saviour of the very thing we are trying to liberate ourselves from. Is this a paradox or are we missing something? The answer lies in looking at the issue holistically.

The two main driving factors behind the use of shale gas ahead of other fossil fuels concern its abundance and low greenhouse emissions. Organic rich black shale deposits can be found globally and it is technically possible for many countries to significantly offset their gas imports, thus reducing its cost. Moreover, the gas produced in organic shales is typically much purer methane, almost void of sulphur which can be present up to 10% in coals and gases derived from coal. Hence, exploitation of shale gas reserves would allow a cheaper more environmentally friendly way of buying time to switch over to truly green and sustainable resources. At least this was the initial thought.

The hopes, dreams and fears of using shale gas are exemplified in the U.S. whose operators are the world pioneers in extraction technology and techniques. This is in part due to the fact that they have had the experience of commercial extraction for roughly a decade but also because of the relatively loose legislative constraints imposed on them. Additionally in the U.S., all mineral wealth is the sole property of the landowners and thus the people have had much incentive to pursue industry and encourage development. From the perspective of the operators, licences to drill can expire and are given out on temporary basis. Hence, the industry has drilled thousands of wells in order to retain their licences, the majority of which are not currently producing, despite having proven reserves.

The reason behind the lack of production from these wells is astounding. Aside from the logistical issue of there not being enough extraction rigs nor there being enough storage space for methane, the shear amount of gas produced has driven its price down remarkably from $13 MBTU-1 (per million British Thermal Units) in 2008 to $3.5 MBTU-1 today. Economists now forecast that the price of gas is too cheap and it is more profitable for operators to switch back and use at least some of the rigs in the extraction of shale oils and gas liquids. There are now plans to export the excess gas as liquefied natural gas (LNG) to foreign markets such as Europe and Asia where it can fetch up to $15 MBTU-1.
In the coming years, the demand for gas will once again increase and hence its price, also making its extraction more profitable. This prediction is based on the assumption that many coal-fired power stations are being replaced by gas-fired ones. Moreover, many envision a revival in the manufacture of industrial goods in the U.S. such as chemicals and steel as these processes require the combustion of large amounts of fuel. Finally, although a hotly debated topic, there is a consensus that the shale gas boom has helped decrease the unemployment rate through the creation of jobs both within the energy sector and externally as the economy has been stimulated.

The story so far portrays a country revolutionised by its energy industry so much so that by 2030, the U.S. will be energy independent. However, this rapid development has come at a serious cost and made other nations weary of treading in the U.S.’s footsteps. The relationship between the energy industries and environmentalists has always been a contentious one and shale gas operators have only added fuel to the fire. It is no secret that unregulated frack operations have led to the contamination of many aquifers, caused seismic tremors and released methane into the atmosphere.

Environmental concerns were exacerbated in the U.K. when the country’s only shale gas firm, Caudrilla Resources, caused tremors at one of its frack sites near Blackpool in 2011. The government effectively halted all fracking operations until 2012 while the Royal Society and Royal Academy of Engineering published a review. In summary, they concluded shale gas operations can be conducted safely and should resume in the U.K. provided there is stringent monitoring of each site.

Given the magnitude of the potential impact on the environment ‘over-zealous’ fracking may have, the conclusions of the review and the U.K. government’s stance is wise. However, without any specific legislation in place it is understandable for there to be a lack of interest for investment despite the British Geological Survey (BGS) report showing there to be significant resources in the country.

The boom in the U.S. was driven by the private sector taking huge risks and often drilling dry wells. This has been demonstrated by the U.S.’s largest driller Chesapeake Energy who were reported to have neared bankruptcy on several occasions. Another deterrent regards the first large scale operations in the U.K. most likely requiring protracted application processes before any extraction could even occur. Thus for the industry to kick off at all in the U.K., there needs to be some form of investment/subsidy to entice operators in addition to a streamlined approval procedure.

Given the reaction of the U.S. economy, shale gas clearly has the potential of being a game changer. The economies of the world need cheap energy in order to fuel the progress and development in renewables and thus shale gas can be this bridge or stopgap to alleviate the burden of a switchover.

The shale gas problem has now evolved into the proverbial ‘catch 22’ scenario which is making investors think twice. To meet the gas supply demands of the world’s economies, shale gas extraction outside the U.S. needs to take off quickly and gain momentum. Should it catch on too quickly however, there is a serious danger of replicating the environmental hazards as seen in the U.S.. Hence it is comprehensible for there to be caution in encouraging development, but there is a risk of missing the boat if we are not fast enough given the high energy prices consumers are faced with today.

Jabraan Ahmed is a PhD student with the ISR and the Department of Earth Science