The energy debate is full of controversy. Whether it is about the pros and cons of renewable energy, nuclear power or fossil fuels (FF) there are a range of arguments made on either side. If it was clear cut which arguments were best, there would be no controversy to discuss. And so it is the case with shale developments, some strongly in favour, some violently opposed. How are we going to solve our energy crisis?
The concept of energy crisis has entered the psyche of many in the developed world. Do we understand the origins of this crisis? In fact, is there an energy crisis at all? You only need to read the introduction to David MacKay’s gold plated book, “Sustainable Energy Without the Hot Air” to learn that there are in fact two flavours of energy crisis at large. The first is the one that is in the press and in the minds of many politicians and that is the legal imperative for many countries to reduce their carbon dioxide (CO2) emissions relative to the value of 1990. The second is peak oil, where a version of that reality sent oil prices sky rocketing from $20 to $150 / barrel in the period 2002 to 2008, settling back to about $110 / barrel (Brent) in the post financial crash recovery. The rise in oil prices dragged the price of most other major energy sources up with it, and it is this real world rise in energy prices that concerns the “man on the street” in most OECD countries, while the authorities are pre-occupied with cutting emissions.
Overlaid upon this real world rise in energy prices, the result of demand rising more rapidly than supply, has been the bizarre behavior of OECD governments seeking to implement strategies to curtail the use of FF when naturally high prices were already doing the job. The two strands of strategy – CO2 emissions reduction and peak oil (which has morphed into the euphemism called energy security) have become complexly intertwined. And it is against this sketch of the global energy system that we must measure the pros and cons of shale oil and gas developments.
The shale oil and gas “miracle” of the USA was not inspired by the Green movement’s desire to reduce global CO2 emissions. It was inspired by the ‘drill baby drill’ mantra designed to reduce US dependence on imported FF, mainly oil. And boy, has this strategy worked (Figure 1). But at what cost? And is it a robust long term solution? Shale sceptics point to the high decline rates of shale wells and the fact that much of the shale industry has been financed by mounting levels of debt. Indeed, until the extreme cold winter of 2013/14 pushed demand for gas higher and prices with it, much of the shale gas produced in the USA was produced at a loss [1, 2]. Over supply of course does not undermine the viability of shale gas, in fact, over supply is more a sign of abundance.
Figure 1 The chart produced by James Hamilton  shows crude oil production in the USA according to area and type in millions of barrels per day. The long-term decline following the 1970 peak was interrupted by the addition of Alaska in the 1980s. More recently the addition of tight oil (shale oil) has had a spectacular impact. Tight oil production will peak one day; the question is at what production level and when? When US tight oil production does peak US production will most probably carry on down although onshore production from the lower 48 states has stabilised in response to high oil prices. Note that BP report US crude+condensate+NGL production at 10.0 million bpd in 2013. This chart based on EIA data is showing crude oil only.
Time lags between drilling shale wells and fracking them and further time lags to hooking production to a pipeline makes it difficult to analyse the US drilling statistics. But post 2008 crash there has been a huge migration of rigs away from drilling shale gas to drilling shale liquids in the Bakken and Eagle Ford plays (Figure 2). Since 2012, US gas production has been maintained with 400 drilling units, down from a pre-crash peak of 1600 units. It still remains to be seen if 400 drilling units are sufficient to maintain production long-term.
Figure 2 In 2008 the USA had roughly 1600 rigs drilling for gas and 400 rigs drilling for oil. Following the 2008 financial crash there has been a major adjustment with about 1400 rigs drilling for oil and 400 drilling for gas. Gas production is on a plateau since there is currently nowhere for additional production to go. Presumably the 400 rigs drilling shale gas are sufficient to maintain the 2.6 TCF per month plateau for the time being. For comparison, in 2013 there were around 135 rigs operational in Europe and 246 rigs in the Asia Pacific region. A large part of the shale success in the USA is down to the application of American muscle.
The USA achieved self-sufficiency in gas and is perhaps marching towards self-sufficiency in oil (Figure 1) with relative ease, although massive drilling resources were brought to bear (Figure 2). This is the key argument in favour of shale gas developments. Shale can provide energy security and jobs and create individual wealth, in the USA at least, where land owners also own the mineral rights. This latter point is fundamental to the success of the US industry. Land owners want companies to drill for and discover resources on their land, it may make them rich. In a country like the UK, those living on the land see only potential risks from drilling shale with few, if any personal benefits and individuals are therefore inclined to object to drilling.
So what are these public concerns in Europe? And where does a country like Australia stand? Concerns come under five main headings: