US shale gas boom: Can it replicated across the world?

The shale gas fever that started in the US has started catching up across the world. In the last few weeks, there have been several developments in the shale gas world. The Indian government recently announced plans to auction its shale gas reserves; the Chinese government earlier this month started the second round of its shale gas auction.

But, will the shale gas revolution be replicated everywhere else as it did in the US? According to Bill Holland of Platts Gas Daily, it is possible. “This revolution be replicated, I suppose so, but I don’t think it will happen as quickly overseas,” he said in an interview to CNBC-TV18. Holland believes there are a few restrictions that will hurt the growth of shale gas, like property rights, but adds that countries like India and China will have an advantage because land is owned by the government. Below is an edited transcript of his interview with Menaka Doshi. Q: Has shale gas delivered on its potential in the US or does it seem more threatened today by environmental issues or reductions in estimates? A: Those are actually two separate questions. The environmental concerns are certainly a part of this. To illustrate how shale gas has changed the game here in America, right now out of the Gulf of Mexico we have hurricane Isaac which is going right through the producing region of the Gulf of Mexico. All the big players are shutting down their rigs, they are shutting their oil and gas, and they are bringing their cruse to shore. In 2008-06 with Katrina and Gustav, natural gas prices and the future prices just went right through the roof. They would add USD 1-2 per 1000 cubic feet everyday. Natural gas prices are going down today, and you can only attribute that to the lot of supplies that shale gas has brought to the US market, which itself contain market right now. It has no relation to the rest of the world because we cannot export our gas, we have no export terminals. So in the sense of the promise of supply, did that come true? Absolutely. Have the environmental questions all been answered? Absolutely not. Q: Do you expect shale to sustain the benefits it’s brought to the natural gas industry or the energy consumption aspect in the US? Do you believe it will continue to be able to lower gas prices? A: I believe so and most analysts also believe so. Although the industry moans and shrieks and howls every time some one talks about adding a little more regulation to them, the fact of the matter is that even our own analysis has shown that if the US Federal government steps in and begins to take part in regulating this, which right now is done in each individual state, and if the US government comes in to standardize this, all it will add to the cost of well would be a USD 150,000. These are USD 10 million well, so we are talking a 0.15% increase in your costs. The analysts I read say the industry is going to get ready for the regulations coming. Some companies are out in front of the regulators, they have better environmental practices than the law requires. Mainly the companies have to leave Texas and Oklahoma and come up to the north eastern part of the US, Pennsylvania or Ohio or New York, and learn how to operate where there is a lot more people. They have learned, they have grown, they have adapted and they are still producing a tremendous amount of gas. Q: Can this shale gas revolution that seems to have delivered in the US be replicated elsewhere? One estimate puts shale gas reserves for about 32 countries at a little over 6,600 trillion cubic feet (tcf) compared to conventional gas reserves which were estimated at 1,274 tcf. So does this shale gas revolution hold as much potential for the rest of the world as it has held for US? A: First of all my experience in covering shale gas over the last seven years is that the numbers in a sense of reserve and production always seem to go up; the more drilling that happens, the greater the number goes up. Originally, the Marcellus shale was like to contain about 15 tcf of gas. The geologist who discovered it came out and later said that he was going to change that estimate to 500 tcf, and that estimate is stood up so far. So the numbers always get bigger with the more experience and the more drilling that happens in a particular area. Can it be exported, that is a good question. It doesn’t seem to export very well to Poland and because of political problems it doesn’t seem to be carrying over to France. I think one of the things that hasn’t been explored yet is the notion of property rights. In US, all the mineral rights are owned by individual land owners, and so they have an incentive to sell their production, to sell their royalties. Most of this production has gone on private land as opposed to land owned by the federal government. So the shale revolution has occurred mainly on private lands. You go overseas, India for example, the mineral rights are owned by the federal government. Not that there is anything wrong with that, but instead of having a dozen individual actors with incentives to produce gas, you have one actor. Also, the decision making is not going to be purely economic; there are also going to be environmental and political considerations. So can this revolution be replicated, I suppose so, but I don’t think it will happen as quickly overseas. This is mainly because the issue of property rights. On the other hand, the advantage in India or in China is that you are only dealing with one lease holder, you are not dealing with dozens or hundreds.