Daniel Yergin on the Shale Gas Revolution: Stepping on the Gas – WSJ

Stepping on the Gas

With the nuclear industry in crisis and oil prices on the rise, could the solution to our energy problems be in the ground at home? Daniel Yergin on the promise of shale gas.

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By DANIEL YERGIN

Updated April 2, 2011 12:01 a.m. ET

A drilling rig in western Pennsylvania. Shale gas reserves in America and Canada may be enough to last for more than 100 years. Scott Goldsmith

In the early 1980s, George P. Mitchell, a Houston-based independent energy producer, could see that his company was going to run out of natural gas. Almost three decades later, the results of his effort to do something about the problem are transforming America’s energy prospects and the calculations of analysts around the world.

Back in those years, Mr. Mitchell’s company was contracted to deliver a substantial amount of natural gas from Texas to feed a pipeline serving Chicago. But the reserves on which he depended were running down, and it was not at all clear where he could find more gas to replace the depleting supply. Mr. Mitchell had a strong hunch, however, piqued by a geology report that he had read recently.

In an interview with David Wessel, Daniel Yergin, author of “The Prize,” states that the turmoil in the Middle East is a “sea change” for the global oil market and that the U.S. and emerging markets are most economically vulnerable to rising oil prices.

Perhaps the natural gas that was locked into shale—a dense sedimentary rock—could be freed and made to flow. He was prepared to back up his hunch with investment. The laboratory for his experiment was a sprawling geologic formation called the Barnett Shale around Dallas and Fort Worth. Almost everyone with whom he worked was skeptical, including his own geologists and engineers. “You’re wasting your money,” they told him over the years. But Mr. Mitchell kept at it.

The payoff came a decade and a half later, at the end of the 1990s. Using a specialized version of a technique called hydraulic fracturing (now widely known as “fracking” or “fracing”), his team found an economical way to create or expand fractures in the rock and to get the trapped gas to flow.

Today, in an age that craves innovation in energy, George Mitchell’s breakthrough in the Barnett Shale has opened the door to a potentially profound change in the global energy equation.

What has become known as the “unconventional-natural-gas revolution” has turned a shortage into a large surplus and transformed the natural-gas business, which supplies almost a quarter of America’s total energy. This revolution has arrived, moreover, at a moment when rising oil prices, sparked by turmoil in the Middle East, and the nuclear crisis in Japan have raised anxieties about energy security. Government and producers alike have turned their attention back to domestic resources.

The rapid rise of shale-gas production has also drawn scrutiny and controversy. Some environmental groups say that the process threatens to contaminate drinking-water supplies. The industry, for its part, points to a long safety record, with some form of fracking having been used in more than a million wells in the U.S. since the end of the 1940s.

“ Estimates of the entire U.S. natural-gas resource base are now as high as 2,500 trillion cubic feet. ”

As late as 2000, shale gas was just 1% of American natural-gas supplies. Today, it is about 25% and could rise to 50% within two decades. Estimates of the entire natural-gas resource base, taking shale gas into account, are now as high as 2,500 trillion cubic feet, with a further 500 trillion cubic feet in Canada. That amounts to a more than 100-year supply of natural gas, which is used for everything from home heating and cooking to electric generation, industrial processes and petrochemical feedstocks.

The effects of the “shale gale” are also being felt in the rest of the world, changing the economics of the liquefied-natural-gas business. Its impact on international energy relations could be significant. Some proponents believe that the U.S., once thought to be short of natural gas, could even become a natural-gas exporter.

It is a revolution that has progressed in stages. Hydraulic fracturing uses the concentrated pressure of water, sand and a small amount of chemicals to promote the flow of oil and gas in a reservoir. Mitchell Energy’s breakthrough was to apply one particular approach—”light sand fracking”—to break up what had seemed impermeable: hard shale rock.

With this technique, the company’s gas output began to climb, but capitalizing on the innovation would require a good deal more money. In 2002, Mr. Mitchell merged his company into a larger independent, Devon Energy.

via Daniel Yergin on the Shale Gas Revolution: Stepping on the Gas – WSJ.