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Shale Natural Gas: The Energy of the Future?

This April, the US Energy Information Administration released the 2011 edition of its Annual Energy Outlook. The report contains the EIA’s predictions of future energy supplies, prices, and regulations. Perhaps the most important piece of information that came from the report was the rapid growth of shale natural gas as a viable energy source. Shale natural gas is natural gas which is trapped in large underground shale formations. Extracting the gas historically has been a difficult and highly expensive process, but recent technological advances such as horizontal drilling, and hydraulic fracturing have lowered costs, making shale natural gas a cost effective energy source.

Because it is now possible to earn profits extracting natural gas from shale formations, production has seen rapid growth in recent years. According to the 2011 annual energy outlook, shale gas production in the United States grew by an average annual rate of 17% from 2000 to 2006 and by an incredible average annual rate of 48% from 2006 to 2011. Shale natural gas is a plentiful resource. Surveys of shale gas deposits have revealed huge worldwide reserves of natural gas. A recent article released by the EIA surveyed shale gas reserves in thirty-three nations. Their findings indicated an estimated 6,622 trillion cubic feet of recoverable shale natural gas within the surveyed nations. The total shale natural gas found in just these thirty three nations, which do not include the fuel rich regions of Russia and the Middle East, is slightly greater than the amount of gas in the world’s proven natural gas reserves. The EIA article referred to America’s shale natural gas deposits as a, “game changer” for the US natural gas market. The United States alone is estimated contain 862 trillion cubic feet of shale natural gas which contains the equivalent amount of energy as 148.6 billion barrels of oil, and could provide reliable energy for years to come.

Unfortunately, the American government, and the current administration, tends to have a preference for renewable or “green” energy sources such as solar and wind power, overlooking the significance of the nation’s natural gas reserves. There is nothing wrong with utilizing alternative energy sources. However, to be an effective source of large scale energy production, any energy source needs to be cost effective. Currently, large scale energy production from most alternative energy sources is too expensive to compete on the free market. Perhaps future technological advances will lower the cost of producing solar, wind, and other renewable energy sources. For now, however, most alternative energy sources are unreliable, and simply cost more than they are worth. Alternative energy sources are usually backed by numerous government grants, regulations, and tax benefits designed to subsidize their high cost. However, no matter how much the government subsidizes ethanol or promotes “green jobs,” until alternative energy can be produced cheaply enough to compete in the free market it cannot be relied on to meet our energy needs.

Natural gas, on the other hand, is a proven cost effective fuel source. Natural gas is abundant in the United States and appears to be a much more promising as an energy source.  However, the advent of new drilling techniques has led to calls for new regulations on recovering shale natural gas. Overregulation of shale gas extraction, production, and use would interfere with the market process, driving up the prices paid by consumers and reducing producers’ incentives to invest the necessary capital. Overregulation could lead to a situation where vast shale reserves, which under a free market could be an affordable and reliable long term energy source, becoming artificially expensive to the point where they are no longer economically viable and go unused.

The future of shale natural gas as a major fuel source depends largely on the size and quality of unmapped deposits, energy prices, and the technology used for extraction. In the end, however, the future of shale natural gas also depends on the level of regulation, which could threaten the development of this energy resource. If the extraction and production of natural gas from shale continues to be profitable, current producers will expand their operations, and more producers will enter the market. The end result would be the utilization of expansive existing shale reserves, and lower prices for natural gas. America has vast reserves of usable energy. Instead of wasting taxpayer money pushing expensive and often unreliable, “green” sources of energy, the government needs to stay out of the way and allow the free market to take advantage of our more reliable energy reserves.