Shale gas row gets nasty

Today Daniel Yergin, author of the seminal oil industry tome ‘The Prize’, wrote in the Wall Street Journal that shale gas is a game changer for US energy. Those who follow natgas will have heard it all before: more advanced and affordable technology, mainly hydraulic fracturing or fracking, has opened up an abundant supply of gas that could satisfy US needs for many, many decades to come. Yergin’s point that this has happened with ‘no great fanfare,’ however, probably stands true for the average person who isn’t an avid follower of energy news.

Shale gas not only promises to relieve the US of a potential energy security headache, but there’s the oft-quoted environmental angle, too: as a source of electricity, natural gas can give off 50 per less CO2 than coal, when burnt in the modern plants. It’s not just for the US, either: suggestions are that Europe and Asia might have huge supplies of shale gas, too (although Yergin notes that development of such resources could be some way off).

But there’s a persistent bunch of doubters about the shale gas story. The explosion in shale gas is new, and the horizontal wells that are being drilled furiously by Chesapeake are widely known to decline in output fairly rapidly after the first 12 months. This has led some respected resource watchers, including Matt Simmons, to voice scepticism that the shale gas is really about to revolutionise supply.

An energy game-changer?: Louisiana shale could change fate of U.S. energy supply

The gas found in the area's Haynesville shale and in other shale formations throughout the country has changed the nation's energy outlook in just a few short years.

Some see abundant North American natural gas as the gateway to reduced dependence on foreign oil and a bridge toward carbon-free energy sources since gas is the lowest-emission fossil fuel.

Others say the surge in next-generation gas production isn't paying off as promised and threatens local water supplies.

Some even see it as another speculative bubble, driven by hype that will never deliver the fuel it promises.

U.S. natural gas rig count climbs 3 to 728 for week

The U.S. natural gas drilling rig count has gained in 13 of the last 15 weeks after bottoming at 665 on July 17, its lowest level since May 3, 2002, when there were 640 gas rigs operating.

But the rig count is still down sharply since peaking above 1,600 in September of last year, standing at 824 rigs, or 53 percent, below the same week in 2008.

Many gas producers have scaled back drilling operations with credit still tight and natural gas prices around $4 per million British thermal units (mmBtu), off nearly 70 percent from July 2008 highs above $13.

The Peak Oil Crisis: $80 a Barrel

The international forecasting agencies are already talking of a jump in demand for oil next year which will put worldwide consumption back in the vicinity of where in was in 2008. Given that the world has only 2 or 3 million (or if you are optimistic 4 or 6 million) barrels a day (b/d) of spare oil production capacity and that it is taking all the industry can do to keep up with the roughly 4 million b/d that depletion is taking away each year, we will see tight oil supplies on of these days.

If this scenario plays out there will be much higher oil prices. We can't have it both ways. It will either be a really deep global recession and cheap gas or some sort of start at recovery and spiking oil prices. Discussions have already started as to what level of oil prices causes serious damage. In the past an inflation adjusted $80 a barrel was a favored recession inducing number as this was the price that seemed to cause recessions back in the 1970s and 80s when Middle Eastern wars and embargos restricted supplies.