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Shale Gas Boosts Development

09-02-2012  News

Unexpectedly, history made a full circle. The old, familiar natural gas rather than the sun, or the atom, or the hydrogen synthesis will be the 21st century’s basic energy source, write economists.
 
For the recent two or three years a genuine revolution has been underway in the real economy. Though it has been overshadowed by consecutive scenes of the financial crisis on which the politicians and the economists focus, its effects are likely to be as meaningful to the world in a longer run as the repercussions of the financial crisis. This revolution is about the use of a new energy source, the shale gas. Geologists have known for decades that methane-rich natural gas occurs in particular rock formations known as sedimental shale, at great depths (1.5 to 4 km underground). Yet it was only in the recent six to eight years that innovative (and, which is most important, highly efficient) extraction processes based on hydraulic fracturing have been developed and successfully implemented on an industrial scale.
 
The resulting increase in production has been breathtaking. America’s production of shale gas, which as recently as 2006 stood at about 20 bcm, shot this year past 125 bcm, to account for about 20 percent of total natural gas production in America. According to U.S. government forecasts (Annual Energy Outlook 2011) in two to three years production will reach 200 bcm (for comparison, Poland produces about 4 bcm of natural gas a year and the North Stream pipeline which has gone operational has a throughput of 27 bcm a year).
 
Between this additional output and the prospect of a growing supply of relatively cheap shale gas, the price of this resource on the U.S. domestic market has dropped significantly, from about USD 450 per 1000 cu. m. four years ago to between USD 120 and USD 180 this year. This downturn in price has been particularly pronounced in the recent two years. Last year the U.S. became – for the first time in sixty years – the world’s largest gas producer.
According to EIA (Energy Information Agency) data the reserves of shale gas, which is rated as the most ecological of all non-renewable energy sources, can cover the world’s energy requirement for the next 200 years.  Most probably, several next years will see the implementation of industrial processes of oil recovery from bitumen sands as a consecutive step in the revolutionary changes in global energy sources.  Cheap local energy means, besides huge savings for American households, the rebirth (which is already in evidence) of the American chemical and steel industries liquidated over a dozen years ago.
 
After the bust of the Internet bubble, the property market slump, and the financial crash the era of American economic hegemony seemed to be drawing to an end. Shale gas, a new and plentiful source of relatively clean energy, has provided the American economy with a huge development boost, just as it has restored the Americans’ faith in a better future and in the power of their country, undermined by the crisis of 2008-2009. The working of the American state in this area – supporting private entrepreneurs, developing an appropriate legal system and dismissing protests of pseudo-ecologists – could be the model for the entire world and for the bureaucratised Europe in particular.
 
In recent years net imports of natural gas into the U.S. were in excess of 100 bcm a year. This, however, is history by now. The Sabine Pass import terminal in the Gulf of Mexico, which went operational in 2008, is being converted into an export terminal with a target handling capacity of 22 bcm and similar operations will soon commence in four other modern import terminals. In several years’ time, as the U.S. achieves full energy self-sufficiency (and not in terms of gas alone), global geopolitical relations will change meaningfully.
As the significance of the Middle East and the Persian Gulf for the U.S. diminishes, repercussions – economic as well as political/military – which cannot be foreseen today could follow. Declining prices of energy sources could cause the degradation of the great-power status Russia is still enjoying and trigger a variety of perturbations there. For this country, the shale [gas] revolution is only beginning. In several years American innovations will have unavoidably diffused to other countries in various parts of the world (including China, witch has the world’s richest reserves of shale gas, and the shale gas-rich Poland). Only then can a huge and stable supply of relatively low-priced gas appear on the global market, including in a liquefied form (LNG) – the best energy source.
One consequence of this scenario could be the drop in the prices of traditional energy sources (oil and coal) and the reassessment (downward) of the profitability of renewable energy sources and nuclear energy. The existing energy sector development strategies will be re-valued in all countries. In Poland a strategic decision on the future of the energy sector was taken several years ago, still in the “pre-shale-gas era”: to build in Świnoujście a LNG terminal with a target handling capacity of 7.5 bcm a year. This decision holds its own even today: it gives us access to the global gas market and opens the door for cheap LNG for Poland and for Central Europe.
In November 2009 the Council of Ministers adopted “Poland’s Energy Policy Till 2030”, which is still in force and effect. This strategic document containing not a single mention of shale gas, it appears to be in need of updating by the addition of targets and tasks related to shale gas extraction. Whether we start exploiting gas-bearing shale in the next four to six years, or not, shale gas-based energy brings new determinants of the strategic development of the energy sector, including nuclear energy. 
 
Presumably, with a plentiful supply on the global market of relatively cheap liquefied natural gas (and, in a perspective of not much over a decade, also of oil from bituminous sands) nuclear power plants with their potential vulnerabilities and steep construction and running costs could become much less profitable and they will be phased out throughout the world. Gas bearing shale is a national challenge for Poland, much like the discovery of hydrocarbon reserves was for Norway in the 1960s. Challenges concerned with the devising of operating rules for this new market and deriving profit from exploitation, are huge. The firm actions of the Obama administration are more worth emulating than the objections of Brussels bureaucrats. The directions of civilisational development have proved unpredictable, they way they often do. Unexpectedly, history made a full circle. The old, familiar natural gas rather than the sun, or the atom, or the hydrogen synthesis will be the 21st century’s basic energy source.
 
Quite likely, giant coal-fired or nuclear power stations with capacities running into thousands of megawatts (and with their unavoidable negative environmental impact) will not be the future of the energy sector in Poland and worldwide; this role will fall to much smaller (from 50 to 500 MW) gas-fired power and combined heat and power [CHP] stations scattered throughout the country, with diversification ensured by dispersed sources of renewable energy. The gas-fired power stations, safe, cheap and ecological, are in many respects preferable to coal-fired or nuclear facilities. The building cost of a gas-fired power station, given per 1 MW of capacity, is two-thirds of that of a coal-fired power station and barely 20 percent of a nuclear power station. Similarly, the construction time is shorter and, as an additional advantage, the gas-fired power stations are less complicated technologically and easier to run that the others.
 
With the prospect of relatively low prices of gas in next decades and with the growing costs of carbon dioxide emissions (by the coal-fired power stations) and ever-new costs of nuclear waste security and disposal (in the nuclear power stations), also the current costs of producing gas-based energy could soon be lower than those of coal-based or nuclear energy.
 
Source: Rzeczpospolita, 9 February 2012, p. 10, by Maciej Bałtowski, Jan Chadam

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