The Impact of Shale Gas

abarrelfullabarrelfull wrote on 31 May 2010 17:25

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The Wall Street Journal has a good article about the impact of Shale Gas on energy, economics and politics.

Huge discoveries of natural gas promise to shake up the energy markets and geopolitics. And that's just for starters.

Among its claims:

Ending cartels

the rise of gas power seemed likely to doom the world's consumers to a repeat of OPEC, with gas producers like Russia, Iran and Venezuela coming together in a cartel and dictating terms to the rest of the world. The advent of abundant, low-cost gas will throw all that out the window

Slowing Renewables

The shale boom also is likely to upend the economics of renewable energy. It may be a lot harder to persuade people to adopt green power that needs heavy subsidies when there's a cheap, plentiful fuel out there that's a lot cleaner than coal.

Even changes in China's Foreign Policy

The less vulnerable China is to imported oil and gas, the more likely it would be to support sanctions or other measures against petro-states with human-rights problems or aggressive agendas. Moreover, the less Beijing worries about U.S. control of sea lanes, the easier it will be for the U.S. and China to build trust. So, domestic shale gas for China may help integrate Beijing into a Pax Americana global system.

For what its worth, I think that these things are emminently possible. However, I think that the biggest impact of this new embarrassment of riches will be on Fuel Oil and heating oil.

Much commentary is on replacing coal in electricity generation. However coal has very powerful lobbys, not least the unions, whereas the losers from a switch away from oil to gas are not so endowed. Moreover, the winners and losers overlap to some extent.

The most illogical use for oil is in heating and electricity generation. As a vehicle fuel it has no competitor, unless the pitch is queered. Even before the Shale revolution, fuel oil was fast being replaced by natural gas. Now that change is likely to be even faster.

This poses a challenge for refiners, which facing a challenging time are cutting back on investments. Yet unless they increase their ability to crack the bottom of the barrel, natural gas is going to eat their lunch. For oil producers, it will create downward pressures on prices.
So whilst shale gas is good for some in the industry, it will create as many problems as opportunities and like all revolutions will see losers as well as winners.

Hat Tip: Shale Blog


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