Does America Have a Stranglehold on This Valuable Resource?

America's natural gas boom has been truly amazing. Since 2006, U.S. gas production has increased 55%, and the result has been a decline in gas prices of 70% since 2008.

This amazing production growth has been thanks to technology such as hydraulic fracturing and horizontal drilling. Its also been due to geological formations such as the Marcellus and Utica shale, whose production has increased 47% annually since 2007 and 165% since 2012, respectively. 

To give you an idea of just how remarkable this growth has been, the Marcellus shale is now single-handedly the world's third largest gas producer, ahead of Qatar and Canada, and just 6% behind all of combined Europe. Analyst firm ICF International expects production for the Marcellus/Utica shale to increase 127% by 2035. 

The benefits of natural gas
Other nations have taken notice of the many benefits of natural gas, including both lower costs and environmental benefits. For example, not only do natural gas power plants generate 50%-70% less CO2 than coal, but according to the World Health Organization, gas kills 40 times fewer people per TWh. In China, the world's largest consumer of coal, coal is 68 times more deadly than gas because of less well regulated mining practices.

The world's shale gas potential 

As this table from the Energy Information Administration shows, the U.S. holds only 9% of the world's technologically recoverable shale gas. So, the question is, with all the benefits of cheap and abundant gas can offer, why hasn't the rest of the world jumped on board the gas fracking bandwagon? As I'll now explain, there are three main categories of problems preventing a global gas boom, reasons that might leave America as the sole shale gas superpower in the coming century. 

Obstacles to an international gas boom
The obstacles to a global shale gas boom can be placed into three categories: legal/regulatory, economic, and geologic/geographic.

In the first category, the U.S. is blessed with highly favorable regulations. According to James Kipp of Wells Fargo Securites, the fact that land owners in the U.S. also own the mineral rights and can lease these rights to private companies is something unique in the world.

In addition, the regulations in the U.S. are designed to incentivize experimentation with new techniques, such as tax breaks that allow for faster depreciation of assets, while those in other countries do not. According to Robert Beck of Anadarko Petroleum, "It's just set up for conventional oil and gas production. There's no way in the traditional production sharing contract that we as an industry can come in and make money."

Meanwhile, in Europe, governments are far more hostile to fracking. For example, sighting environmental concerns popularized in the controversial documentary Gasland, France has made fracking illegal. This is despite the EIA estimating that France contains enough shale gal to provide 80 years of the nation's current gas consumption. 

Thus far, only Bulgaria has joined France in outlawing the practice, but German Environment Minister Barbara Hendricks, has publicly called for such a move. Mrs. Hendrick's reasons for her stance aren't entirely environmental; they are also geographic. "Unlike the USA, our country is densely populated and small,"This brings me to the second category of obstacles, geology and geography. 

America: wide open spaces, lots of water
The United States has been blessed with large, relatively easy geologically exploitable shale formations located in underpopulated areas. We also have the world's largest gas infrastructure, with 1.22 million miles of pipeline -- a number that has quadrupled in just the last six years.

Compare this abundance of infrastructure with China, who, until recently, had the goal of reaching 22%-37% of 2013 U.S. gas production levels by 2020. China's shale gas ambitions may prove impossible to achieve, partially because its pipeline infrastructure is 41 times smaller than that of the U.S., despite being 16% larger in area.

In fact, according to the CIA World Factbook, China currently has only 29,940 miles of gas pipeline. To put that in perspective, Kinder Morgan, America's largest pipeline operator, has 70,000 miles of gas pipelines.

China also has a major water problem, and fracking is thirsty work. Fracking requires an average of 4.4 million gallons of water per well, enough to supply 11,000 American families for a day. 

In fact, China's water shortage is such a problem that the government is worried it might cause power disruption from water intensive coal, nuclear, and gas power plants. To address the issue, the government is in the middle of a 100-year, $62 billion engineering effort call the South-North water diversion project. When complete, it will be the equivalent of diverting the Thames river in London across the width of the United States. 

Bottom line 
All told, the combination of a favorable legal and regulatory framework, vast infrastructure, large water resources, and favorable geology result in U.S. fracking costs per well being 135%-788% cheaper than in other nations. Given that many of these obstacles cannot easily (if ever) be overcome, it is very possible the shale gas boom will prove to be a mostly American affair.

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  • Report this Comment On September 01, 2014, at 7:27 PM, comosichiam wrote:

    If in fact we are in a position to make money for this country we should definitely go for the brass ring why listen to idiots who spew rhetoric about environmental consequences hog was the more jobs we create and the more energy we recover the better for the country.

  • Report this Comment On September 01, 2014, at 7:51 PM, kilroy50 wrote:

    It would seem that *we* have a fuel that OPEC does not. It would seem that the U.S.A. no longer need be dependent upon Arab oil.

    Newsflash, Americans. Natural gas (methane) can be used to run your automobile, cook your meals, heat your house and a myriad of other things that we currently use imported crude oil to accomplish.

    We are (and have been but for the greedy banksters keeping things under their collective hat) able to tell OPEC to take a hike.

    Now that we can be energy independent, the banksters will buy up the natural gas options that they do not already have and quadruple the price with promised biweekly increases until that resource is more expensive than OPEC oil.

    That's good, right? It _will_ after all, make the ultra-rich banksters and their duly purchased politicians even more obscenely wealthy while keeping the serfs (that's the rest of us, folks!) firmly under their economic thumb.

  • Report this Comment On September 02, 2014, at 3:30 AM, AdamGalas wrote:

    Indeed America is blessed with the third largest shale gas deposits on earth as well as the geology and economic realities to maximize those resources.

    As far as environmental concerns, the simple truth is that the benefits of shale gas, from a purely environmental perspective, far outweigh the damage fracking does.

    That's something that environmentalists need to keep in mind as well as all the NIMBYist types who seem to have a problem with any kind of cleaner energy solutions.

    Case in point, in my home state of Alabama, state politicians have out the kabosh on several wind farms with restrictive regulations blocking new wind farms.

    Arguments about environmental concerns regarding new transmission lines are keeping us from replacing dirty coal with clean wind, just as fracking concerns are keeping us from cleaner gas in other parts of the country.

    Kind of like how environmentalists are complaining about how solar projects in California are killing birds and so we shouldn't build those kinds of projects anymore (those kinds of projects have better reasons to oppose than concerns for wildlife).

    The fact is America needs power and no form is perfect. Everything has trade offs and people all too often make the perfect the enemy of the better.

  • Report this Comment On September 02, 2014, at 3:32 AM, AdamGalas wrote:

    Kilroy, I would disagree that the bankers are the ones keeping us on oil. Its the banks that are often the ones lending oil and gas companies the hundreds of billions of dollars needed to build out the massive infrastructure that's making America's gas boom possible.

  • Report this Comment On September 02, 2014, at 3:52 AM, VinceKlortho wrote:

    I once sat next to a guy on a plane who was the captain of a boat that drilled NG wells off the coast of Australia. He said that over the years he had drilled hundreds of wells but at that time the price was very low and few of the wells were in production. I suspect there are more active wells now. He was Australian and an interesting character.

  • Report this Comment On September 02, 2014, at 7:58 PM, AdamGalas wrote:

    According to the EIA the price of US natural gas is expected to rise to $7.6/thousand cubic feet up from $4, now, adjusted for inflation by 2040.

    That rising price will keep up the incentives to increase production.

  • Report this Comment On September 04, 2014, at 4:45 PM, My535 wrote:

    Swapping water for energy, what a deal! Those Europeans might need water but not us Americans.

  • Report this Comment On September 05, 2014, at 11:01 AM, AdamGalas wrote:

    More and more oil companies are using brine (salt water) to frack, so the choice between drinking water and energy is being minimized.

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Adam Galas

Adam Galas is an energy writer for The Motley Fool and a retired Army Medical Services Officer. After serving his country in the global war on terror, he has come home to serve investors by teaching them how to invest better in order to achieve their financial dreams.

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