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Posted on April 17th, 2014, by

Introduction

In recent years, the structure of the global gas market has been changing rapidly. From the market segmented into regional clusters it is turning into a global one. The second major trend in the gas market observed in the last 5-10 years is the increase in the volume of gas produced from alternative sources, mainly from shale and sand with the use of innovative technologies.

Today, hydraulic fracturing is a promising technique for intensification of oil and gas wells and increase the intake capacity of discharge wells. Hydraulic fracturing usually increases the production rate dramatically. The technology also allows restoring the inactive wells in which oil or gas production by traditional methods is impossible or unprofitable. In addition, currently this new method is used for the development of new oil reservoirs, where the extraction of oil by traditional methods is not profitable due to low production rates obtained (Schultz, 2011). The level of development of gas production by this technique opens up new opportunities for U.S. industry, energy, transport sector and exports, which will be further discussed in this paper.

 

Development of hydraulic fracturing in the U.S.

The USA is a pioneer in the development of production of alternative gas, and has the most developed sector of shale gas. Today, 29% of the current gas volume is produced from shale, and by 2030, according to optimistic forecasts, the increase may reach 50% (Committee on Energy and Natural Resources, 2012). In total, the shale gas sector in the U.S., has grown in 10 years from zero to 20% of production and significantly changed the prices on the North American market (U.S. Energy Information Administration, 2012). In recent years, the prices have fallen by 80% (Committee on Energy and Natural Resources, 2012), and are now at a level lower than in Russia and China, who are the world leaders and dictators in this area (Begos, 2012; Lewin et al., 2011).

The main technological progress in the industry occurred in the 1990’s, when the technologies of hydraulic fracturing and horizontal drilling were developed (Schultz, 2011). Back in 2005, it was believed that the natural gas production in the U.S. started to decline permanently. Despite the high rates of drilling, production volumes declined steadily from the peak of 2001 (Koerth-Baker, 2012). In 2005, Hurricane Katrina suspended the production on the shelf and the Gulf of Mexico coast, and natural gas prices rose to $ 13 per thousand cubic feet (around $430 per thousand cubic meters) (U.S. Energy Information Administration, 2012). But shale gas production by hydraulic fracturing method in recent years has radically changed the situation on the gas market in the U.S., reducing the price of natural gas to 10-year-old minimums for the last 5 years ($ 70 per thousand cubic meters in April 2012), and in the case of methane production there even occurred an overproduction crisis (U.S. Energy Information Administration, 2012; Committee on Energy and Natural Resources, 2012).

At the same time, the shale gas sector is characterized simultaneously by high dynamics and great uncertainty in both general estimations of stock, and in the results of individual wells. Therefore, the estimates of the extracted reserves in specific basins are often revised significantly. Another significant factor contributing to the reduction of prices in the United States is the post-crisis decline in industrial activity, and hence the declined demand for gas (U.S. Energy Information Administration, 2012). In addition in 2012, unusually warm winter put additional pressure on the prices. Prices have fallen so much that the production of dry gas has recently become no longer economically viable in most shale wells (U.S. Energy Information Administration, 2012). On the other hand, the majority of wells at the output in addition to methane also produce gas condensate (ethane, butane, etc.) and, sometimes, a small amount of oil (Schultz, 2011). Gas condensate is widely used in production of plastics, and high prices for it (compared to methane) in the U.S. now provide the basic margin to mining companies (Committee on Energy and Natural Resources, 2012).

In the medium term prospect, the situation with the increased well productivity and increased natural gas production due to hydraulic fracturing technology seems quite promising. In early September, President Barack Obama said that the United States would be able to develop the natural gas deposits sufficient for a hundred years which lie right under our feet, and thus would have half-cut the imports by 2020 and create more than 600,000 new jobs in the gas industry only (Begos, 2012). Thus, in 5-10 years, the U.S. has the opportunity to turn from an importer to an exporter of natural gas; significant prospects are also provided by the use of shale gas volumes for power generation and as an alternative fuel for transportation.

 

Perspectives for power generation

The U.S. government considers the growth of shale gas production and consequential low prices as a timely incentive for the transition from coal power generation to gas power generation (United States Congress House of Representatives, 2010). Direct emissions from power plants that run on natural gas are about 2 times lower than those of similar capacity ones running on coal (Koerth-Baker, 2012). However, when calculating the environmental impact, the important indicator is the overall emissions at full production chain, and in these terms the advantage of natural gas is not as great as the leakage of greenhouse gases during gas production significantly contribute to the total greenhouse effect. With leaks in the upper range of existing estimates (about 8% of the gas outlet) a gas power plant in terms of total emissions is similar to modern coal plants that use coal dust (Schultz, 2011).

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