The Obama administration has set its eyes on developing domestic shale gas (natural gas trapped within dense rock formations) from sources such as the vast Marcellus Shale, which stretches from New York to Virginia. Besides being significantly cheaper than crude oil, reliance on shale gas will reduce greenhouse gas emissions.
Climate change issues are dominating international forums. The U.S. has committed to reduce carbon emissions by 7% in 2012.
Shale gas makes sound economic sense and would ensure cleanliness. It also represents a viable energy strategy vis a vis the stranglehold of OPEC, which accounts for 42% of global oil supplies and 18% of natural gas.
Moreover, the substitution of domestic shale gas for coal/imported crude oil has other advantages, such as aiding local industry and employment and addressing balance of trade issues.
The U.S. still uses coal, a major polluter, to produce about 45% of its electricity. However, the country recently displaced Russia as the largest producer of natural gas. It now meets about a quarter of its energy supply from cleaner natural gas, which is only expected to grow. The production of shale gas has increased exponentially over the past decade and now accounts for 30% of the natural gas supply of the country.
Independent operators such as Chesapeake Energy Corporation (CHK) and Devon Energy Corporation (DVN) are concentrating on their core competence with renewed focus. Majors such as ConocoPhillips (COP) and Exxon Mobil Corporation (XOM) are investing large amounts in purchasing smaller players with sizeable stakes in the big shale fields.
In a related development, Kinder Morgan Energy Partners (KMP) acquired El Paso Corp. (EP), in October 2011, for over $21 billion, making it the largest pipeline distributor of natural gas. Earlier, last July, BHP Billiton Ltd. (BHP) took over Petrohawk Energy Corporation, which had interests in oil and gas, for $15 billion or so.
The mid-western states, blessed with significant deposits of shale gas, faced a fresh lease of life. Can the Rust Belt reinvent itself to be the Natural Gas Belt The signs are positive as some upcoming production capacities have been sold out even prior to going on stream.
In fact, shale gas development has been one of the few bright spots in the U.S. economy in the past three years. The stakes are high as national unemployment remains stubbornly high at about the 9% mark. The shale gas industry has already created an estimated 200,000 jobs. Other countries have shown an openness to tap American know-how in shale gas production. The competitive advantage of U.S. chemical firms, such as The Dow Chemical Company (DOW), partly hinges on the availability of cheap natural gas feedstock.
Yet, many experts wonder if environmental concerns will take out part of the sheen of shale gas prospects The extraction of gas involves a controversial technique called “fracking” whereby a huge amount of chemical-laced water is injected underground so that cracks are created on the rock surface by the high pressure, which releases the gas.
The methodology, which is used for capturing natural gas from vast underground fields, has been hailed as a major breakthrough for U.S. energy supplies. Environmentalists have been divided, at times, on the impact of fracking on underground water reservoirs.
