En­ergy

The Shale Gas Revo­lu­tion: is it al­ready over?

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The “shale revo­lu­tion” has been of­ten touted as a game changer in en­ergy pro­duc­tion. In­deed, dur­ing the past few years, the in­creas­ing pro­duc­tion trend of shale (or “tight”) gas in the US has gen­er­ated a wave of op­ti­mism in­vad­ing the me­dia and the Web. How­ever, not ev­ery­one has joined the cho­rus and sev­eral com­men­ta­tors have pre­dicted that the trend would be short lived Some have flatly stated that the ef­fort in gas pro­duc­tion in the US is sim­ply a fi­nan­cial bub­ble, des­tined to de­flate soon. Some, such as R. P. Siegel even ar­gue that the burst­ing of the gas bub­ble might bring about a fi­nan­cial col­lapse not un­like the one of 2008.

While the op­ti­mism about the fu­ture of nat­u­ral gas seems to be still preva­lent, the data show that the gas bub­ble may be al­ready burst­ing. The most re­cent data from EIA (9) show that that the to­tal US gas pro­duc­tion has not been grow­ing for the past 1-2 years and that it shows signs to be de­clin­ing. Fit­ted with a Gauss­ian curve, it shows a peak tak­ing place.

The de­clin­ing trend is not yet very pro­nounced and spe­cific data about shale gas pro­duc­tion af­ter 2011 are not avail­able in the EIA site. How­ever, since the pro­duc­tion of con­ven­tional gas has been de­clin­ing since 2007, the pro­duc­tion of shale gas may not be de­clin­ing yet, but it is surely not grow­ing any more at the rates that were com­mon just a few years

ago.

In any case, there are data in­di­cat­ing that the decline of to­tal gas pro­duc­tion in the US was ex­pected. Drilling rigs for gas has been plum­met­ing down dur­ing the past few years, as shown in the fol­low­ing fig­ure

Ob­vi­ously, one can’t ex­tract any­thing with­out hav­ing drilled first to find it. Since the life­time of shale gas wells is of the or­der of a few years, it was un­avoid­able that the drop in the num­ber of gas drilling rigs would gen­er­ate in a pro­duc­tion decline; which is what we are see­ing to­day.

Ba­si­cally, th­ese data seem to con­firm the in­ter­pre­ta­tion that we are fac­ing a fi­nan­cial “gas bub­ble”, rather than a ro­bust trend of devel­op­ment of new re­sources. The gas glut pro­duced by the rush to gas of the past few years has low­ered prices to the point that com­pa­nies have been ex­tract­ing gas with­out mak­ing any profit, ac­tu­ally los­ing money in the process . That couldn’t last for­ever.

In the near fu­ture, the decline in gas pro­duc­tion in the US may lead to an in­crease in prices which, in turn, may di­rect the in­dus­try to restart drilling for gas. But it re­mains to be seen if prices high enough to gen­er­ate a profit are af­ford­able for con­sumers. In any case, the idea of a “gas revo­lu­tion” that will bring for us an age of abun­dance is rapidly fad­ing.

In the end, what we are do­ing with gas is sim­ply one more step along a path that we are forced to fol­low. With the grad­ual dis­ap­pear­ance of high grade min­eral re­sources, we must ex­tract the min­er­als we need from lower grade re­sources, and this is more ex­pen­sive and more pol­lut­ing. That’s ex­actly what hap­pen­ing with gas but it is much more gen­eral. As de­scribed in the most re­cent re­port of the Club of Rome, the grad­ual de­ple­tion of high grade min­eral re­sources is lead­ing us to a world where min­eral com­modi­ties will be rarer and more ex­pen­sive. We will have to adapt to this.

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