Factbox: Potential and challenges of shale gas

LONDON (Reuters) - Developments in the extraction of gas is a potential game-changer in world energy markets, offering ample supplies in markets that have so far looked to tighten in coming years.

In the United States, hydraulic fracturing, a recently developed method of shale gas procurement, has the potential to flip the country's energy economy from a net importer to a net exporter of natural gas.

Shale gas now makes up one quarter of all U.S. natural gas production and the government Energy Information Administration (EIA) forecasts this proportion to double by 2035.

In Europe, according to a study by IHS Cambridge Energy Research Associates, production levels from unconventional gas sources including shale could range from 60 billion cubic meters (bcm), less than half of current shale gas production in North America, to 200 bcm by 2025.

Below is a summary of key facts and challenges around existing and potential shale gas extraction.

SHALE GAS ENGINEERING

Shale is soft finely-stratified sedimentary rock that formed from consolidated mud or clay.

Hydraulic fracturing, known as fracking, is the process of creating small cracks, or fractures, in underground rock formations of up to 7,700 meters below ground level to extract gas (and oil) from shale.

Before fracking for gas begins, geoscientists assess the permeability and porosity of rock formations and thickness of the targeted shale formation.

Once a potential site has been chosen, a hole is drilled deep into the ground vertically and then horizontally, placing frack plugs into the shaft.

A liquid mixture including large amounts of water, chemicals and sand is then pumped into the well.

The liquid goes into the holes created in the well bore and into the surrounding rock formations, fracking the rock and injecting the liquid into the cracks to hold them open.

Water pressure is reduced and fluids are carried up the well bore for disposal or treatment and re-use, leaving sand in place to keep the cracks open and let gas flow up to the surface.

ECONOMIC VIABILITY

Although shale technology offers large amounts of potential energy resources, political, environmental, legal and economic difficulties mean it may not be viable in some regions.

According to research from the University of Pittsburgh, use of hydraulic fracking to extract shale gas is extremely expensive.

Drilling just a single shale gas well can add $2.5 million to the overall total cost for a conventional well of up to $7.6 million on average, according to the research.

In the United States it is estimated prices between $5.50 per million British thermal units (Btu) and $6/mBtu are needed for shale gas production to be economically sensible.

In Europe, conventional sources of gas supplies and liquefied natural gas (LNG) imports compete with shale, and many analysts predict shale extraction will remain too expensive in Europe to compete with these sources.

The Economist Intelligence Unit forecasts climbing U.S. demand means that the price of gas will rise over 20 percent in 2012 and 8 percent the following year, pushing prices up by late 2012 or 2013 toward $6 per million Btu.

ENVIRONMENTAL IMPACT

A shale gas subcommittee of the U.S. Secretary of Energy Advisory Board identified four major environmental issues raised by the extraction of shale gas in a report released in August: possible pollution of drinking water, air pollution, community disruption and disruptive impact on ecosystems.

Air pollution is a particular trouble spot for the industry. Those on the production side say shale gas is a useful way of cutting carbon emissions, producing little more than half as much CO2 per unit of energy as coal.

However, some researchers say excessive methane emissions from shale gas production outweigh the benefits. Methane is a powerful greenhouse gas and some academic research suggests methane ejections are more polluting overall than coal or oil.

LEGAL OBSTACLES

In May 2011, the French government banned hydraulic fracturing on the basis of environmental concerns, in effect nullifying two exploration licenses issued last year to Schuepbach Energy and one exploration license to Total last year.

Europe also faces legal battles on property rights.

While U.S. land owners also own the resources in their grounds, Europeans generally do not have the right to privately sell commodities found on their land.

(Compiled by Philip Baillie; Editing by Henning Gloystein and Anthony Barker)