Great Scott! It’s “back to the future” for No Hot Air blogger Nick Grealy, as he reflects on the shale revolution and what its opponents fail to see.
I’ve been struggling with producing a forward look at shale for a while, often difficult given the almost weekly changes.
Looking forward, led me to the past. Back in 2010, I published a report which only a few smart people bought, Global Shale Gas, What Now, What Next? The Imminent Global Impact of Abundant Natural Gas. You can find it for free in the library now.
The Shale Revolution in Retrospect
Looking back, I got far more right than wrong, even if global shale has had teething problems. This was the era of peak oil, and even I had never heard of any possible shale gas in the UK.
That was then, and this is still now, in my description of No Hot Air:
Positively Disruptive: We have ideas that turn conventional wisdom upside down, but always positively. We think it’s more important to be right than consistent.
Rationally Optimistic: We think society could be on the verge of something wonderful, in any number of fields apart from our expertise in energy. We want to share the excitement.
Looking through the report, I could be both lazy and show my faith in recycling, by adding a few fancy charts and making much of the same predictions. Here’s the executive summary from almost four years ago for those keeping score:
1. Shale Gas is a generic term referring to the technology of a new form of natural gas extraction pioneered only recently in the USA
2. Shale Gas has led to a stunning increase in actual production of natural gas and assessment of future reserves.
3. The sudden emergence of shale gas is mirrored by a future permanence. In any business, suddenly out of date strategies based on energy as being in short supply, expensive or carbon intense need to be corrected to mirror today’s reality.
4. Production started in the geologic formation called the Barnett Shale under Fort Worth,Texas. Within the first four years of production, the single area produced 6% of entire US production.
5. In 2009, respected US geologists of the Potential Gas Committee increased recoverable reserve estimates compared to 2007 by over 35%.
6. The shale process was originally thought competitive with conventional gas production. It is now considered cheaper.
7. The reality behind shale gas is that actual environmental issues tend to be over-stated.
8. North American success is being replicated worldwide. There are political constraints, but not geologic, environmental or economic ones.
9. The Barnett Shale is now considered the smallest of the eight major shales in NorthAmerica. The Marcellus Shale centred in Pennsylvania, saw reserves estimate go from effectively zero in 2006 to being the second largest gas field in the world by 2009. The impact of the Marcellus, due to both size and location near major cities will be seen as similar to the first oil discoveries in Texas, Iraq and Iran just over a hundred years ago.
10. Shale gas will not only make fears of rising energy insecurity irrelevant, it will make holding those fears one of the biggest risks enterprises can hold today.
11. Discoveries in the US and Canada are large enough that both countries are set to export gas to both Asia and Europe via Liquified Natural Gas tankers from 2014. Combined with existing LNG oversupply, and via the role of gas in generation, gas and power prices will be stable and lower worldwide.
12. Shale gas extraction has both an immediate impact on prices in the UK and Europe and will continue to be a significant trend in Europe, India and especially China.
13. Shale gas will be found in Europe in significant enough quantity to have a permanent impact on energy prices within five to seven years.
14. The subject of shale has already engendered some myths instead of realities addressed in this report. The report details the reality of environmental impact of shale on water resources and the local environment. We point out that many environmental organizations support shale gas as an important, immediate and most of all cheap way of providing a bridge fuel that complements renewables, not competes with them.
15. Exaggerated and unrealistic fears over energy insecurity are the greatest energy risk companies face. Strategies based on rising energy costs and/or fear of shortages or blackouts are outdated, expensive and dangerous.
16. Energy strategies need to be updated to reflect the fast moving, paradigm shifts that shale gas is causing.
17. Shale gas is a true inflection point. Beyond it, everything changes, and for most people,for far the better. Before it, one should consider how many energy experts completely failed to predict shale’s appearance or impact. True experts understand this and are intelligent and astute enough to realise what need to change. Others are unaware, or worse, hostile to the rise of shale due to the impact it will have on revenue streams based on suddenly obsolete theory.
Without wishing to commit the ultimate English sin of non self-deprecation, I got most of it right, being a year off in point 11 (at a time when everyone thought Charif Souki of Cheniere was insane). Charif and I are slightly more solvent these days, albeit him at a level several dozens of magnitudes higher than I.
The Shale Revolution Exceeds Expectations
I highlight now what I said in point 9 about the Marcellus. With 20/20 hindsight it’s easy to forget how far out on a limb I was at the time. I’m happy to climb, not crawl, out on the same limb today for the Bowland Basin, the Baltic Basin and the Sichuan Basin, and yes, the Paris Basin too. I’d put the timescale anywhere between 3 and 10 years depending on location by the way.
Now what about point 13? How close are we to a timeframe of 2015 to 2017 for significant EU shale gas production? I still live in hope and would only push that back a year or two. Ed Morse of Citi made a great point recently:
it now appears that while the tremendous first-comer edge of the United States will continue well into the next decade, it might be foolish to underestimate the rapidity with which the shale revolution could spread even before this decade’s close. Replicating the unconventional revolution is a problem, but it may be easier than conventionally thought.
The Citi report is fascinating not only for their insights on the concurrent revolutions of shale, solar and the displacement of oil in transport, but they also touch on a trend that has slowly developed over the past ten years, even before shale. The trend should be good news, but energy efficiency is turning into a problem instead of a blessing. The world is becoming more and more energy efficient and the problem is not of supply but of demand. We’ve seen the belated response to that develop over the past few days as oil prices take a tumble.
It also explains the misplaced antipathy of renewables and negawatts to shale. According to conventional wisdom, energy is a zero sum game and winners in one area engender losers somewhere else. What renewables and greens fail to recognise is that the death of coal is certain, albeit over a 15 to 20 year time scale. The looming creation of an empty energy space created by the vacuum coal will leave means a lucky chance for gas, renewables and the planet. But renewables have to be smart enough to pick the chance up.
The most glaring error I made, although I made a passing reference, was missing the impact of shale oil. In that I was almost unalone, the trend being a complete secret except from a handful of oil guys anytime before 2009. I would also join company with even the few other shale bulls of the era in making forecasts on both the Marcellus and other shales that at the time seemed fanciful, but ended up embarassingly conservative.
So what is next? As usual, the answer is: It’s complicated. Good news, but hard times, sometimes surprisingly go together. The only thing I will predict is that anyone looking for simple answers will be disappointed.
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