Crude, natural gas from shale means more than ample supply.

Author:Freedenthal, Carol
Position::FROM THE BURNER TIP
 
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Call it a revolution--an energy revolution! The new supplies of natural gas and crude oil that are coming from shale deposits have a greater meaning than just ample supply for an energy-hungry world. Its overall impact will change transportation and distribution infrastructures, it can change a country's overall energy balance and in all likelihood, it will change the economics of oil and natural gas!

Hydrocarbon production from shale reservoirs is not really new. Some of the earliest oil productions were shale plays. What is new--thanks to some drilling and production techniques like horizontal drilling and "hydraulic fracturing"--the technique to get the oil and gas to flow--is that production from shale reservoirs is profitable and economically sound.

While various programs to enhance shale development were pushed by industry groups and the government, the breakthrough came in 1997 when Mitchell Energy, now part of Devon Energy, helped develop the Barnett Field, a shale play in North Texas. Growth in both natural gas and crude oil production has been good and expectations remain high.

The federal Energy Information Administration (EIA) projected in 2013 that U.S. natural gas production will rise from 23 Tcf in 2011 to 33.1 Tcf in 2040, a 44% increase. Almost all of this domestic increase comes from shale gas production which is seen rising from 7.8 Tcf in 2011 to 18.7 Tcf in 2040.

Like natural gas, U.S. crude production has seen a significant boost from shale resources. So much that U.S. crude production is projected to surpass Saudi Arabia by 2017 as the world's largest oil producer.

A decade ago the U.S. was building terminals to import liquefied natural gas (LNG) to bolster its domestic supply but today, it is building terminals to export natural gas because of the excess supply coming from shale-derived production. The increased natural gas supply has many benefits. One of the biggest as well as the most obvious is the change in energy economics. Oil has been relatively stable even in light of the turmoil in the Middle East and natural gas prices, which were rising a few years ago, have dropped and are much more stable.

Crude oil prices have stayed in the S100/B (Cushing prices) range for the last three to four years. Natural gas prices (Henry Hub) which peaked in 2007 at close to $9/MMBtu have been in the $3-4 range for the last four years.

Along with the economic potential from the increased supply, there are many geopolitical...

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