carbonates

Natural Gas from Shale: Emerging Plays

I think your article sums up the potential fairly well. I see shale gas as a game changer that changes several things. It has already had an effect on world gas prices for NGL, because the US import market is failing to materialize. Europe and Japan are indirectly reaping the benefits of US shale gas in the form of lower prices for imports. At some point many shale gas plays will become NGL sources, and I think this is already being planned in the Canadian plays. Shale gas is likely to change markets for gas on most continents, and has potential to create industrialism in currently underdeveloped countries that have limited know resources at present. Because natural gas requires pipeline infrastructure, many companies are currently pipeline prospecting, to find gas in places where it can be marketed easily. That's one reason I don't think the Alaska gas pipeline is going to get built anytime soon.

There are risks, and many companies in the gas shale market are probably doomed to failure in the present market. That does not mean there will not be winners, but not everyone in the game will win. Drilling costs and initial investments in gas shale plays can be huge. Compared to conventional drilling where a well might drain a square mile of land (~260 hectares), many gas shale wells only drain 80 acres (~32 hectares). If short-term gas prices are high enough they can recover drilling costs in a year or two, but the capital to drill enough wells to ramp up production is significantly higher than the cost of a big-hit conventional gas well. Anachronistic leasing practices and bad regulatory policies abound in the gas shale plays that create another problem. Issues with public policy (NIMBYism), reliable sources of water for fracturing, and possible regulatory restrictions coming from the anti-carbon movement are other issues.

By the way, the Middle East is not without its own potential shale gas and the Saudis are already at work.

Overall, I totally agree that gas shale is already a game-changer, but its going to be a wild ride, and without major changes in consumption (demand) patterns natural gas is doomed to be highly cyclical as gas shale players react and over-react to market prices and other forces that keep them drilling even when the economics of individual wells don't make sense. There will be losers, and a few big winners from an investors standpoint.