Shale Natural Gas Resources: Why Europe Doesn’t Stand Much Of A Chance In This Department
by Tony Daltorio, Investment U Research
Monday, March 15, 2010
It’s time to start paying attention to the big, bad oil companies again. And not because the black gold has pushed past $80, either.
Their latest dash for deals signals a shift in how they hunt for new energy sources.
For a long time, the big oil companies believed that shale natural gas resources weren’t big enough. So they focused their multi-billion dollar exploration budgets on finding the next big oil field instead.
They never even came close, though they did end up fighting over the rights to Canada’s oil sands. But that fell flat too, as environmental activists pointed out issue after issue. The projects’ greenhouse gas emissions, water pollution and similar damage have led to full-out boycotts from many green-minded companies.
Then along came the International Energy Agency (IEA). Estimating unconventional gas resources at 32,511 trillion cubic feet, it believes half of that amount is in shale deposits and half in tight sandstone formations and coal beds.
According to some analysts, the U.S. shale natural gas deposits alone could actually fuel the country for the next century. Those approximations are more than likely exaggerations. But suffice it to say, there is a lot of natural gas out there.
And since smaller, independent American energy companies have found the means to extract the commodity safely and relatively cheaply over the past few decades, all of a sudden, big oil companies want it all.
That includes European giants…
The Great European Shale Gas Race
Unlike oil, some unconventional natural gas can now be developed more cheaply than the traditional kind.
So it’s no wonder why Exxon-Mobil (NYSE: XOM) spent $41 billion acquiring XTO Energy.
That deal – the largest of its kind in a decade – is the clearest sign yet that big oil companies finally see shale as the next big thing. Kicking themselves for missing out on the first big wave of purchases in the U.S., they now hope to repeat the American shale gas revolution elsewhere.
All across Europe, Exxon-Mobil, Royal Dutch Shell ADR (NYSE: RDS.A) and BP ADR (NYSE: BP) are trying to play catch-up. Scouring millions of acres of countryside, they’re buying up rights to tap the natural gas trapped in shale beds just as fast as they can. And they’re kicking themselves every step of the way for not getting in sooner.
For its part, Exxon-Mobil hopes to use the XTO deal to lead the charge into European shale. It gained industry-specific technology through that agreement, which should give it a leg up at least. Meanwhile, BP, Total ADR (NYSE: TOT) and Statoil ADR (NYSE: STO) each struck smaller deals with Chesapeake Energy (NYSE: CHK) for largely the same reasons.
But these oil and gas companies might find it a more difficult journey than they originally planned for.
European Trouble Digging For Natural Gas
Every industry faces its issues, but Europe has a few unique to itself if it really wants to dig for natural gas.
Take equipment shortages… The U.S. has up to 2,000 onshore gas drilling rigs operating at any one time. Europe operates only about 50 at once. And that major discrepancy could prove a major problem.
Shale needs continuous drilling to maintain production flows, since wells tend to start with a gush and then lose 70% – 90% of its volume within one or two years.
Complicating things further, many landowners in the U.S. stand to make money from the mineral rights they own. In most other countries, however, the state owns the mineral rights. So the locals may feel the downside of the natural gas drilling with none of the benefits. And that could lead to local opposition stalling any such attempts.
Finally, the process used to extract the gas – called fracking – has raised environmental concerns.
The process involves drilling down for up to 20,000 feet and sideways for up to 4,500 feet. Water and fine sand are then pumped through at high pressure to fracture the shale, leaving the sand grains propping up the rock so the gas escapes. And according to critics, it also leaves ground water contaminated.
Not so, says John Curtis, the director of the Potential Gas Agency at the Colorado School of Mines. He says that most fractured wells are thousands of feet below any portable water zones. And any water at that depth is usually a corrosive brine, not to mention undrinkable in the first place.
Still, Europe has a history of taking environmental concerns much more seriously than the U.S. So even the accusation alone could foil any attempts on the oil majors’ parts.
In that case, those businesses got it wrong yet again. European shale gas will not be a boom, and anybody who wants to really profit from the natural gas should stick to U.S. soil with companies like:
Good investing,
Tony Daltorio
Related Investment U Articles:
- Ohio’s Utica Shale Land Value Increases 10 Times
- The New Oil Boom in Texas
- “Gasland” Brings Natural Gas Fracking Concerns to Light
- The U.S. Shale Oil Boom
- Utica Shale Drilling Permits Skyrocket in September
One Response to “Shale Natural Gas Resources: Why Europe Doesn’t Stand Much Of A Chance In This Department”
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Tony doesnt believe that shale gas in European wont take off, but there are many people, including major E&P companies, believe to the contrary.
Though not without its issues, European politicians are hoping that shale gas will provide increased energy security and reduced dependence on Russian sources of energy. Shale Gas for Europe is a leading source of information on new developments, the plays and the players. http://www.shalegasforeurope.com
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