Ok I admit it, I am an energy geek!
I spent the last twenty years earning my living helping clients turn their energy strategies into actionable results. I believe in the power of markets and worship at the altar of competition in the belief that thriving, competitive wholesale energy markets are good for the energy industry, good for customers and good for the global economy.
Energy markets strive to be competitive but politics happens
- OPEC wants to control oil supply and thus price to drive up the wealth of a few nations. That game has worked pretty well but is now faces the forces of disruptive technology, competition and the need for change.
- National oil companies were formed by nations eager to gain access to E&P technologies to develop their resources but were loathed sharing the wealth that technology produces. The result has been an uncompetitive market for the super majors where finding new E&P resource potential material to growth has been made much more difficult.
- Rapid depletion rates in conventional plays are a ticking time bomb for all these players. Technology has enabled them to drill deeper, go further offshore, and make themselves seductively attractive to non-OPEC players eager to compete.
- Disruptive technology innovation gave rise to economic access to unconventional oil and gas resources onshore here in the US by using horizontal drilling and hydraulic fracturing. This technology is not new having been used for years, but its growing prominence is brought about by America’s resistance to domestic oil and gas growth from conventional sources.
In America’s post WWII growth economy the answer was ‘satisfice’ by allowing ever larger imports of foreign oil from OPEC and other sources rather than face the domestic politics of domestic energy production. It helped tremendously that we share a border with Canada and it harbored no such inhibitions about developing its domestic resources. NAFTA made possible a bridge between North America’s three energy producing countries and all benefited from it.
Fast forward to today. We’re struggling to recover from a deep recession and nothing seems to be working to create jobs and grow GDP at acceptable levels except for places like North Dakota and just recently the Marcellus Shale. The boys in Texas looked up and said ‘told ya’ll’ this fracking stuff works!
Unconventional oil and gas developed into a material opportunity for GDP growth because disruptive technology was used to end-run the government’s limitations on conventional E&P.
Americans are not alone in believing unconventional oil and gas is a game changer.
- The Shanghai Daily reported in August that China set an ambitious target for developing its own shale gas resources which the ministry of Land and Resources estimated to be about 31 trillion cubic meters of recoverable shale gas reserves based on rough estimates.
- The US EIA estimated China might have more than 36 trillion cubic meters of “technically recoverable” shale gas reserves, almost 50 percent higher than the US, but would need substantial technical assistance to successfully develop it.
- In November 2010 CNOOC paid $1.08 billion in cash, plus $40 million more at closing a deal with Chesapeake Energy to buy a 33.3% undivided interest in Chesapeake’s 600,000 net oil and natural gas leasehold acres in the Eagle Ford play in South Texas. CNOOC will fund 75% of Chesapeake’s drilling and completion costs up to $1.08 billion by the end of 2012.
- China’s largest oil producer PetroChina said it expects to produce 500 million cubic meters (cu m) of shale gas by 2015. Chinese oil companies partnered with Royal Dutch Shell PLC and Chevron Corp, to develop unconventional gas resources to reduce reliance on oil and coal.
- In June 2011, PetroChina Co suspended talks with Encana Corp on a proposed C$5.4 billion (US$5.5 billion) deal to develop shale natural gas in Canada. Foreign acquisitions in shale gas projects by Chinese companies have been used to migrate China’s shale gas exploration technology back home to monetize its vast domestic unconventional resources.
America’s unconventional oil and gas technology is for sale to the highest bidder. Today some of the best opportunities in unconventional plays are right here at home in the Barnett, Haynesville, Eagle Ford, Bakken and Marcellus Shales in the United States.
If we don’t use American technology will lose it to China and other places just as we are losing rigs from the Gulf of Mexico now working in Brazil, Egypt and elsewhere because Federal regulations, permitting delays and politics strangle the conventional energy business in America. Competition is working in the conventional side of the business but not in our favor, but we still have an opportunity to save the unconventional side to accelerate our growth and recovery.
It is use it or lose it time!
- How Disruptive Technology is turning Domestic Energy Production into America’s Growth Engine (insightadvisor.wordpress.com)
- The Gift: Energy Security and Economic Growth from Unconventional Oil & Gas (insightadvisor.wordpress.com)
- New York Gets Fracking (civicchoices.wordpress.com)
- Shale Gas Outrage Rally And Freedom From Fracking Conference In Philadelphia (desmogblog.com)
- Is Energy E&P America’s Hadrian’s Wall? (insightadvisor.wordpress.com)
- Natural Gas, Biogas – Let’s all have Gas “Naturally!” (ilookchina.net)