Shale gas development and its impact on global energy markets

Shale Gas

As the world, and the billions of people it supports, continues to evolve, new and important ways of delivering energy are needed to keep up with these changes and provide a safe and secure environment. Technology, reason and knowledge all contribute to these process of finding new ways of doing things that are more suitable for the times we live in. Energy is at the source of all we do and how attain, spend and share our energy resources reveals much about the human condition and much can be learned from how this practice is undertaken by humanity and how it affects the environment and society.

The energy market presents a very interesting and worthwhile case for investigation. As technology and energy modes have transformed over the decades, methods of delivering energy have also altered as well. The growth of the energy markets worldwide have also produced other consequences because of the enormity of the undertaking. For this reason it is important to keep investigating and looking for new and better ways of delivering energy resources to the world to maintain a high quality of living standards while encouraging a balanced and reasonable attitude.

The purpose of this essay is to describe one such application of the energy market in the development of shale gas. This essay will discuss the development of shale gas and its influence to the world's energy market. In this investigation, the impacts and unintended consequences of this form of energy will also be highlighted and contextualized to bring a clearer picture on what shale gas actually is and what exactly this technology can provide for humanity and its ever growing energy needs.

This essay will first look at shale gas from a historical perspective and investigate how the development of energy and energy markets significantly influenced this technology. The next section will examine shale gas specifically and how this relatively new technology has made significant headway since its implementation. The essay will also discuss the many problems and issues that accompany shale gas such as the public backlash to fracking and environmental destruction. The essay will then examine how energy markets are affected by this growth of shale gas both domestically and internationally. The essay will conclude by summarizing the points and bringing the argument to an understandable point of reference.

The History of Natural Gas Within the Energy Market

Regulation of the natural gas industry in the United States has always been a bumpy ride, as many vying interests clash about profits and markets. This has resulted in dramatic changes in the industry over the past three decades or more years. Today, competitive forces are being relied upon more heavily to determine market structure and operation. However, this has not always been the case. Almost all aspects of the natural gas industry were regulated at one point, a situation which led to tremendous difficulties in the industry, including the natural gas shortages experienced in the 1970s.

According to the American Public Gas Association (APGA), "Naturally occurring natural gas was discovered and identified in America as early as 1626, when French explorers discovered natives igniting gases that were seeping into and around Lake Erie. In 1821, William Hart dug the first successful natural gas well in the U.S. In Fredonia, New York. Eventually, the Fredonia Gas Light Company was formed, becoming the first American natural gas distribution company." Ever since that time, those wishing to gain profits over others have sought this natural commodity to sell and distribute.

During the 1800's natural gas was used almost exclusively as a source of light but in 1885 Robert Bunsen invented a burner that could process and burn this gas in new ways. The Bunsen Burner opened many new avenues and uses for natural gas and in the coming years it would soon become a more important resource not only domestically, but around the world as well. The Bunsen Burner now allowed natural gas to be used in cooking and heating applications making the product indispensible and very profitable when captured and processed in an effective and efficient manner.

In 1938 the market fundamentally changed when the American Congress passed the Natural Gas Act. "The Act gave the Federal Power Commission (FPC) jurisdiction to regulate the transportation and sale of natural gas in interstate commerce. The FPC was charged with regulating the rates that were charged for interstate natural gas delivery and with certifying new interstate pipeline construction if it was consistent with the public convenience and necessity, " (APGA, 2004). In the 1980s there were great pushes for deregulation in many areas that were previously regulated and natural gas was targeted by those who saw an opportunity to make substantial profits in this industry.

In 1989, Congress completed the process of deregulating the price of natural gas at the wellhead, which was begun in 1978 with the passage of the Natural Gas Policy Act, by passing the Natural Gas Wellhead Decontrol Act (NGWDA). The NGWDA repealed all remaining regulated prices on wellhead sales. In the current federal regulatory environment, only interstate pipelines are directly regulated as to the transportation of gas in interstate commerce. Investor-owned local distribution companies (LDCs) are typically regulated by state public service commission's regarding the services they provide. Natural gas producers and marketers are not directly regulated by the federal government as to rates and related matters. Interstate pipeline companies are regulated regarding the rates they charge, the access they offer to their pipeline facilities, and the siting and construction of new pipelines. Similarly, local distribution companies (excluding most municipally owned public gas systems) are regulated by state public service commissions, which oversee their rates and construction issues, and ensure that proper procedures exist for maintaining adequate supply to their customers.

Today, the natural gas industry is regulated by the Federal Energy Regulatory Commission (FERC). While FERC does not deal exclusively with natural gas issues, it is the primary rule making body with respect to the regulation of the natural gas industry. Competition characterizes the natural gas industry as it is known today. The restructuring of the industry, and the move away from strict regulation, has allowed for increased efficiency and technological improvements. Natural gas is now being obtained more efficiently, cheaply, and easily than ever before. However, the search for more natural gas to serve our ever growing demand requires new techniques and knowledge to obtain it from hard-to-reach places.

The natural gas industry has existed in this country for more than 150 years, and it continues to grow. Restructuring and the move toward cleaner-burning fuels have created an enormous market for natural gas across the country. Technologies are continually being developed that allow Americans to use natural gas in new and exciting ways. And new production techniques now allow us to produce natural gas from shale formations. With all of the advantages of natural gas, it is no wonder that it has become the fuel of choice in this country, and throughout the world.

Overall the energy market has been shaped by institutions. Throughout the majority of history, America has been regulated by both antitrust law and public utility law. Antitrust laws are seen more in the oil side of energy markets, where natural gas is mostly managed by public utilities. Regulation has historically been about preventing abuses and promoting fair and profitable competition. As the energy markets continue to grow in strength, size and sophistication, tradition has fallen by the wayside and new methods, markets and approaches have become necessary as dictated by the times we live in.

By understanding and realizing how the situation has developed is useful in applying the right arguments and ideals when discussing the shale gas industry and how it fits within the larger scheme of things. As the evolution of the energy markets continue to evolve and unfold, the lessons of the past can be helpful in avoiding mistakes and developing wise approaches to problems that are very important to the entire energy consuming public.

Shale Gas and Its Revolution

Brooks (2011) wrote "The shale gas revolution challenges the coal industry, renders new nuclear plants uneconomic and changes the economics for the renewable energy companies, which are now much further from viability. The inherent risks can be managed if there is a reasonable regulatory regime, and if the general public has a balanced and realistic sense of the costs and benefits." Shale, when properly processed can produce energy in ways that has fundamentally shifted the way that we view the industry and how the market is developed.

Stevens (2012) described how these developments and changes have impacted the business by laying out several key arguments. He claimed that the shale gas revolution that is occurring in the United States has essentially created an oversupply of liquefied natural gas and has seen the price in the commodity drop substantially. Shale itself is recovered and processed in debatable ways and the term fracking has put a negative connotation on the practice due to the environmental strain that is produced from the execution of this process.

The growing opposition to the shale gas industry has conflicted with the need for domestic independence on energy and a reasonable debate is understandably created. Like a Pandora's box, a great and helpful technology has been afforded to the people of this country in the form of hydraulic fracturing, however this technology must be tempered in order for the true and real benefits to be realized. Debate and opposition on this topic is welcomed and will produce a situation where many interests have been heard and incorporated within the argument. " if the hype turns into reality, then the world energy markets can look forward to floating on clouds of cheap gas, certainly up to 2030, if not beyond, " (p.10).

There is a great deal of literature extant on this topic and is worth exploring to gather a finer appreciation for what is at stake in this shale gas revolution. Seeing both sides, or the multiple sides, of this idea is important to help develop a picture of this technology that produces the most predictable and effective results. Since the industry is composed of many differing professions, such as geology, sales, business and logistics, there are many factors to consider when weighing the totality of the entire situation.

Wisniewski (2011) explored some of the general points of the debate in his argument. He suggested that fast rise of shale gas can be expected to continue due to the profitability that hydraulic fracturing of shale produces. In other words, the business is good and looks good for the future and therefore the means justify the ends. This argument exploits the economic argument for the practice based on strictly commercial figures. He wrote "Perhaps crucially, shale gas is expected to offset the decline in the production of conventional deposits (both onshore and offshore) and the stagnation of output from other so-called unconventional pockets of natural gas (tight gas and coal-bed methane). Once the pace at which estimates about the actual or potential size of shale deposits have been recalibrated is factored in, the role of shale gas can be expected to rise even further."

Aladeitan & Nwosu (2013) explained a different perspective. These authors being from Canada highlights the importance of this issue as the global impact of this practice are undeniably formidable. They wrote "Although shale gas development raises critical legal and environmental challenges, yet its development seems set to take the global energy world in a revolutionary way. The effect of this gradual but sweeping revolution carries with it gains and pains. Gains are for those who traditionally were classified as importing countries and pains for the exporting countries in terms of loss of revenue."

Cheap energy allows business to produce goods and services and a more efficient and effective rate. Shale gas may be the key to regaining economic solvency after a global economic depression. The temptation to look at this source as a saving grace is very promising, but once again must be put into perspective with the negative side effects that accompanies such a potent and impactful tool. Bullis (2013) agreed with this idea when he wrote "The impact of cheap natural gas on manufacturing could extend beyond the production of various chemicals. Using natural gas as an energy source, rather than a chemical feedstock, could significantly lower costs for manufacturers who use a lot of energy, such as steel makers. Overall, cheaper chemicals, cheaper steel, and cheaper transportation could make the U.S. A far more attractive place for a wide range of industries."

The U.S. Energy Information Administration revealed the importance of shale gas for the future of America in their Annual Energy Outlook for 2013. The emphasis for America to become energy independent and ultimately a net exporter of energy is well within the goals and capabilities for this country according to their opinions. Shale gas plays a very significant role in this process and is necessary for this growth. The report stated "Higher volumes of shale gas production are central to higher total production volumes and a transition to net exports. As domestic supply has increased in recent years, natural gas prices have declined, making the United States a less attractive market for imported natural gas and more attractive for export. Relatively low natural gas prices, maintained by growing shale gas production, spur increased use in the industrial and electric power sectors, particularly over the next decade, " (p.15).

Shale producing natural gas has great benefit for many reasons which is why its proponents are headstrong about incorporating the risks that derive from these efforts. Natural gas is the cleanest burning fossil fuel. The costs to the environment which will be discussed, are not as damaging for shale gas supporters. Stevens (2012) wrote "Results from recent studies indicate that the impact on climate of shale gas is only slightly higher in comparison with conventional natural gas and significantly lower than coal, when currently available best technologies are used."

Hydraulic Fracturing makes it possible to produce oil and natural gas in places where conventional technologies are ineffective. To many it appears, that fracking has potentially unlocked massive new supplies of oil and clean-burning natural gas from dense deposits of shale, supplies that dramatically give rise to our country's energy security and improve the globe's ability to generate electricity, heat homes and power vehicles for generations to come. Hydraulic fracturing has also improved local economies by substantially generating royalty payments to property owners, providing tax revenues to the government and creating much-needed high-paying American jobs. Engineering and surveying, construction, hospitality, equipment manufacturing and environmental permitting are just some of the many different professions experiencing the positive ripple effects of increased oil and natural gas shale development.

Market Implications

Money and markets drives the world's actions and reactions in today's society and it is essential that this aspect of shale gas is understood in order to fully grasp the totality of the situation. The domestic market implications are very great for America and its ability to successfully and safely extract natural gas from shale sources and the impacts on the way we live are immense. Since most conflict and war is fought over resources and power, shale gas allows the nation as a whole to either benefit or suffer at the hands of its success.

The U.S. Energy Information Administration's Annual Energy Outlook 2013 presented some enlightening information about the U.S. And its natural gas situation. In this report it was stated "Shale gas production, which grows by 113% from 2011 to 2040, is the greatest contributor to natural gas production growth. Its share of total production increases from 34% in 2011 to 50% in 2040." There are high hopes riding on shale's ability to assist in making natural gas a predominate energy source in the next few decades and this report demonstrated the reliance on this product in the future.

Shale gas brings levels of independence to the United States and allows the country to not have to worry about international affairs when dealing with energy problems. Since the market is a global, force, the domestic market cannot be uninfluenced by other global pressures, however the freedom that comes with energy independence provides economic and sustained growth.

There is much optimism for the growth of American economy due to this energy resource. Makan & Hume (2013) agreed with this argument and suggested that a gas boom will assist the U.S. In making strides in gaining competitive advantage in certain markets. They wrote "The shale gas boom will boost U.S. manufacturing and jobs until at least 2035, the world's most respected energy body predicted yesterday, reinforcing America's economic edge over Asia and Europe for the next two decades. We will see manufacturing industry in the U.S. flourish. U.S. companies will enjoy a competitive advantage and increase their market share in terms of exports," said Fatih Birol, chief economist at the IEA."

Shale gas must not be over relied upon as a panacea to cure all ills. The success of shale gas extraction must be tempered with environmental concerns. Too often greed leading to corruption will spoil a good thing and it is essential that respect, balance and patience are applied to the situation by leaders within the industry. Achieving too much too fast is often dangerous and the side effects from such haste aren't often felt until later down the road. Domestic capitalization of this energy source will require discipline and a steady will to guide and lead the market into a profitable promised land.

Although there are strong voices supporting the domestic market implications of this technology, there are also detractors who suggest that this process is not as lucrative as it may seem. With the expected result of lower energy costs that hydraulic fracturing of shale sediment brings, energy itself cannot spur on an economy. Energy for the sake of energy is quite useless and a directed purpose is needed for this energy to be properly applied to see any real manifested benefit or result.

Hagerty (2013) summed up the problems that shale gas presents by appearing to be a cure-all. He wrote that "still, the price of natural gas is only one factor manufacturers consider when deciding where to locate plants. Taxes, labor costs and skills, regulation and government incentives also figure into the mix. Perhaps the biggest factor is long-term demand for goods. The biggest growth in demand is still expected to be in China, India and other emerging markets. Global companies typically want to locate production near their biggest customers."

The environmental and social stigmas attached to fracking also present real and significant danger to the guaranteed growth of the market. Other energy markets such as oil, solar and other renewable or green technologies have a vested interest in seeing that the shale gas market is limited in its reach. The threat of shale's success makes them a target for all others wishing to compete in the market and will be no doubt attacked in many different ways and forms.

Yerign (2014) summed up the present situation for the outlook of domestic growth of this energy market pertaining to shale gas. He argued that this technology is the most important development in many decades and has reestablished America has a dominating economic force. He argued "The rise of U.S. shale energy is also having a broader global economic impact: American shale gas is changing the balance of competitiveness in the world economy, giving the U.S. An unanticipated advantage. Indeed, inexpensive natural gas is fueling a U.S. manufacturing renaissance, as companies build new plants and expand existing facilities."

The focus from domestic markets to global markets is complex and sophisticated when dealing with energy and specifically shale gas technology energy sources. The geopolitical balance of power is at stake when such a game changing technology like hydraulic fracturing of shale gas is available. Those countries who can maintain energy independence put themselves at a significant advantage over other countries with access to such resources.

The EAI produced another compelling argument suggesting the importance of this resource in determining the political structure of the globe. The reported noted "Unlike an earlier EIA-sponsored study that focused exclusively on natural gas, the new world shale assessment includes shale oil, which has recently been produced in significant volumes in the United States. In addition, more and better geologic information has become available for shale formations located outside the United States, in part because the earlier report stimulated new work on shale resources in many countries (e.g., Algeria, Argentina, and Mexico)." Additionally other nations are hot on the trail of this technology looking to capitalize on this trend especially China.

The economic threat that China presents to the United States and its allies is great due to the natural resources and nationalistic mentality that has kept that group of people for centuries throughout the ages. China's ability to produce sustainable energy from shale gas is foreboding for many American investors and economists. Guo (2014) suggested that "China, which sits on the world's largest shale reserves, may exceed its 2015 output goal, as a new project in the nation's southwest and the promise of fresh investment leave government targets looking outdated. While China's reserves are almost double that of the U.S., its production target is meager compared to U.S. output in 2012 of 266 billion cubic meters. High costs, difficult terrain and lack of infrastructure have stunted development and cast doubt on whether even its existing targets could be met. As concerns over coal-fired pollution mount, the nation is pushing harder to unlock its potential shale bonanza."

It appears there is a significant challenge to many aspects of maintaining energy independence through shale gas technology and while China poses a serious threat it is not the only one. Perhaps a new age has arrived that will allow all countries to be independent from other sources for energy making the technology truly revolutionary. Shale gas could indeed eradicate the entire energy market at some point and energy is transformed into something much more like a free commodity like air and water.

Conclusions

The large and wide spanning topic of shale gas and its impact on many facets of the economic and social order of the world is quite overwhelming. As it stands today, there is much to be learned about the technology and it can no doubt be improved. What is most important in the idea of this technology is that it is used with a useful and productive purpose that is aligned with larger and more humanitarian goals. Economic markets and competitive advantages are all up for grabs in this present time as the evolution of hydraulic fracturing and the benefits it brings are being developed.