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Friday, May 20, 2011

The Potential of Shale Gas

Improvements in technology continue to expand the universe of recoverable energy resources. That has clearly been the case with the outlook for shale gas in the U.S.

Last month, the Energy Information Administration (EIA) released its "Annual Energy Outlook 2011." That assessment laid out the dramatic changes that have occurred in the area of shale gas.

On the EIA website, it is noted that among the changes from last year's assessment was the following: "Significant update of the technically recoverable U.S. shale gas resources, more than doubling the volume of shale gas resources assumed in AEO2010, and also added new shale oil resources."

Consider some specifics from the 2011 EIA report:

• "The combination of two technologies-horizontal drilling and hydraulic fracturing-made it possible to produce shale gas economically, and from 2006 to 2010 U.S. shale gas production grew by an average of 48 percent per year."

• "Estimates of technically recoverable shale gas are certain to change over time as new information is gained through drilling and production, and through development of shale gas recovery technology. Over the past decade, as more shale formations have been explored and used for commercial production, estimates of technically and economically recoverable shale gas resources have skyrocketed."

• "Technical advances can lead to more productive and less costly well drilling and completion."

The report also warns: "There is also considerable uncertainty about the ultimate size of the technically and economically recoverable shale gas resource base in the onshore lower 48 States and about the amount of gas that can be recovered per well, on average, over the full extent of a shale formation." That uncertainty includes the lack of a track record in terms of shale gas productivity.

History has shown that early estimates of technically recoverable oil and gas resources tend to be grossly underestimated due to the aforementioned changes in technology and expanded exploration.

In fact, the biggest risk when it comes to domestic energy production - including shale gas - remains government regulatory actions that put certain resources off limits and/or diminish incentives for investing in exploration and production.

In terms of shale gas, the hardcore environmental Left has been pushing to stop hydraulic fracturing, claiming that drinking water is at risk. However, in a 2004 study, the EPA did not find confirmed evidence that drinking water wells have been contaminated by hydraulic fracturing fluid injection.

For good measure, technological advancements proceed to make the process even cleaner. In late April, the Department of Energy announced: "A novel water cleaning technology currently being tested in field demonstrations could help significantly reduce potential environmental impacts from producing natural gas from the Marcellus shale and other geologic formations, according to the Department of Energy's (DOE) National Energy Technology Laboratory (NETL). ABSMaterial's Osorb® technology, which uses swelling glass to remove impurities, has been shown to clean flow back water and produced water from hydraulically fractured oil and gas wells."

Specifically, the DOE reported: "In independent testing, the skid-mounted system was found to remove more than 99 percent of oil and grease, more than 90 percent of dissolved BTEX (benzene, toluene, ethylbenzene, and xylenes), and significant amounts of production chemicals. Concurrent testing was performed using the trailer-mounted 60-gallon-per-minute system on produced water streams. One major oil services company conducted a full pilot test in the field using produced water from the Clinton formation in Ohio in July 2010 and March 2011. These tests showed that total petroleum hydrocarbon levels were slashed from 227 milligrams per liter to 0.1 milligrams per liter."

Shale gas is proving to be a valuable source of domestic energy, with technology making it more valuable as time passes. All we need is for government to avoid imposing unwarranted and costly prohibitions, regulations, mandates and taxes at the behest of special interests that ultimately oppose all sources of carbon-based energy.


Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

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