Another story worth reading from The Economist. Full story HERE.
ALONG the coast of China, six vast liquefied natural gas (LNG) terminals are under construction; by the end of 2015 they should have more than doubled the amount of LNG that the country can import. At the other end of the country, gas is flowing in along a new pipeline from Turkmenistan. In between the two, geologists and engineers are looking at all sorts of new wells that might boost the country’s already fast-growing domestic production. China will consume 260 billion cubic metres (260bcm, which is 9.2 trillion cubic feet) of gas a year by 2015, according to the country’s 12th five-year plan, more than tripling 2008’s 81bcm. The roots of this rapid growth, though, do not lie in China’s centralised planning. They are to be found in a piece of deregulation enacted decades ago on the other side of the world: America’s Natural Gas Policy Act of 1978.
America’s deregulation of its natural-gas market encouraged entrepreneurial energy companies to gamble on new technologies allowing them to extract the gas conventional drilling could not reach. Geologists had long known there was gas trapped in the country’s shale beds. Now the incentives for trying new ways of recovering it were greater, not least because, if it could be recovered, it could be got to market through pipelines newly obliged to offer “open access” to all comers.
Decades of development later, the independent companies which embraced horizontal drilling and the use of high-pressure fluids to crack open the otherwise impermeable shales—a process known as “fracking”—have brought about a revolution. Shale now provides 23% of America’s natural gas, up from 4% in 2005. That upheaval in American gas markets has gone on to change the way gas is traded globally. A lot of LNG export capacity created with American markets in mind—global supply increased 58% over the past five years—is looking for new outlets.
To the extent that the shale-gas success is repeated elsewhere, a vital source of energy will become available from an ever more diverse and numerous set of suppliers in increasingly free markets. This means that, unlike the boom in oil in the decades following the second world war, this growth in gas may not hand a powerful political weapon to those countries with the biggest reserves. Shale gas could significantly diminish the political clout that Russia, Venezuela and Iran once saw as part and parcel of their gas revenues.
“The power of the shale-gas revolution has surprised everyone,” says Christof Rühl, chief economist at BP. In 2003 America’s National Petroleum Council estimated that North America (including Canada and Mexico) might have 1.1 trillion cubic metres (tcm) of recoverable shale gas. This year America’s Advanced Resources International reckoned there might be 50 times as much.