Shale Gas: Hope for Our Energy Future

You probably have never heard of oilman George Mitchell, but more than anyone else, he has changed the global energy outlook. In 1981, Mitchell's small petroleum company faced dwindling natural gas reserves. He proposed a radical idea: drill deeper in the company's Texas fields to reach gas-bearing shale rock more than a mile down. Because the gas was tightly packed, most engineers believed it was too costly to extract profitably. But after nearly two decades of trying, Mitchell proved doubters wrong. The result: The world has far more available natural gas than anyone suspected.

The BP oil spill cast a cloud over almost all energy news. Well, shale gas is good news. Here's why.

Until recently, scarce U.S. natural gas reserves suggested increasing dependence on expensive foreign supplies of liquefied natural gas. No more. Also, natural gas emits about 50 percent less carbon dioxide—the major greenhouse gas—than coal. Substituting gas for coal in electricity plants could temper emissions. Finally, shale gas in Europe and Asia has huge geopolitical implications. It could reduce dependence on Russian natural gas and frustrate any gas cartel mimicking OPEC.

How much shale gas exists is unknown, but estimates are huge. The Potential Gas Committee is a group of geologists who regularly estimate future U.S. gas supplies. In 2000, the group's estimate equaled about 54 years of present annual consumption; by 2008, it was almost 90 years. "This isn't the end," says Colorado School of Mines geologist John Curtis. Globally, one study estimated the recoverable supply at 16,200 trillion cubic feet, more than 150 times today's annual world gas use.

Some standard drilling techniques, applied imaginatively, liberated shale gas. The first was "fracturing" (also called "fracing"): injecting liquids into reservoirs to create openings that allow the gas to flow up the drill pipe. For years, Mitchell's engineers experimented with different "fracing fluids." All were expensive, and the resulting gas flows weren't profitable. In 1997, engineers tried a less costly mix of sand and water. The economics of shale gas improved dramatically, says Dan Steward, a former geologist for Mitchell.

Devon Energy, which bought Mitchell's company in 2002, improved the economics further by emphasizing "horizontal drilling." In conventional wells, the drill goes straight down and collects gas or oil near the well bore. With horizontal drilling, the pipe is turned sideways when it hits the reservoir and collects gas or oil for hundreds or thousands of feet. Gas flows increase. Fewer wells are needed. Costs drop.

Natural gas provides about a quarter of U.S. energy—for home heating, electricity generation and factories. This proportion will probably increase, but the emerging shale boom faces two problems. The first is hype.

Shale gas has many virtues, but gains will come at the margin. It isn't a panacea for every energy ailment.

Consider the impact on oil imports. In theory, natural gas—compressed or converted into a liquid—could replace oil in some vehicles. But natural gas now fuels only about 120,000 of roughly 250 million U.S. cars, vans, trucks and buses. At today's prices, natural gas is competitive with oil, but there's a chicken-and-egg problem: Drivers won't use it without filling stations; companies won't build stations without drivers.

So fuel switching will likely focus on heavy-duty trucks with regular routes that require few stations. If 500,000 heavy-duty trucks changed to natural gas, oil consumption would drop almost half a million barrels a day, estimates Michael Eaves of Clean Energy, a builder of natural gas filling stations. That's about 5 percent of U.S. imports. The impact is large because trucks travel about 100,000 miles a year and get only about five miles to a gallon, says Eaves.

Similar qualifications apply to the substitution of natural gas for coal in electricity generation. On paper, the potential seems enormous, because many gas generating units are underutilized. But practical problems intrude. Coal is the low-cost fuel; coal-fired and gas-fired plants often serve different markets. On balance, present gas-fired plants might reduce use of coal-fired electricity by 5 to 9 percent, a Congressional Research Service study estimated. Future gas plants might expand this.

The second threat to shale gas is over-regulation. Environmentalists are split. Some favor shale gas as a desirable "bridge fuel" until use of non-carbon energy expands. Others argue gas drilling will threaten drinking water supplies; that was a theme of "Gasland," a film shown this year on HBO. The charges seem overblown. As the BP spill reaffirmed, all drilling requires regulation. There are environmental issues, especially the safe disposal of "fracing fluids." But onshore drilling, including "fracing," has proceeded for decades without polluting water supplies. In shale gas, thousands of feet typically separate shale deposits from water tables.

George Mitchell's persistence made shale gas a huge geological gift. Only fools would discard it.