In the blink of an eye, the United States has rocked the once-sleepy natural gas market. Since the 1950s, American energy companies have drilled into massive formations of shale rock to get at the natural gas trapped beneath them, but historically these shale gas ventures required large cash investments to access a relatively unpopular fuel. In the last few years, however, shale gas has suddenly become much more profitable, thanks to three factors: The discovery of large reserves of this low-emissions fuel, tweaks to a process called hydraulic fracturing (“fracking” for short), and improvements in drilling that allow one well to access a reserve in multiple directions. The sudden surge in the supply of natural gas has driven prices down around the world and sparked countries throughout Asia and Europe to develop their own shale gas reserves.
While ExxonMobil and Chevron have dominated the oil industry, scrappier independent companies have pioneered the shale gas industry. In a world hungry for cheap, low-carbon fuel, the shale-drilling expertise of companies like Devon Energy, Chesapeake Energy, and Range Fuels has become a hot commodity. Exxon, Shell, and ConocoPhillips have all tried to tap this expertise through mergers and buyouts. But as possible regulations loom in the United States, the American companies that pioneered the shale industry are exporting their controversial drilling techniques abroad.
Fracking—a process that entails blasting a mix of water and chemicals into shale rock formations at high pressure—has played the evil menace in environmental campaigns nationwide. Though only recently a hot topic, fracking—in its earlier, less efficient form—has actually been around for 60 years. Early shale gas wells were typically located in low-population regions of Wyoming and Colorado. But as new drilling techniques made fracking more profitable, drilling expanded to more populated areas in Texas, Pennsylvania, and New York, setting off a public backlash. People have been setting their natural-gas-laced tap water on fire all over YouTube. The wildly successful HBO documentary Gasland featured interviews with family after family suffering the consequences of contaminated air and water. Fracking makes a great villain—Halliburton has been involved in its development, and it was exempted from the Safe Drinking Water Act as part of a 2005 energy bill, thanks to Dick Cheney. But, according to a recent report, the environmental problems stem more from poorly designed wells, drilling techniques, and wastewater management than fracking itself. Either way, Congress has begun discussing stiffer regulations.
Fracking is currently regulated by the states, some of which do a good job, others not so much. The natural gas industry would prefer it to stay that way, arguing that local experts know the risks and benefits better than D.C.-based regulators would. The House and Senate are considering twin bills known collectively as the Frac Act, which would regulate fracking nationally but have little chance of passing until the EPA completes its study of fracking, likely sometime in 2012. In the meantime, local governments may take action: Just last week, Pittsburgh, Pa., became the first city in the nation to ban natural gas drilling within its limits.
While few analysts think Congress will ban fracking outright, or that city drilling bans will affect shale gas development much, the industry is preparing for stricter regulations. These regulations would likely force companies to disclose the contents of their fracking fluids and improve how they handle wastewater, making shale gas development more expensive in the United States. If fracking becomes more expensive, companies will drill less, which will drive down the country’s estimated shale gas reserves.
As discussions of regulation slow the shale gas rush stateside, American companies are expanding their drilling to other countries, where interest is high, money is available, and environmental regulations haven’t caught up yet.
China and India are betting large that shale gas can boost their economies while simultaneously reducing emissions. Both governments have signed agreements with the United States to jointly develop shale gas resources under the U.S.-led Global Shale Gas Initiative—a program launched in April 2010, seemingly to solidify the United States’ position as leader of the shale gas industry. In July 2010, the state-owned China National Petroleum Corporation announced that it aims to produce 500 million cubic meters of shale gas by 2015. That number pales in comparison with U.S. shale gas development (the Department of Energy estimates the United States could produce roughly 60 times as much as China’s goal), but that reveals more about the infancy of China’s shale gas industry than the country’s potential reserves. ConocoPhillips, Royal Dutch Shell, and BP are all working with China’s state-owned oil and gas companies to explore for shale gas there.
In Europe, the situation is a little trickier. Drilling in the United States has boomed partially because companies have offered lucrative gas leases to landowners, who have been happy to lease their land. But in Europe, landowners don’t profit from the mineral rights to their land—the state does, instead—so they’re more likely to block companies from drilling. That still isn’t stopping companies and governments from exploring reserves there—Chevron, for instance, applied for permits this year to explore shale gas deposits in Bulgaria. Developments like these in Poland and Bulgaria have Russia worried it could lose its monopoly of the European natural gas market.
Meanwhile, India and China, hungry for more natural gas, are also exploring American shale reserves. China National Offshore Oil Corporation signed a $2 billion deal with Chesapeake Energy in early November to purchase a one-third interest in Chesapeake’s Texas shale fields. And India’s largest oil company is focusing its investment on U.S. shale fields, spending $943 million in 2010 to purchase three U.S. shale gas fields and promising to spend $2.5 billion drilling those fields.
Through public and private partnerships with countries in Europe and Asia, and its leadership of the Global Shale Gas Initiative, the United States could push for the global adoption of any environmental regulations put in place stateside. There’s no guarantee that the United States will make such a push, given its already-tense trade relations with China. And it’s still not certain whether the federal government will regulate U.S. shale gas firmly, if at all. But the opportunity for international influence is ticking away—with surging interest abroad and the prospect of regulations at home, the United States might not lead the global shale gas market for long. In the meantime, what it does with that power could determine whether the rest of the world develops shale gas sustainably and whether, domestically, natural gas becomes the bridge fuel—an intermediate, rather than ultimate solution to our energy needs—that environmentalists have always hoped it would be.