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Shale gas: High Hopes, Low Preparations
Yoon Se Young  |  nacynh@korea.ac.kr
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승인 2014.10.06  18:42:39
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Recently, a form of energy source commonly known as shale gas was found out to be of value, and is now being explored heavily. Many believe that the shale gas could bring the world a new era, with abundant reserves evenly distributed throughout the world. Yet some claim that the recent boom of shale gas is overstated- and that shale gas might not provide us with a prosperous future. What do we know about shale gas and what can we expect from it?

The urge for a constant source of energy has been prevalent throughout human history.Its importance was heightened after industrialization, when people’s livings became dependent on energy. When industrialization began, coal was the major energy source. With it, human civilization was able to drastically improve productivity capacity and could enter the era of massive consumption afterwards. Later, petroleum was utilized heavily throughout industry until the 1970s, when the 1973 oil crisis occurred.

 

   
▲ Brief history of the major energy sources throughout human history. Provided by pres.org

Later, countries sought ways to diversify their sources of energy, and the importance of natural gas, nuclear energy, and renewable energy rose. Yet, technologies related to renewable energy are still in development stage, and the rate of conversion of energy is low. Nuclear energy is subject to major security issues, and the public is also not favorable to it. Shale gas has, due to the aforementioned problem, become seen as a great way to address the world’s energy needs.

 

Shale gas is basically natural gas that is trapped within a shale formation. Its presence was discovered in the 1800s, but due to the cost and difficulty of extracting it from the shale, it was regarded as having little commercial viability. Unlike traditional natural gas or petroleum, which are found densely in segregated strata, shale gas is found in wide areas, evenly distributed. 

 

Special methods must be applied to utilize shale gas. The two methods, used in conjunction, - are: horizontal boring and hydraulic fracturing. Unlike petroleum or natural gas, shale gas is dispersed in a wide area, and vertical drilling is of no use. Horizontal boring is a technology that makes shale gas accessible. When using this technology, a pipe reaches to the stratum where the shale gas is trapped, at which time the angle of the pipe is shifted so that the whole stratum is within reach of the pipe. When the pipe is set, hydraulic fracturing is used. Hydraulic fracturing is a method of boring that uses water to extract gas from the shale formation. Through the pipe that hasbeen drilled into the stratum, a mixture of water, sand and chemical substances is sprayed at high pressure, cracking the stratum and releasing the gas.

Shale Gas Boom: Why Now? 

If shale gas requires such sophisticated technology, what are the reasons for the recent boom of shale gas? The most viable answer can be found from the perspective of energy politics and energy security. Petroleum, the most used energy source in the world, is mostly concentrated in the Middle East and Africa. According to the British Petroleum (BP)’s report, StatisticalReview of World Energy,more than 80 percent of the petroleum is known to be located in countries located in those regions.However, those areas are subject to major political instabilities and lack value as asafe and sound source of energy. The presence of the Organization of Petroleum Exporting Countries (OPEC), which is an organization of 12 oil-exporting developing nations that works to keep oil price stable-critics might say high, and the was behind the oil crisis could be an example. 

Conventional natural gas, commonly known as LNG or PNG, is no different. Most of the natural gas is concentrated in the Russian Federation and Middle East. Nuclear power was considered as a possible alternative, but the recent Fukushima crisis and the concerns for safety hasput a damper on the wide-spread use of nuclear power. Renewable energy is another alternative, but the technology has not yet reached the point where it can serve as a feasible alternative; commercial viability so far has been limited. The large amounts of land that wind and solar power presently require are further limitations.

 

Shale gas, on the other hand, is evenly distributed throughoutthe world, which heightens the stability of supply. Moreover, unlike renewable energy, the technology required for it is well developed. The cost of production is, of course, relatively high to that of traditional natural gas, but specialists claim that that will be solved with improved boring technology.

Are There Any Negative Aspects?

Shale gas could be a good alternative to petroleum and the conventional natural gas from the perspective of energy politics. However, when approaching the matter from an environmental perspective, the view is not so rosy. Hydraulic fracturing uses a mixture of chemicals, water, and sand to crack the stratum. In the process, the stratum could be disturbed and could increase the possibility of earthquakes in the area. Moreover, the possibility of contamination of water sources due to the chemicals used in hydraulic fracturing is another major problem. The recent development of shale gas has mostly taken place in the United States, where water sources are abundant and the environmental regulations are low towards the development of shale gas. In fact, countries such as China, where the estimated reserve of shale gas is huge, have not initiated actions for development of shale gas due to concerns about water depletion and pollution. 

 

Another problem is that the development of shale gas needs more of land to produce the same amount of gas than natural gas. For example, in the Barnett Shale, Texas, in order to extract 0.4~6.4 hundred million m3of shale gas, 2~32 hundred million m3 of land is required per square kilometer of gas. When extracting from a traditional gas field, a maximum of 20 hundred million m3 of natural gas can be obtained from an area that size. 

 

   
 

 

Moreover, since the technology applied is not yet fully developed, the process of boring produces more greenhouse gas than drilling for natural gas, about 3.5~12 percent more. In addition that shale boring also costs more than the traditional gas boring.

 

As stated above, the need for great amount of water is stopping China, for one, from utilizing their shale reserves. In fact, the Barnett Shale, Texas, one of the largest shale gas producing regions in the world, is possible only because the water resources around the area are massive, and because the American government has lowered regulations in that region. 

 

What Can South Korea Gain from Shale Gas?

When supply increases, cost goes down; it is one of the basic premises of economics.The advent of new technologies for drilling for shale gashas resulted in more natural gas being supplied. As a result, the natural gas price in America has stabilized. But could this also be beneficial to Korea? 

Korea is one of the world’s largest importers of natural gas and petroleum. What is noticeable here is that unlike petroleum or coal, natural gas needs special processes in order to export it to other countries. Natural gas by nature is gas, which means it should be transported via pipes or must be liquefied to be transported. The former is called pipe-line natural gas (PNG) and the latter is called liquefied natural gas (LNG). The liquefying process,however, requires massive facilities and capital. It is for this reason that most natural gas exporting contracts are made on at least a ten-year basis, with a fixed price that is set at the time of contract. 

 

Korea has been importing natural gas mostly from the south eastern Asia region. The problem is that, unlike Europe or America, which can be supplied with natural gas via pipelines, Korea must import the gas as LNG. This is the reason the Asia premium is applied. In 2012 alone, Korea paid more than 11 trillion won as a premium. In addition, due to the fixed price ofnatural gas contracts, even if price declines, Korea does not benefit from that.

 

Shale gas could work to enhance Korea’s bargaining power. Before shale gas exploration and boring began, America did not allow its natural gas to be exported as LNG. However, after shale gas was developed, resulting in a greater supply of natural gas, America has begun exporting LNG to other nations, including Korea. In 2016, the U.S. is expected to export more than 43 million tons of LNG, which accounts for about 15 percent of the LNG produced worldwide. This should cause global natural gas prices to drop, which might benefit Korea. 

 

Cheaper natural gas also means that petroleum has become relatively expensive. Although the production of shale gas is relatively low now,production is expected to increase when more exploration takes place and when adequate technologies are established. By then, the impact shale gas has on the price of petroleum could be high, and the bargaining power of OPEC and those who export petroleum could be lowered.In that way, oil refining firms in Korea, which are a large part of the gross domestic product (GDP), could benefit as well. Some industry analysts even claim that it could be a period of renaissance for oil refining firms.

 

   
▲ Korea imports most of the natural gas it needs as a form of LNG. Provided by geology.com

It is true that we should not blindly follow the current shale gas boom. However, it does not mean that we should not take any actions to secure a supply of shale gas. Korea’s Ministry of Trade, Industry and Energy (MOTIE) has declared that it would replace 20 percent of the traditional natural gas supply with shale gas by 2020, and diversify its sources of importing natural gas.Korea Gas Corporation (KGC) has already started to buy shares of shale gas wells and is constructing facilities required for liquefaction factories near shale gas producing sights. 

 

Lee Jae Ho, author of the book Energy Political Economy, claims that due to the development of shale gas industry, Korea’s industries are faced with major changes. In the short run, he points out that export of machinery and ships might increase. Due to the increasing supply of shale gas and production, the demand for machineries needed, such as gas compressor and excavators. Considering that China has not yet began active exploration and development of shale gas, when China starts to do so, the demand might even increase more. In addition, with enhanced gas trading between nations, more ships are needed in order to meet the demands. In the long run, he says that it is also expected to replace coal industry in energy production, and the boom of gas chemical industry is also expected.

 

However, such expected effects are not definite. In fact, the initial positive response towards the gas has started to change. For example, in the Barnett Shale, due to the active lobbying of environmentalists, the state has started to put limits on the active drilling the firms are doing. The City Plan Commission has refused to grant Trinity East Energy’s drilling on city parkland, which the company paid for. 

 

 
   
▲ Shale gas reserve throughout the world. Provided by Forbes.com
 
 

Moreover, the price of shale gas produced in America costs more than the cost of production of shale gas in the region. Although the firms in America are making profit due to the collateral benefits, like shale oil, and cutting edge technologies, it is not positive that whether the companies in areas other than American could do the same. According to some experts, the shale gas boom in recent times can also be called as a boom that America has made. If even America is not doing well on the industry, the wide spread development of shale gas could only be done after substantial period of time has flown. It is not so safe to put out all eggs in one basket. The possibility of not getting enough supply after Korea has enlarged its demand always exists, and we cannot be too careful when adjusting ourselves into the new current. 

 

   
▲ How shale gas is drilled. Modified from U.S Survey Factsheet

 

 

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