The New Gold Rush: Benefits and Risks of the US Shale Gas Boom?
“Production in the US has increased so dramatically over the past five years that the price of natural gas has fallen by as much as 80 percent over there. We have to face facts. We are currently paying four to five times as much for natural gas in Europe compared to the US. This will ratchet up the competitive pressure on our European sites,” said Dr. Harald Schwager, Member of the Board of Executive Directors, BASF.
Is Europe Left Behind in the Shale Gas Boom?
As is the case with all European senior management teams which oversee production sites in North America, he undoubtedly has mixed feelings about what is going on. After all, BASF’s North American business stands to gain from the economic boom (which is widely predicted). One example is production of butanediol at the integrated site in Geismar, Louisiana. The low price of gas makes these operations very competitive at present. The company also benefits directly from the production of shale gas by selling water treatment technology and fracking chemicals. The Performance Chemicals portfolio, for example, includes formic acid which enhances gas flow in the shale. To satisfy anticipated demand, senior management recently announced plans to build a formic acid plant in Louisiana. In addition following engineering modifications at the cracker which BASF operates in conjunction with Total in Port Arthur, Texas, more gas can be used as feedstock.
The march of events remained largely unnoticed. For years, the European chemical industry was primarily concerned about developments in the Middle East. Huge chemical complexes being constructed in the region such as Chemawejaat enjoy the advantage of proximity to the oil fields. Margins are tight in the basic chemicals business, and the fear was that Middle Eastern producers had an advantage which would allow them to dominate the value-add chains for high-volume plastics, e.g. polyethylene and polypropylene.
The Game–Changing Idea...
Europe can thank former American President Jimmy Carter that this is unlikely to happen any time soon. Following the shock of the 1973 oil embargo, he got the US Department of Energy involved. After carrying out studies on gas trapped in rock formations, the experts came to the conclusion that North America is sitting on reserves comparable to those of the Middle East. Production volumes remained relatively subdued until ten years ago when John Mitchell at Mitchell Energy came up with the game-changing idea of combining hydrofracking with horizontal drilling. After going straight down into the shale gas formation, drilling continues for 1–3 kilometers in the horizontal direction. That greatly speeded up operations. It now only takes 30 days to drill one kilometer into the rock. Just a few years ago, it took three months. To see what that means, it is worth taking a look at Devon Energy. In 2002, the energy company was producing 200 million cubic feet of shale gas a day at the Barnett Formation. Following introduction of the new technology, that figure has increased to 1.3 billion. Based on scenarios like this, EIA (the US Energy Information Administration) released a study in January 2012 containing a forecast that shale gas production will more than double by 2035, providing nearly 50% of the gas supply. The end of the shale gas boom is nowhere in sight. ●
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