January 28, 2013

North America will continue to Lead Shale Production – for Now

North America’s monopoly over shale gas and tight oil production won’t last forever. But there’s good reason to believe that the rest of the world will be laggards for awhile.

Steve LeVine at Quartz writes that despite massive shale potential outside of the North America, those deposits are far from being economically viable to exploit. “[D]rillers have yet not managed to economically drill for shale deposits anywhere else,” LeVine writes. “The difference is mainly in the shale geology—drillers have vastly more data on US shale than for any other place on the planet, and have not felt confident yet in what they have found in Europe, China or elsewhere.”

LeVine is correct that economics is a major driver in whether those resources will be recovered anytime soon. But other reasons abound as well. Most of the world’s oilfield services and the physical infrastructure associated with production (pipes, drill bits and other equipment), for example, are located in North America. That is why the immediate event preceding any major shale production outside North America won’t be an announcement that a company has signed a deal to develop the resources; it will be, as LeVine writes, “a company announcing investment in actual production infrastructure.”

Of course, beyond what the industry can control, other factors play into whether shale resources will be exploitable abroad as well. Access to the water resources needed to develop them is paramount. More importantly, sustainable access to water may be difficult to come by – especially for countries rich in shale resources but water scarce, like China and Australia. It is another important example of the water-energy nexus.

So North America will continue to monopolize shale production for now. The question for foreign policy types is whether or not that is a good thing. In 2010, the State Department launched its Unconventional Gas Technical Program aimed at helping other countries develop the skills and technology necessary to safely and economically exploit their shale resources.  What other activities can or should the U.S. government be promoting? Are there public-private sector ventures worth pursuing? Or should the United States just enjoy its monopoly on shale production?