Home' Trinidad and Tobago Guardian : July 10th 2014 Contents BG8 ENERGY
BUSINESS GUARDIAN www.guardian.co.tt JULY 2014 • WEEK TWO
The shale revolution is going global.
From the Australian outback to the Argentine
Andes, many of the world s largest energy
companies are on the hunt for new sources of
what they call unconventional oil and natural
The multi-billion-dollar investments, which often involve
hydraulic fracturing, or fracking, could change the face of the
global energy markets.
China and Russia have some of the largest shale oil and gas
reserves in the world, according to the United States Energy
The development of these resources over the next 20 years,
particularly in emerging markets, may reshape how oil and
gas are consumed in some of the world s fastest-growing
"Shale has an opportunity to become very important to
these countries," said Melissa Stark, global managing director
of the new-energy practice at the consulting firm Accenture.
"They are brand new markets. They are starting with a clean
In total, global recoverable shale gas resources may reach
7.3 trillion cubic feet, or the equivalent of four times Russia s
proven gas reserves, according to the Energy Information
Administration in Washington. Shale oil deposits could total
345 billion barrels worldwide, or more than Saudi Arabia s
current conventional oil resources.
The size of the potential reserves has spurred a burgeoning
of industries in countries that traditionally have not had local
energy sectors. Domestic energy booms also have allowed
some countries, including the United States, to steadily reduce
their reliance on high-priced energy imports.
The importance of shale is expected to grow as emerging
markets bounce back from the global financial crisis and as
accelerating economic growth pushes up demand for energy,
including fossil fuels. Growing middle classes in countries like
Brazil and India are starting to buy more luxury goods like
cars and high-end smartphones. And despite the rise of renew-
ables like wind- and solar-power, oil, gas and coal are still
expected to represent the lion s share of worldwide energy
consumption for the foreseeable future.
Global demand for gas, for example, is expected to jump
more than 50 per cent over the next 20 years, according to
the International Energy Agency, an intergovernmental pol-
icy-coordinating and advisory body based in Paris.
Amid this rising consumption, shale is expected to provide
more than a third of global supplies over the same period, up
from around 15 per cent last year.
"The golden age of gas remains in full swing," Maria van
der Hoeven, the Paris-based agency s executive director, said
in a statement recently. "Gas is already a major fuel in power
generation, but the next five years will also see it emerging
as a significant transportation fuel."
The rising importance of shale oil and gas comes as the
industry in the United States, which began almost 20 years
ago and is now the largest producer of unconventional energy,
has gone mainstream.
Early trials of fracking, in which highly pressurised liquids
are pumped deep underground to crack open oil- and gas-
bearing rocks, proved economically unviable. But improvements
in the technology and rising domestic costs of other fossil
fuels have transformed the American oil and gas industry.
With billions of dollars of investment from major players
like Exxon Mobil and smaller energy companies, shale gas
now represents roughly 40 per cent of America s total natural
gas production, compared to less than 5.0 per cent of China s
overall gas production, according to the American energy data
"International shale development could have an enormous
economic impact like it has had in the US," said Chris Lewis
of the consulting firm Ernst and Young in London.
Yet, despite the bullish prospects, many obstacles could still
derail plans that have seen major players like Chevron, the
American energy corporation, and Statoil, the Norwegian
state-owned energy company, make multi-million-dollar
investments from Argentina to Australia.
Environmental campaigners have raised concerns that the
projects could have serious consequences on local ecosystems
and populations that have yet to be touched by the invasive
drilling techniques. That includes fears that water resources---
a major component in fracking technology---could become
contaminated after similar problems were highlighted at existing
American shale sites.
Advocacy groups also have questioned whether developing
countries have the environmental checks needed to hold com-
panies accountable for ecological consequences.
A lack of local expertise and drilling equipment could also
slow shale development, particularly in emerging markets.
Governments in countries like France and Bulgaria, mean-
while, have banned the development of shale sources in
response to local fears that fracking could cause earthquakes.
"Each country has its own specific technical and commercial
barriers," said Emma Wild, head of the energy exploration and
production advisory team at the consulting firm KPMG, who
estimates that the commercialization of shale reserves could
take up to 10 years in some countries. "Developers need to
overcome a number of obstacles to create a viable shale
industry," she said.
Still, despite the potential problems, many governments are
offering lucrative subsidies to entice global energy companies
Argentina, for example, passed laws last year allowing foreign
companies to export 20 per cent of their shale production tax
free after the fifth year of development. Shale gas deposits in
Argentina s Vaca Muerta rock formation at the foot of the
Andes are estimated to be among the largest in the world.
That has led to investment by several global players. Chevron,
for example, agreed to spend US$1.6 billion this year alongside
Argentina s nationalised energy company YPF to develop local
oil and gas reserves. That comes on top of a previous US$1.24
billion investment from the US energy giant. Royal Dutch
Shell also is expected to invest around US$500 million this
year in the Argentine region as it hunts for unconventional
The spending comes despite regulatory uncertainty sur-
rounding Argentina s energy sector. In 2012, the country s
government seized a 51 per cent sake in YPF from the Spanish
energy giant Repsol. The company said the nationalisation
was illegal, and analysts say similar efforts by lawmakers to
maintain control over the country s nascent unconventional
oil and gas sector remain a sizeable hazard for foreign com-
"The energy majors have all considered the risk, and see
it as tolerable," Wild of KPMG said. "Argentina offers large
areas of land where you can easily create a shale industry."
In China, which has shale gas reserves almost two-thirds
larger than those of the United States, national energy companies
have teamed with international companies like Shell to bring
their global expertise to local joint ventures. Sinopec and other
Chinese state-owned energy companies have also bought
minority stakes in American shale projects to gain much-
needed expertise to bring back to their domestic operations.
As part of its energy strategy, the Chinese government wants
to produce about 6.5 billion cubic metres of shale gas annually
by next year. That target, however, is proving difficult to reach
because the cost for each new wellhead is roughly three times
the cost in the United States, making many sites uneconomic
Yet, "even though the current break-even price is high
relative to the US, it should go down with increased experience,"
said Milo Sjardin, Asia-Pacific regional head for Bloomberg
New Energy Finance in Singapore. "It is a domestic resource
that will reduce China s energy dependence."
Scouring the world for
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