January 17, 2013

The shale revolution cometh

Map of 48 major shale gas basins in 32 countries (EIA).

Synchronicity of events often leads to revolutions in business. The recent startling importance of shale gas as an energy source, coming at a time when the Arctic melt has opened up new sea routes between the Pacific and Atlantic- and when global LNG demand is rising- promises to change everything. Geopolitically, environmentally, economically- and for shipping. 

Shale is sedimentary rock within which natural gas can be trapped, and piped or shipped anywhere. Large shale gas deposits exist in the US, China, Poland, Australia, Canada, Russia, France and elsewhere. (Indian estimates of shale gas deposits seem suspiciously high, at anything between 600 and 2000 trillion cubic metres, but decent reserves apparently do exist.) And, although shale gas extraction has been going on for some time, political and environmental developments have pushed the hunt for shale gas right up to the front of the queue. Energy guzzling US, for example, can well become- thanks to its vast reserves- a net exporter of energy in the not too distant future. Even if that does not happen, the US sits on huge reserves that equal 20 years’ worth of consumption- and Obama wants to make the country energy independent. Shale gas made up 23 % of total U.S. natural gas production in 2010 and could constitute 49 % of U.S. total natural gas production in 2035, says the country’s Energy Information Administration (EIA). Shipping may well find in the future that US energy imports simply do not exist, and that gas exports from the US are being discouraged for geopolitical reasons to do with self-sufficiency; shipping’s tankers may have to look for other markets.

Arctic melt- new sea routes (BBC)
Synchronous with the shale gas story is the tale of the melting of the Arctic and the rise, post Fukushima, of LNG demand from Japan. The ‘Ob River’, a 150,000 cubic meter LNG tanker, became the first ship of its type to use the Arctic Sea Route between Europe and Japan last month. Escorted by Russian icebreakers, it made the voyage across the Barents Sea and north of Russia in just under a month. It saved 20 days on the trip- 40 per cent of the distance. Ditto for fuel, obviously. Given these numbers, the number of ships, including LNG ships, sailing across the Northern Routes is set to explode, especially since the Arctic is getting more navigable every year. 

Sure, there are problems with shale. For a start, some studies say that the quantum of reserves are grossly overstated, and that significant amounts of what is actually there is not recoverable, given technological issues and cost. Other concerns are environmental; although natural gas is cleaner than conventional fossil fuels, shale gas extraction often means huge amounts of freshwater use, greenhouse gas emissions, groundwater contamination, hydraulic fracturing and induced seismicity.

But this is what I strongly predict will happen- shale gas exploration will accelerate- even explode- provided deposits are economically exploitable. That is the way all such stories go, so why should it be different now? Maybe technology can mute some concerns, but the world will not have environmental sustainability on top of its agenda this time, either; it never has. Sad but true. Look at the Arctic melt and the environmental time bomb we are sitting on there, energy exploration, mineral reserves, new sea routes and all.  Look at the reasons for the melt in the first place; even those warning signs foreshadowing disaster are ignored today.

That aside, the impact on shipping of this revolution will be huge as energy markets undergo a metamorphosis and as routes through melting ice become commonplace. Within shipping, the pendulum will swing towards the West, which will not only provide newer technologies for gas extraction because of its head-start and expertise, but also produce much of the product. 

And carry it too, probably, if frigid waters are involved. Asian shipowners and crews have traditionally little experience in navigating in ice. Their disarrayed training and employment systems will have to undergo a metamorphosis if they want to cater to new professional demands that will undoubtedly be made of them. 


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