Two insightful recent books tell the story of the shale gas revolution – Gregory Zuckerman's The Frackers and Russell Gold's The Boom. Both view it from the vantage of the stubborn entrepreneurs who persisted against industry consensus to make hydraulic fracturing of shales work, such as George Mitchell of Mitchell Energy and Aubrey McClendon of Chesapeake. And both present it as a uniquely American phenomenon.
This interpretation raises two interesting questions. Is the shale gas boom really the creation of a few brilliant wildcatters, or was it the inevitable outcome of higher prices and advancing technology? And why has shale gas not emerged in a region with more favourable geology, such as the Middle East?
Mitchell persisted in fracking the Barnett Shale in Texas during the 1990s despite poor results and low gas prices. A senior executive at a major oil company told me in 2002 that his company would not have drilled those wells, regarding them as marginal. But in 1998, Mitchell Energy had changed its fracking formula. The new wells were cheaper and more productive.
Combining this technique with horizontal drilling and helped by sharply rising gas prices, encouraged the industry to set out to find other shales across North America. By 2009 the US was well on the way to gas self-sufficiency, and the glut brought prices crashing again – a boost to industry and householders. The new techniques were unleashed to develop oil too, and the US is now close to being the world’s largest producer, turning around a 40-year decline.
Mitchell’s persistence eventually unlocked the Barnett Shale. But neither hydraulic fracturing nor horizontal drilling was new. Hydraulic fracturing dates back to the 1940s and has been widely used since the 1980s to produce gas from “tight” (impermeable) sandstones. Free market advocates like to hail the shale entrepreneurs, but government support was also key – cash for research programmes and tax breaks for unconventional production.
Several companies were experimenting with similar techniques, and the higher gas prices were a huge incentive. The vision, and some lucky experimentation, of the frackers accelerated the shale boom by several years, but it would have arrived eventually.
Another of Zuckerman’s heroes hails from our region. Charif Souki was brought up in Egypt and Lebanon. Now the company he founded, Cheniere, is likely to be the first to export liquefied natural gas from the continental US, starting late next year. Mr Souki has followed a long and winding path, with Cheniere originally intending to import gas into the US, and nearly ran out of money several times. But his particular talent was to convince investors – including wealthy connections he had developed around the Gulf.
The Middle East has a huge petroleum industry, abundant capital and exceptional geology, with thick, extensive oil and gas-bearing shales. Sara Akbar of Kuwait Energy, Majid Jafar of Sharjah-based Crescent Petroleum and the Saudi citizen Abdel Jaleel Al Khalifa, the chief executive of Dubai-headquartered Dragon Oil, lead independent oil companies.
Many countries in the region are now short of gas, while lesser producers such as Mr Souki’s childhood home Egypt would be glad of more oil production. So why could he not pursue his fortune in this region?
Two crucial facts block shale entrepreneurs here. Gas prices across the region are set by governments at low levels, not enough to make shale drilling economic. And exploration rights are monopolised by national oil companies, or at best require exhaustive negotiations with the state on tough terms.
Until these policies change, the Gulf’s vast shale potential will remain inaccessible, and Zuckerman or Gold will not be able to write a sequel recounting the deeds of a Middle Eastern fracker.
Robin Mills is the head of consulting at Manaar Energy and the author of The Myth of the Oil Crisis
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