By Robert Campbell
NEW YORK, April 2 Any optimistic view of oil and
gas supplies in the wake of the shale revolution must be
tempered by an acceptance that the politics that crimped
conventional energy production are not going away any time soon.
The shale revolution in the United States is the basis for
much optimism. Just a few years ago expert opinion was that the
country was on track to become a major importer of natural gas,
probably from the Middle East.
Now its gas industry is weathering a crisis as a boom in
local shale gas production has taken gas prices down to 10-year
lows. Shale oil has also disrupted the local industry and
triggered a renaissance in onshore production.
But so far this phenomenon has proven difficult to export,
even though significant known, technically recoverable shale gas
resources are scattered worldwide.
Take the case of Argentina, home to the third largest known,
technically recoverable shale gas resource in the world,
according to a 2011 U.S. government study.
Although YPF, the privatized former state oil
company and top acreage holder in Argentina, has been trumpeting
its potentially mammoth shale energy resources, its shares are
down more than 20 percent from their January high.
Look no further than local politics for the explanation. An
increasingly messy fight with the government over its investment
record has led to threats that YPF could lose its concessions or
even face renationalization.
At the root of the dispute is Argentina's slumping energy
output, which is forcing the country to spend billions on
imports of diesel fuel and liquefied natural gas to keep the
Crude oil output fell 5.9 percent in 2011, while natural gas
production declined 3.4 percent, according to the Argentine
Institute of Petroleum and Gas.
Energy companies blame Argentina's system of price caps on
local oil and gas production that they say has cut the
profitability of investments in existing fields.
Investors like ExxonMobil are keen to exploit shale
deposits in their concessions but are wary of vague government
policies that cloud potential returns on investment.
CHINA, FRANCE, MEXICO
Or take the cases of France and Mexico.
France is believed to have 180 trillion cubic feet of
recoverable shale gas, roughly a fifth of the resources of the
United States, but fears over groundwater contamination have put
the resource off limits.
The decision has forced supermajor Total, one of
the most enthusiastic shale oil and gas investors, to forgo
hugely promising deposits in its own backyard.
Mexico is also believed to have massive shale reserves, not
only of gas, but also oil. The prolific Eagle Ford trend in
Texas extends across the border into Mexico, but little is being
done to exploit the resource.
Aside from a few test wells, Mexico has shown little
enthusiasm for shale gas development. Given tight restrictions
on the use of private capital in the oil and gas industry, state
oil monopoly Pemex has preferred to direct its investment budget
at oil prospects and import gas from Texas to meet local demand.
What is significant about these three cases is that Mexico,
France and Argentina together hold about one-quarter of the
world's technically recoverable shale gas identified in the 2011
U.S. study. And for the most part these resources are
constrained not by geology and markets, but by local politics.
Indeed, shale oil and gas reservoirs may be found worldwide
but their successful exploitation is by and large a North
And there are a number of reasons to think shale may remain
a mainly North American phenomenon for a while.
Here it is worthwhile revisiting some of the unique reasons
why this has happened:
A stable (for the most part) regulatory regime, a dynamic
industry mostly made up of hundreds of small, entrepreneurial
firms, and well-developed markets both for energy products and
capital are key features of the North American energy industry.
Nowhere else in the world do these factors co-exist with
large resource bases.
Shale oil and gas may yet go global, but the same hurdles
that have hindered conventional oil and gas development remain.