Shale of the century

AMERICA'S “unconventional” gas boom continues to amaze. Between 2005 and 2010 the country's shale-gas industry, which produces natural gas from shale rock by bombarding it with water and chemicals—a technique known as hydraulic fracturing, or “fracking”—grew by 45% a year. As a proportion of America's overall gas production shale gas has increased from 4% in 2005 to 24% today. America produces more gas than it knows what to do with. Its storage facilities are rapidly filling, and its gas price (prices for gas, unlike oil, are set regionally) has collapsed. Last month it dipped below $2 per million British thermal units (mBtu): less than a sixth of the pre-boom price and too low for producers to break even.

Those are problems most European and Asian countries, which respectively pay roughly four and six times more for their gas, would relish. America's gas boom confers a huge economic advantage. It has created hundreds of thousands of jobs, directly and indirectly. And it has rejuvenated several industries, including petrochemicals, where ethane produced from natural gas is a feedstock.

The gas price is likely to rise in the next few years, because of increasing demand. Peter Voser, the boss of Royal Dutch Shell, an oil firm with big shale-gas investments, expects it to double by 2015. Yet it will remain below European and Asian prices, so the industry should still grow. America is estimated to have enough gas to sustain its current production rate for over a century.

This is astonishing. Barely five years ago America was expected to be a big gas importer. Between 2000 and 2010 it built infrastructure to regasify over 100 billion cubic metres (bcm) of imported liquefied natural gas (LNG). Yet in 2011 American LNG imports were less than 20 bcm. Efforts are now under way to convert idle regasification terminals into liquefaction facilities, in order to export LNG. Plans for a terminal in Sabine Pass, Louisiana, are expected to be approved in June.

The shock waves of America's gas boom are being felt elsewhere. Development of Russia's vast Shtokman gasfield, in the Barents Sea—a $40 billion project which was intended to supply America with LNG—has stalled. Qatari LNG, once earmarked for America, is going to energy-starved Japan. Yet a bigger change is expected, with large-scale shale-gas production possible in China, Australia, Argentina and several European countries, including Poland and Ukraine.

Last year the International Energy Agency released a boosterish report entitled “Are we entering a golden age of gas?” On May 29th it released a follow-up, from which it dropped the question-mark. It foresees a tripling in the supply of unconventional gas between 2010 and 2035, leading to a slower price rise than would otherwise be expected. It expects this to boost global demand by more than 50%.

Free to frack in America

Not everyone is so bullish. America's shale-gas boom was fuelled by a coincidence of factors: “open access” pipeline regulation, which inspired wildcat exploration; abundant drill-rigs and other infrastructure; and strong property rights, whereby landowners own the rights to minerals beneath their holdings. Few of these conditions exist elsewhere.

Europe has a good pipeline network, which in theory is open to all. Yet the pipes get tied up years in advance. European landowners typically do not own the minerals under their land, so they have little incentive to encourage exploration. Also, Europe is crowded, so its NIMBYs are noisy.

China has a different sort of problem: a shortage of water, of which millions of gallons can be required to frack a single well. The Argentine government's recent decision to grab control of the country's largest oil firm, YPF, will scare off the foreign investment its shale industry needs.

Such hurdles will make the pace, and perhaps scale, of America's boom hard to equal. And even a big increase in supply might not bring down the European gas price much. Unlike the price in America, it is tied to the oil price, thanks to long-term Russian and Norwegian export contracts.

Shale-gas producers also face opposition from greens, who object to the industry's heavy water usage and a small risk that fracking could lead to contamination of aquifers and even to earthquakes. There is also a risk that large amounts of methane, a powerful greenhouse gas, could escape during shale-gas exploration and production. The IEA estimates that shale-gas production emits 3.5% more than conventional gas, and 12% when it involves venting excess gas. France and Bulgaria have banned fracking; American and Australian anti-frackers are also rallying.

The greens have a case, but they exaggerate it. So long as well-shafts are properly sealed, there is hardly any risk that fracking will poison groundwater. By eliminating venting, methane emissions can be kept to an acceptable minimum. And the risk of earthquakes, which has long been present in conventional oil-and-gas extraction, is modest and mitigated by monitoring. The IEA says such precautions would add 7% to the cost of a shale-gas well—a small price for a healthy industry.

But they would not address the big problem with shale gas and all fossil fuels: the global warming they cause. Without a serious effort to boost renewable energy and other low-carbon technologies, the IEA envisages warming of over 3.5°C. That could be unaffordable.