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The potential for bubbles of shale gas

The operation of shale gas could generate major geopolitical changes: Instead of an increasing reliance on Russia and the Middle East, we would witness an important reshuffling of the cards

Article also available in : English EN | français FR

BP lost at least fifty billion dollars almost a year ago in the Gulf of Mexico.

As the U.S. administration has greatly tightened the requirements for obtaining submarine drilling permits, the British oil company and all its rivals have stepped up their strategy in the northeast of the United States, as well as Texas: the non-conventional energy sources. Amongst those sources, in the foreground we have shale gas.

During the second World Summit held by the International Energy Agency in London in November, the chief economist of the agency, Fatih Birol, reiterated the major and vital importance of this type of energy by 2035. According to forecasts, "10% of the total demand for oil and gas will be met by non-conventional channels, whose available volume is several times higher than that of fossil resources." There is only one major defect, it releases more CO2 (10 to 15% more).

This explains partly why its operation scares in France more than in the U.S., pioneers in the field and where the shale gas - which is actually the gas trapped in shale, the most widespread sedimentary rock on the planet and similar in appearance to slate - accounts for 15 to 20% of total production. The sharp drop in prices was a major selection criterion for consumers. In fact, prices declined from 13.69 dollars per million British thermal units (BTU, the unit of calculation) to 3 or 4 dollars in recent months. In France, the permits were suspended by the government after environmental groups have warned against the danger for ground-water and the need of water.

Total & co will have to wait, knowing that the licenses granted in the Hérault, in the Lozère, in the Drome and Ardeche could account together for ten to twenty times the annual gas consumption in France.

Beyond the legal and psychological barriers, France and Europe as a whole (including Poland, Switzerland and the United Kingdom) are suffering from a lack of suitable facilities. According to Oswald Clint, an analyst at Sanford Bernstein, "only 74 suitable rigs exist in Europe against an estimate of 1500 in the United States", he explained at the last conference on unconventional gas, held London

For now, the trading volume on different exchanges (Nymex in New York; NBP in London; TTF in Amsterdam) is close to that of other natural resources. As the product is relatively new, the taxation is low and there are significant price changes. The EU also plans to create a single market to streamline trading.

The lack of fundamentals in the markets could create issues in the short term, as it happened in France - in leading the authorities to regulate, which could affect the large-scale acquisitions.

According to Baker Institute’s Kenneth Medlock, the operation of shale gas could generate major geopolitical upheavals: "The use of technologies in Europe and Asia similar to the ones in use in the United States should substantially change the offer of shale gas. Instead of an increasing reliance on Russia and the Middle East, we would witness an important reshuffling of the cards. The strength of Gazprom could thus be seriously weakened in the negotiation phases. Shale gas has caused an upheaval of the North American natural gas market. Each actor must carefully follow future developments."

The major oil companies continue to increase their exposure to shale gas, despite the current unfavorable market conditions. As technological advances have made the operation possible, billions of dollars have been continuously spent these last years. Among the main agreements in recent months we have the purchase of XTO Energy by ExxonMobil for $ 41 billion, which helped create the largest U.S. gas producer; We can also mention BP’s acquisition of holdings in Chesapeake Energy for 1.75 billion dollars, a significant agreement given the fact that British Petroleum is normally involved in an extensive program of selling assets and this is an exception.

One of the main areas of exploration is that of Marcellus Shale in north-eastern United States. But such areas exist around the world, in South America, China, India, Australia, Germany, Sweden and Poland.

JH , March 2011

Article also available in : English EN | français FR

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