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The Forum > Article Comments > Shale gas boom hardly shaking up the world > Comments

Shale gas boom hardly shaking up the world : Comments

By Cameron Leckie, published 1/11/2012

It is not surprising that unconventional oil and gas has captured the imagination of government, media, and business.

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The high production rate declines that the author identifies are an inevitable feature of shale gas production and do not prevent the industry from being economic. Sure, you have to drill more wells to get the gas out than a conventional field, but as long as each well produces more revenue that it costs to drill and operate, the industry will remain profitable.

Likewise, the author is right that the development of the industry is product of high energy prices in recent years, but wrong to think this makes it unsustainable. That’s how the market works – when something increases in price then people have an incentive to produce more and find alternatives.. It is what happened in the aftermath of the OPEC oil price shocks and gulf war of the 1970s and 1980s. The gulf of Mexico and North Sea suddenly became economic to produce, whereas if you’d suggested in the early 1970s that the UK would extract oil from under the North Sea you’d be laughed out of court.

That’s why the economists are right so often, and the “limits to growth” doomsters are wrong so often, about resources availability and growth.

The author also slips deceptively between discussing the possibility that the USA could be self-sufficient in oil (which it probably won’t) and self-sufficient in energy (which it already is).

The discussion of “extreme energy” is classic anti-technology scaremongering. The North Sea would seemed “extreme energy” in the 1960s, drilling for onshore oil would have seemed “extreme” in the 1860s, town gas in the 1820s and deep-shaft coal mining in the 18th century
Posted by Rhian, Thursday, 1 November 2012 6:25:20 PM
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Hello Rhian, I think you misunderstand my point about shale gas. I don't think it is unsustainable per se, just that it is unsustainable at current production levels. To make the industry sustainable requires less production and higher prices to make it financially viable. What is unsustainable is the shale gas funding model of recent years.

I would disagree with your point about economists being right/limit to growthers being incorrect with regards to prices. We could get more oil at $200 a barrel (and it is meandering on the edge of recession with prices at half that level), however at such a price the economy would be in recession thus forcing down demand. The work of Professor James Hamilton illustrates the causal link between oil price spikes and economic recessions. The other issue to consider is Energy Return on Energy Invested. Energy sources such as tar sands and tight oil are quite marginal, say about 4:1 compared to conventional oil at about 17:1. So we might get more oil at higher prices but how much useful energy we actually get is another matter.

Not sure where you get your figures on the US being energy independent? The Energy Information Administration from the US Government indicates that the US imports around 9mb/d of oil, about 10% of its natural gas. The US exports a small quantity (relatively) of coal, hardly enough to making much of a dent in the oil and natural gas imports. And of course they cannot be directly substituted for one another (oil and coal at least).
Posted by leckos, Thursday, 1 November 2012 7:22:28 PM
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Hi leckos

I agree the US market may have overshot as more supply comes on stream, and gas prices in the USA may rise somewhat from recent lows. The interesting question from a global perspective is whether the USA will start to export gas. There is already talk of turning redundant LNG receival terminals into LNG production facilities for export. That way, US production and domestic prices would probably both increase.

There is also an awful lot of unconventional gas and oil elsewhere in the world – including Australia - that will be developed if the price is right. If the price is not right, it will mean that someone has found a way to produce more oil or some other substitute.

The point is that the market will respond to price signals, often in ways that are hard to predict. If we really are running out of conventional oil, we'll find something else.

I also agree that high oil prices can cause recessions – though I don’t think they were responsible for the latest one. However, over time the world economy is becoming less energy intensive, meaning that the shock of higher prices is less severe than it used to be.

The tendency towards using what were once marginal reserves as prices rise and productivity improves is a familiar characteristic of the resources sector. In the gold industry, for example, it is now economic to mine ore with one or two grams of gold per tonne – a fraction of what was economic a few decades ago. In WA, iron ore mining is shifting to previously uneconomic inland ore bodies. There are even a couple of magnetite projects under way.

I admit I was wrong on the energy balances, though. I had read that the US was a net energy exporter in 2011

http://www.bloomberg.com/news/2012-02-29/u-s-was-net-oil-product-exporter-in-2011.html

… but looking behind the numbers this is only of petroleum products.
Posted by Rhian, Thursday, 1 November 2012 8:00:12 PM
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Lekos

Look, I would like to be able to retort that the only place peak oil exists is between your ears but ther are other people who share this delusion. Its not for met to prove reality but for you to refute it.. However, if you really don't know this basic point the search on Mobiot (the environmentalist) and peak oil. He recently declared it dead, and if he's calling it then it is dead. Yes, I know that other environmentalists rushed to denounce him and declare him "debunked", but they hardly count do they.. the other official, recent declaration that readily comes to mind is from citibank analysts
https://www.citigroupgeo.com/pdf/SEUNHGJJ.pdf

If you search on peak oil and dead you will find other material, but basically the oil industry hasn't made much of a fuss about its passing. They've just dropped it. Sections of which did talk about peak oil for a time.

As for the bit about fracking being used in 1947 that's irrelevent.. The basic technology might well have been used, but its modern application where they've worked out all the bugs and problems (which took some doing, as I understand it).. is quite recent. You understand, there is a vast different between using a version of the technology and its full, practical application.. just think Bell using the first telephone and practical, city-wide phone networks..

Now Cameron I hope all that helps.. but peak oil as a concept as gone and its no good complaining to me about it..
Posted by Curmudgeon, Friday, 2 November 2012 9:42:27 AM
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Mark, your view that the peak oil concept is dead seems to be heavily reliant on that old saying that if you hear something three times it must be true. I prefer to let data and logic inform my view on an issue - ideological predispositions are not helpful here.

I am aware of Monbiot's U-turn but could care less. A key report which helped change his view is nothing but industry PR. It is easy to write a report suggesting that oil supplies will be bountiful, tweak an assumption or two here, make up a number or two there. Some links below will expand in detail on this:

http://resourceinsights.blogspot.com.au/2012/07/fool-me-twice-shame-on-me-oil-industry.html

http://energybulletin.net/stories/2012-07-30/monbiot-peak-oil-u-turn-based-bad-science-worse-maths

http://www.davidstrahan.com/blog/?p=1570

http://www.theoildrum.com/node/9327

Obviously journalistic standards in the mainstream media today do not assist the understanding of complex issues such as our energy future. A lack of energy literacy doesn't help either. Ultimately energy is ruled by the laws of thermodynamics not economics. Get your head around that and concepts such as EROI/EROEI/Net energy and we wouldn't even be having this discussion.

Your response to my point about fracking technology misses the point entirely. As I acknowleged in the article the technology has improved significantly. Without sustained high oil prices however (it was only a decade or so ago that The Economist said we would be swimming in oil at a price of US$5 a barrel, whatever happened to that?) tight oil production would in most cases not be viable.

Technology is not energy. Despite the exponential growth in technological capability the oil being found now is in smaller reservoirs, more difficult to get at, of lower quality and as a result more costly. Almost to the point where to bring new production online requires an oil price that is recession inducing.

So we could argue forever about whether peak oil is a real concept or not, but it is largely irrelevant and history will sort that out. Any unblinkered look at our energy future however, suggests that it will be problematic, whether that is oil or renewables (as you pointed out in your recent article).
Posted by leckos, Friday, 2 November 2012 7:34:19 PM
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Cameron

I see by your latest post that you are showing some signs of sense - that's good. Quite so, the concept of peak oil is now largely irrelevent. Good. As for the price, sure its become more expensive of late but not for the reasons you think. The problem is OPEC and their failure to invest in production facilities and exporation - for very good reasons of their own. On this point I recomend James Smith's article in the Journal of Economic Perspectives in 2009.

As for the oil becoming more expensive to extract, sorry but the very same thing could be said about all the resources and prices have been falling in real times (apart from the peak of the past few years). the price issue is an OPEC thing.

Now Cameron I hope that helps but if you knew about Monbiot you should really have made some reference in your article. Peak oil is dead - you should have made some reference to the new peak oil or some such. Leave it with you.
Posted by Curmudgeon, Sunday, 4 November 2012 7:49:07 PM
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