Of the $317 billion worth of oil and gas deals struck in 2011, $66 billion were shale-related transactions, up from $55 billion the year before. That trend is set to continue, and at the expense of investment in traditional renewables, says Ernst & Young’s Asia-Pacific Oil & Gas Leader Sanjeev Gupta.

The 2012 year has already started off strongly for shale, with China Petrochemical Corp. or Sinopec, making its first entry into the U.S. shale market through a $2.5 billion deal with Devon Energy Corp.

France’s Total SA also paid $2.3 billion for a stake in Chesapeake Energy Corp.’s shale fields in Ohio. On Friday, a unit of China National Petroleum Corp., PetroChina Co., said it had bought a 20% stake in Royal Dutch Shell PLC’s shale asset in Canada for undisclosed terms.

Despite all the attention surrounding the shale craze in North America, it’s China that has the world’s largest shale reserves, or 19% of global resources, according to Ernst & Young. The U.S. Energy Information Administration estimate China’s shale reserves to be as much as 1,275 trillion cubic feet, more than the agency’s combined estimates for the volumes in the U.S. and Canada.

“If the potential in this asset base can be unlocked, this could transform the oil and gas landscape in years to come,” said Ernst & Young. That could be many years away as China doesn’t have the technology to exploit its own reserves yet, particularly as much of China’s deposits are located on hostile terrain. But every foreign deal China does brings it closer to acquiring that technology and using it at home, so that it becomes less dependent on foreign energy sources.

This post by Isabella Steger originally appeared in the WSJ

Environmentalists prefer the disclosure to the public be made on the web as well as by certified mail to landowners living within two miles of the fracking, Dusty Horwitt, senior counsel of the Environmental Working Group, said in a telephone interview.

The draft of the measure only says the information “will become a matter of public record.”

“There are some good elements in the rule,” Horwitt said after being shown a draft.

Among his concerns are an exemption from disclosure of trade secrets.

“Our concern is whether the exemption would swallow the rule,” he said.

The Obama administration will require companies operating on public lands, such as Chesapeake Energy Corp. to report a complete makeup of chemicals used in the fluid, and the volume of fluid used. The agency also will require drillers to disclose the source, access route and transport for all water anticipated to be used in the well, according to the draft rule obtained today and confirmed by the Interior Department. MORE

Like other forms of petroleum production, and innovative technologies such as liquefied natural gas and nuclear, shale gas and oil need a political “licence to operate”. The still-born nuclear industry shows what happens when industry and regulators fail to win the public argument over safety and environmental impacts.

Hydraulic fracturing has already unleashed a storm of protest threatening the technology’s viability. Critics point to the enormous amount of water used, stressing supplies for households and farming, the potential for cancer-causing chemicals to seep into freshwater aquifers, risk of earthquakes, and the enormous number of truck movements disrupting local communities, not to mention the impact on global warming.  MORE

China’s biggest oil producer said yesterday it bought a 20 percent stake in Shell’s Groundbirch shale-gas project in British Columbia. The two companies also plan to increase drilling in China to 20 to 25 wells this year from 15 in 2011, Shell’s Chief Financial Officer Simon Henry said.

Source: Bloomberg

“We are going to the lower end of our investment in the United States for shale gas,” Chief Executive Officer Peter Voser said today in an interview with Owen Thomas on Bloomberg Television’s “On the Move.” “But on the other side, we will increase investment in the United States for oil-rich shales” as “that is a new area for us, which we are now planning to ramp up.”

U.S. natural gas prices have dropped to a 10-year low, while oil prices gained 40 percent in the past two years. Chesapeake Energy Corp. the second-largest U.S. gas producer, said last month it will cut output, idle rigs and reduce spending on fields by 70 percent.

ConocoPhillips, Cabot Oil & Gas Corp. and EQT Corp. have also said they may curtail drilling. Natural gas futures are trading at about $2.40 per million British thermal units, down from $13.57 in July 2008.

Shell “normally” spends $3 billion to $5 billion a year on U.S. shale gas projects and expects to maintain investment at $3 billion this year, Voser said. Exxon Mobil Corp., the largest U.S. producer said yesterday it hasn’t curbed output in response to prices.

Production Forecast

Shell plans to produce about 250,000 barrels of oil equivalent a day in 2017 from liquids-rich shale, it said today in a statement.

The Anglo-Dutch company in May forecast that production of shale and tight gas in the U.S. could “easily” pass 400,000 barrels of oil equivalent a day in 2015 if investment decisions are taken.

Shell has one of the biggest exposures to tight gas in the U.S. among European companies, according to Sanford C. Bernstein & Co.

Gas in shale and other so-called tight-rock formations has turned the U.S. into the world’s largest producer. The same technology of hydraulic fracturing and horizontal drilling may also be able to unlock as much as 100 billion barrels of recoverable oil in the U.S. and Canada, ConocoPhillips CEO Jim Mulva said Jan. 18.

Source: Bloomberg

Word on the street is that PetroChina, China’s biggest oil-and-gas producer and distributor, plans to pay slightly more than $1 billion for a 20% stake in a Shell shale gas property in Canada.

For PetroChina to purchase Shell’s Groundbirch operations, located in British Columbia, the companies need approval from both nations, which appears to be in place. MORE

The Obama administration’s endorsement last week of shale gas as a major pillar of its made-in-America energy vision ensures a long-term future for the resource.

The big question is: How does the North American sector survive today’s depressed market environment so it can deliver the 600,000 jobs and the economic stimulus expected from shale gas development?

For companies like Calgary-based Encana Corp., one of the top shale gas producers in the U.S., it comes down to short-term pain for long-term gain.

“You will see less and less drilling for a period of time,” Eric Marsh, executive vice-president, natural gas economy and senior vice president, USA division, said in an interview.

“We continue to produce the gas we have on, and we wait for the day to ramp the rigs back up and get after it when the price gets to a point that investment will make sense.”

Despite concerns about the environmental impacts of shale gas, ranging from underground water contamination to chemical use, U.S. President Barack Obama effectively conveyed in his State of the Union speech: “We’ll work with it rather than against it.”

In other words, the U.S. sees shale gas as a major contributor to its goal of energy independence and will encourage its use even if fossil-fuel critics don’t like it, while adopting strict regulation to ensure it’s produced safely.

But the discovery of a century’s worth of shale gas on the continent has resulted in a glut in supplies that has sunk prices to the US$2.70 per thousand cubic feet range, far below the US$5 to US$7 level required in North America to produce the resource economically. Companies like Chesapeake Energy Corp. and ConocoPhillips are shutting in gas wells. Encana may announce similar plans when it gives its year-end results on Feb. 17.

Still, Mr. Marsh said measures announced by the U.S. last Friday to support natural gas use in transportation are good news for the sector.

They include: new incentives for medium- and heavy-duty trucks that run on natural gas or other alternative fuels, the development of transportation corridors for trucks fueled by liquefied natural gas; programs to convert municipal buses and trucks to run on natural gas.

More demand stimulus is expected from power generation, which is increasingly switching from coal to natural gas, as well as rising industrial demand.

The gas producer, which is active in U.S. gas plays like the Haynesville in Louisiana and the Jonah in Wyoming, expects North American demand to rise to 100 billion cubic feet a day (bcf/d) by 2020, from today’s 75 bcf/d.

The sector’s success in winning over the U.S. administration comes after a long campaign that sought to learn from the mistakes made by the oil sands side of the industry, such as poor communication practices.

Encana was one of the leaders of that campaign, which included a meeting by its CEO, Randy Eresman, with U.S. Energy Secretary Steven Chu, to explain the immense opportunity offered by shale gas.

“We advocated with the federal government of the U.S. for at least three and a half years, more to get the information out,” said Mr. Marsh, who is based in Dallas.

“We work with all of our various state governments to do the same in areas where we operate. We work very hard in educating the public as well.”

Those lessons have not been lost on the Canadian side of the border.

Here, industry is taking the lead.

The Canadian Association of Petroleum Producers announced Monday new practices for shale gas development that include disclosing chemicals, monitoring ground water, mitigating risks, and ensuring there is a spill response plan in place.

In a speech to an industry group, president David Collyer said industry believes it can produce shale gas safely, but also acknowledges the public is concerned and those concerns need to be addressed through improved performance and greater transparency.

Mr. Collyer said the adoption of best practices will help raise the bar on regulation, which is inconsistent from province to province.

What it all points to is a new level of maturity on the part of industry, government and communities to understand and accommodate each others’ goals. It’s a great place for shale gas to be, even if the market hasn’t caught on.

Source: Financial Post

“The hydraulic fracturing operating practices demonstrate the Canadian natural gas industry’s continued efforts to ensure responsible resource development and protection of Canada’s water resources,” said CAPP President Dave Collyer. “Applying these new operating practices will contribute to improving our environmental performance and transparency over time, both of which contribute to stronger understanding of industry activity and better relationships with the public, stakeholders and government.”

Developed by natural gas producers, the hydraulic fracturing operating practices apply to all CAPP members exploring for and producing natural gas in Canada.

Read more from the CAPP here

The Wall Street maxim is that they never ring a bell at the top. However, on January 23, Chesapeake Energy did ring a bell at the bottom. The undoubted leader of the shale gas revolution announced that it would reduce drilling expenditures this year by more than 70 per cent, curtail its gas production by 8 per cent, cut land buying by $2bn, and allow uneconomic gas leases to expire. In response, the US natural gas price rallied by nearly 8 per cent the same day. MORE (Registration required)

When someone invites you to a party but leaves before dessert, it might be time to locate your own coat and hat. Such are the suspicions generated by Chesapeake Energy, which after selling numerous billion-dollar pieces of its vast shale gas holdings to the world’s largest energy companies has abruptly announced that it is drawing down.

A Chesapeake-led rage in shale gas has gone on for some four years, ignited by advances in a drilling method called hydraulic fracturing. In the beginning, Oklahoma-based Chesapeake, run by a wildcatter named Aubrey McClendon, was among the most aggressive acquirers of shale gas leases in the United States. A Forbes writer described McClendon as perhaps “reckless,” but also “charming” and “erudite,” not to mention youthful, ingenious and even heroic. (At O&G, we have found McClendon temperamental and ideologically self-destructive to a degree that risked the entire shale-gas bonanza, but that’s just us.)

Altogether, drilling by Chesapeake and other companies has since then transformed the U.S. from a natural gas importer into a country so awash in gas that it may spend decades as an exporter. Russia has been rendered less secure in Europe, and China may shake things up further by opening up an even larger shale-gas frontier.

Along the way, Chesapeake has generously let later-comers into the game. Among McClendon’s deals, he got $3.6 billion from BP for a 25 percent stake of Chesapeake’s Fayetteville shale in Ohio, and all of its Woodford Shale of Oklahoma’s Arkoma Basin. A year ago, McClendon got $4.75 billion for Chesapeake’s Fayetteville Shale holdings from Australian mining giant BHP Billiton. That was just after he did a $1.3 billion deal with China’s CNOOC for a piece of his company’s Niobrara Shale, straddling Colorado and Wyoming.

Four weeks ago, Chesapeake disclosed another blockbuster deal — a $2. 3 billion partnership with France’s Total for part of the company’s Utica Shale holdings in Ohio.

But last week, Chesapeake announced that the risk is too high. The shale-gas rush had resulted in the historical boom-bust bane of the oil patch — massive over-production, and a price collapse — and McClendon was moving on; oil, for example, was looking pretty good, the company said. In an amusing piece at the Financial Times, John Dizard, a long-time shale gas skeptic, quotes from Catch-22, and goes on to describe Chesapeake’s announcement:

The Wall Street maxim is that they never ring a bell at the top. However, on Jan. 23, Chesapeake Energy did ring a bell at the bottom. The undoubted leader of the shale gas revolution announced that it would reduce drilling expenditures this year by more than 70 per cent, curtail its gas production by 8 per cent, cut land buying by $2 billion, and allow uneconomic gas leases to expire.

ConocoPhillips followed quickly with its own gas-patch pullback.

These moves are valid. The history of John D. Rockefeller informs us that, when faced with fire-sale prices and no sign of an uptick, you either have to drive your competitors out of business, or reduce your own supply by closing down some operations. In a note to clients this morning, Bernstein Energy’s Bob Brackett suggests that low prices and the rush to get out of the market may ultimately present an excellent buying opportunity for cash-rich bargain-hunters.

One only notes that McClendon was not signaling his new religion as recently as a month ago, when he was helping himself to Total’s billions. According to calculations by Bloomberg’s Joe Carroll and Jim Polson (who relied on numbers provided by the consultants IHS Inc.), Total paid $15,000 an acre for the Chesapeake property, or “more than four times the average per-acre price from seven Utica shale transactions tracked by IHS from March 2011 to September 2011.” This seemed like a bubble. The Jan. 18 Bloomberg piece quotes IHS analyst Sven Del Pozzo: “I don’t feel confident that the prices being paid now are justified. I’m wary.”

Conoco CEO Jim Mulva has since gone on a promotional tour to get Americans to use more of the fuel. He is urging the Obama Administration to regulate lightly to encourage shale oil drilling. The rest of the industry is saying the same. This is late: Two years ago, the shale drilling industry declined an Obama Administration effort to make Big Gas part of its climate-change agenda, boosting the consumption of gas in order to lower the emissions of heat-trapping gases; industry players suggested that they wouldn’t cooperate with the White House because global warming doesn’t exist.

The White House effort collapsed. But not Aubrey McClendon’s shale swagger.

This post by Steve LeVine originally appeared on his blog, The Oil and the Glory