American leadership in developing horizontal drilling and hydraulic fracturing used in shale oil and gas plays is spreading around the world making it possible to extract previously uneconomic oil and natural gas resources from shale.  These resources are often called unconventional because the horizontal drilling and fracking are newer techniques than the conventional methods of drilling vertical wells down into large pools of hydrocarbons.

While we think of these technologies as “new” in fact they have been commonly in use in the US oil fields for more than 20 years.  What changed was the price of oil and gas that made their use more attractive.

A little more than five years ago we saw natural gas prices at near record levels above $13 per MMBTU and the US was expected to be a major importer of liquefied natural gas (LNG) from some of the same volatile places in the world that supply imported oil.  Those high prices started an unconventional revolution applying these new technologies to domestic US shales.

Today we are awash in natural gas and our entire energy strategy is being turned on its head by the prospect of abundant supply and low—very low—prices.  The market forces that created this boom are at work today correcting the market excess as more E&P companies shift their drilling from natural gas to oil and natural gas liquids attracted to their higher prices.  We also expect to see some of this excess natural gas turned into LNG and exported to global markets which are have higher prices.

But more than 96% of America’s domestic energy growth from shale has taken place on private lands beyond the onerous regulatory reach of the Federal Government where property owners have mineral resource rights on their land.

The pace of shale development in other nations will have less to do with technology than with the legal status and tradition of private property and mineral rights.

The other challenges nations will face in developing their own shale resources include logistics, technology access and the balance of energy infrastructure necessary to support such development.  US EIA and the IEA have both done studies on the shale potential around the world so check those sources for better technical information.

As we have seen in our own domestic energy growth from shale here in the US the logistics of getting the extracted oil and gas to market from its remote location can be a big problem.  The Bakken shale in North Dakota for example has grown substantially but the bottleneck has been a lack of pipeline and storage capacity for the product produced.  This will be equally true or worse in China and other emerging markets lacking in infrastructure development or starting from scratch.

Why Keystone XL Pipeline Matters

Here in the US the recent controversy over the Keystone XL pipeline was a byproduct of the process of rationalizing energy infrastructure to take shale development growth into account.  The Keystone XL pipeline extension was designed in part to bring additional pipeline capacity to Bakken so its production growth could be transported to the gulf coast for storage, refining and export.  To achieve that transport involves building additional pipeline capacity and reversing the direction of some pipeline flows to reflect the new shale reality—that is more oil is now moving from North to South bringing product from North Dakota to Texas and Louisiana rather than from the Gulf of Mexico North through the US Midwest markets.

For China and other nations to take full advantage of their own shale potential will also require addressing the logistics to make that development possible as well as modifying its energy infrastructure of pipelines, storage, refining and export capabilities to satisfy its needs.