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Will Fracking Be Confined to the United States?

Photo from wsj.com

One big question on the minds of energy pundits is the extent to which which the shale gas revolution in the United States will spread throughout the rest of the world. And no one is quite sure yet how far it will spread, though some are pessimistic:

Exporting the U.S. shale energy revolution overseas turns out to be far tougher than anyone expected—giving the U.S. a significant competitive advantage.

Shale oil and natural gas have rejuvenated the North American energy industry and boosted the economy by supplying companies and consumers with cheap fuel. There are huge shale deposits outside of North America that global energy companies and governments are eager to tap.

But oil companies are running into obstacles as they try to replicate the U.S. experience on other continents. The result is that significant overseas shale energy production could be a decade away.

Among the reasons for the glacial pace abroad are government ownership of mineral rights, environmental concerns and a lack of infrastructure to drill and transport gas and oil. In addition, much less is known about the geology in most foreign countries than in the U.S., where drilling activity has been going on for more than a century.

The upshot: the U.S. and Canada could remain the main countries to reap the economic advantages of shale development for some time. In both countries, a glut of natural gas and ethane is luring petrochemical companies and fertilizer manufacturers to build new plants—a huge change after years of shifting production abroad. Meanwhile, states like Texas and North Dakota that actually have the shale deposits are getting additional boosts to their local economies from drilling activity.

Read the entire Wall Street Journal article here. In the United States people who own land generally own the minerals, natural resources, etc. contained underneath the land (in this case shale gas or oil). This is not necessarily the case in many other countries, where the government owns the rights to the minerals under land even if the land is owned by a citizen of that country. This is one of the primary reasons shale gas has spread so quickly in the United States: rather than needing the government’s permission to drill a well, people are free to enter into private contracts with companies interested in drilling on their land.

As you can see in the graphic above, other countries would certainly seem to have significant amounts of recoverable oil and gas deposits (via fracking), though it isn’t clear that they will be able to pull them out of the ground anytime soon. China, for example, has significant quantities in areas with large residential populations, making drilling difficult:

China is believed to have more shale oil and gas than the U.S. The problem is that most of it is in arid or heavily populated areas; oil companies worry they won’t be able to obtain enough water to hydraulically fracture the rock—the process needed to free hydrocarbons from shale. “To create a flat drilling pad, we almost always have to take out some part of a hillside and basically someone’s rice paddy,” says Simon Henry, Royal Dutch Shell PLC’s executive director for the Asia Pacific region.

Whatever the reason, the competitive advantage that the U.S. currently has (in terms of much lower natural gas prices) is one that will likely last a while. This has done wonders for U.S. manufacturing. Now, the U.S. would also benefit if others took up fracking for oil and natural gas (in the form of lower oil prices, and lower natural gas prices if exports of natural gas begin to increase making the global market more connected), but in the meantime we are seeing the revival of a number of industries that are reliant upon cheap energy prices. It will be interesting to see how this plays out in the future.

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