Shale Gas - A Potential Game Changer

Posted on May 06, 2013
Posted By: Kirk Edelman

Pick up a newspaper, turn on the radio or tune into the nightly news broadcast and you're bound to hear a reference to shale gas and its impact on the shifting global energy map.  “The United States is enjoying an energy bonanza thanks to shale gas, making it a magnet for industry, reducing import dependence and challenging Europe as it battles to dig itself out of recession," wrote Reuters's Alexandra Hudson this February.  The International Energy Agency (IEA) forecasts that natural gas could eventually displace oil as the largest single fuel in the U.S. energy mix by 2030.  Predictions such as these make it clear that shale gas is one of the most rapidly expanding trends in domestic oil and gas exploration and production, however, it should be noted that the U.S. shale gas boom is still in its relative infancy and certain questions remain.

Shale gas refers to gaseous hydrocarbons that are trapped in fine-grained sedimentary rock.  Directional drilling techniques combined with hydraulic fracturing (or fracking) allow greater access to reserves in shale basins.  Studies estimate that up to 80 percent of natural gas wells drilled in the next decade will require hydraulic fracturing to properly complete well setup.  However, at this time there is continued debate over the potential impact of this activity on the environment, particularly groundwater contamination. 

The hydraulic fracturing process has revitalized the U.S. oil & gas industry and has helped increase employment in the sector by 53% over the last 7 years, according to the American and Common Wealth Foundation.  The World Economic Forum has recently released an updated study on energy and economic growth in the U.S., which shows that shale gas is essential to both:  The shale gas industry alone employs 600,000 people in this country and the oil and gas sector is projected to grow at 6.9 percent through 2015.  Technologies developed to produce shale gas have been transferred to the production of oil-rich shales with great success.  In addition to further expanding employment opportunities, the transfer of these advancements offers the U.S. access to cheaper domestic oil and could reduce the need for imports from the Middle East.

Shale gas also presents many opportunities to those offering project financing solutions.  As the country continues to shift away from coal and towards natural gas as fuel for new power stations, financing will be needed to support the development of these natural gas-fired power plants.  Financing will also play an important role in developing the necessary infrastructure for the U.S. to export natural gas in the form of liquefied natural gas (LNG).  Matthew Brown of Bloomberg commented in January that “As many as 16 applications for LNG export projects from Texas to Maryland and Oregon are being considered by the U.S. Department of Energy...Buyers from Tokyo to London are seeking supplies in the U.S., where prices are less than a third of those in Europe and a fifth of Asian costs."  For these purposes, large, capital-intensive gasification facilities, pipelines and vessels need to be constructed to support the expansion of the LNG industry. 

Overall, the development of shale gas on a global basis has the potential to boost worldwide gas supplies and help reduce market costs.  For the U.S., the shale gas boom is still perhaps only a potential game changer, however, if realized, the economic benefits will be significant.

Authored By:
Kirk Edelman is the chief executive officer of Siemens Financial Services' (SFS) Project and Structured Finance - Energy business, where he leads energy investing activities worldwide. He manages the activities of a global team that provides financial solutions throughout the capital structure - from debt to equity – in support of the energy industry.Kirk has more than 20 years of experience focusing on energy, natural resources and infrastructure finance. Prior

Other Posts by: Kirk Edelman

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June, 26 2013

Ferdinand E. Banks says

The hydralic fracturing process has NOT revitalized the US oil industry, at least not yet. It may have done this for the gas industry, but we will have to wait a while to Before we get the bottom line. What I will say on that however is that some very strange things have happened on the shale scene. Makes me think that certain people are trying to play games with the rest of us..

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