Welcome to bertrandbarre.com! It’s happening now june-july 2010:

Who’ afraid of Shale Gas?

Over the last 2 to 3 years, the US natural gas landscape has undergone a revolution.

In order to compensate the depletion of “conventional” gas resources, the US had launched a massive program to build LNG terminals. Consequently, gas prices had exceeded $12 per Million BTU, even reaching a peak at 14 $/MBTU.

But today gas prices are below 4 $/MBTU, exhibiting a complete decoupling with the price of oil, still hovering around $75 per barrel. This decoupling is still limited to North America and has not yet affected European and Asian markets.

There are two causes to this price collapses, one temporary and the second more long-lasting. On the one hand, the 2008-2009 recession triggered by the financial crisis did reduce demand for gas both from industry and for power generation. But we did also witness a spectacular raise in the US production of Shale gas, a source of natural gas still classified as “unconventional” together with coal-bed methane.

Shale gas originated in some shale formations where fossil organic materials were decomposed by heat and bacteria and remained trapped there at low concentrations.

These huge resources have long been known, but only recently have technical advances (horizontal boring and hydraulic fracture of the rocks) made them accessible on a large scale. There are presently 35,000 shale gas producing wells across the USA – there were 50 of them in 1990.

Unconventional gas production, which accounted for 42% of the US gas production in 2007, is expected to reach 64% by 2020. Taking into account conventional resources, the USA should be self-sufficient in gas for at least two centuries. The largest identified deposits are in Texas, northern Louisiana, the Appalachia, Illinois, Michigan and even British Columbia.

The gas prices collapse, if lasting, might well delay or reduce the nuclear “renaissance” in the States, while the disappearance of the US demand for LNG will make the latter available to the rest of the world. There would also be significant shale gas resources in Europe and even in France : wait and see…