Experts predict that in the long term, shale gas production will not be sustainable in the United States. The photo shows a shale gas well in Montrose, in the U.S. state of Pennsylvania. Credit: Emilio Godoy/IPS

By Emilio Godoy
WASHINGTON, Oct 7 2015 (IPS)

The emergence of fracking has modified the global market for fossil fuels. But the plunge in oil prices has diluted the effect, in a struggle that experts in the United States believe conventional producers could win in the next decade.

The U.S. oil industry had peaked – when the discovery of new deposits and output from existing wells begins to fall – which made the country more dependent on imports. But the equation was turned around thanks to the new technique.“The bubble won’t explode, but it will progressively deflate. At current prices, we would see a relatively quick shrinking of capital availability for the shale sector, because those companies are producing at a loss.” -- David Livingston

The innovative technology of hydraulic fracturing or fracking and the discovery of large deposits of shale gas and oil, along with massive investment flows, led to predictions that the United States would become autonomous in fossil fuels this decade. But these forecasts have been undermined by the drop in prices.

“The world is entering a new era of uncertainty in the geoeconomics of oil,” said David Livingston, an associate in the Energy and Climate Programme of the U.S. Carnegie Endowment for International Peace. “It is far from certain that the notoriously volatile oil market will become less cyclical.”

The analyst told IPS that as a result of domestic U.S. demand, “Companies will lose spare capacity, between what they can produce and what they produce, which is important, because the market is determined by that capacity.”

After 2003 international oil prices climbed, to 140 dollars a barrel in 2008, when the global financial crisis brought them down.

This decade they rallied, to around 100 dollars a barrel. But they have fallen again since late 2014, to about 40 dollars a barrel.

That means U.S. producers, in particular shale gas producers, are facing extremely low prices, overproduction, a lack of infrastructure for storing the surplus and a credit crunch for the industry’s projects, even though prices have gone down.

In addition, China’s economic slowdown and Europe’s stagnation are hindering the recovery in demand for energy.

The development of shale oil and gas has also put the U.S. industry on a collision course with the members of the Organisation of the Petroleum Exporting Countries (OPEC), especially since one of its widely touted objectives is to reduce imports from that bloc.

A warning about the danger of methane emissions in one of the shale gas Wells in Dimock, Pennsylvania. Credit: Emilio Godoy/IPS

Since November 2014, OPEC has kept its production quotas stable, as part of a strategy imposed by the bloc’s biggest producer, Saudi Arabia, aimed at keeping prices low and discouraging the development of shale deposits, which are much more costly to tap into than the organisation’s conventional reserves.

In late 2014, the Norwegian consultancy Rystad Energy put the cost of producing a barrel of shale oil in the United States at 65 dollars a barrel, which means the industry is operating at a loss. The average cost of extracting a barrel of conventional oil in that country is 13 dollars, compared to five dollars in the Gulf.

For Miriam Grunstein, a professor at the Centre for Economic Research and Teaching (CIDE) in Mexico, the outlook is very uncertain.

“There are doubts for several reasons. First of all, due to the low prices,” she told IPS from Mexico, which has begun to explore its significant reserves of shale gas.

“Although it has forced many companies to improve their operating capacity, reduce investments and achieve greater efficiency, they are in an environment where they have to look for markets, in Europe or Asia. But that requires liquefaction infrastructure, which implies major investments,” she added, referring to the current situation faced by shale gas producers.

In June, the United States produced 9.3 million barrels per day of crude oil, about half of which was shale oil, according to data from the Energy Information Administration (EIA).

The prospects for the industry are beginning to look less promising. In its Drilling Productivity Report published in late August, the EIA projected a fall in shale gas production in September, for the first time this year, to 44.9 billion cubic feet per day.

The agency stressed that output from new wells is not enough to offset the decline in existing wells.

For Livingston, “OPEC as an institution – and Saudi Arabia, its leader – is likely to emerge from this paradigm shift stronger than before in many ways. With its new strategy – one born out of necessity – the kingdom is emphasising market share, rather than price, while also moving to delegate the burden of balancing the world oil market to the U.S. shale industry.”

The United States would become the new “swing producer”, although without achieving the same power as the Gulf producers in influencing the market.

In the long run, total U.S. oil production will tend to drop, according to EIA projections. In 2020, crude oil production is expected to stand at 10.6 million barrels per day; in 2030, 10.04; and 10 years later, 9.43.

In the case of shale gas, projections are favourable, but at higher prices. In 2020, the country should be producing 15.44 trillion cubic feet per day; 10 years later 17.85; and in 2040, 19.58.

In total, the EIA forecasts that the country will produce 28.82 trillion cubic feet per day of natural gas in 2020; 33.01 in 2030; and 35.45 in 2040.

But the average price will go up. This year, the Henry Hub reference price for U.S. natural gas has stood at 2.93 dollars per million British thermal units (Btu), the heat required to raise the temperature of one pound of water.

The price should go up to 4.88 dollars per Btu in 2020; to 5.69 in 2030; and to 7.80 in 2040.

“The bubble won’t explode, but it will progressively deflate. At current prices, we would see a relatively quick shrinking of capital availability for the shale sector, because those companies are producing at a loss,” said Livingston.

Grunstein said: “Saudi Arabia’s aim is to keep the United States from becoming a major exporter. The strong markets exert the most pressure. If demand does not recover, the demand-price ratio is awkward. Consumption is needed, and I don’t see where it would come from.”

Livingston said one option is to review the 1970s-era ban on exporting U.S. crude oil, because “If production rises, refineries can’t process it and therefore new markets are needed.”

Edited by Estrella Gutiérrez/Translated by Stephanie Wildes

Tank trucks being filled with water in front of Osman Bin Affan Mosque in Beirut. Credit: Oriol Andrés Gallart/IPS

By Oriol Andrés Gallart
BEIRUT, Jul 28 2014 (IPS)

In front of Osman Bin Affan Mosque, in a central but narrow street of Beirut, several tank trucks are being filled with large amounts of water. The mosque has its own well, which allows it to pump water directly from the aquifers that cross the Lebanese underground. Once filled, the trucks will start going through the city to supply hundreds of homes and shops.

In a normal year, the water trucks do not appear until September, but this year they have started working even before summer because of the severe drought currently affecting Lebanon.

This comes on top of the increased pressure on the existing water supply due to the presence of more than one million Syrian refugees fleeing the war, exacerbating a situation which may lead to food insecurity and public health problems.“The more we deplete our groundwater reserves, the less we can rely on them in the coming season. If next year we have below average rainfalls, the water conditions will be much worse than today” – Nadim Farajalla of the Issam Fares Institute (IFI)

Rains were scarce last winter. While the annual average in recent decades was above 800 mm, this year it was around 400 mm, making it one of the worst rainfall seasons in the last sixty years.

The paradox is that Lebanon should not suffer from water scarcity. Annual precipitation is about 8,600 million cubic metres while normal water demand ranges between 1,473 and 1,530 million cubic metres per year, according to the Impact of Population Growth and Climate Change on Water Scarcity, Agricultural Output and Food Security report published  in April by the Issam Fares Institute (IFI) at the American University of Beirut.

However, as Nadim Farajalla, Research Director of IFI’s Climate Change and Environment in the Arab World Programme, explains, the country’s inability to store water efficiently, water pollution and its misuse both in agriculture and for domestic purposes, have put great pressure on the resource.

According to Bruno Minjauw, Food and Agriculture Organization (FAO) representative ad interim in the country as well as Resilience Officer, Lebanon “has always been a very wet country. Therefore, the production system has never looked so much at the problem of water.”

Referring to the figures for rainfall, Minjauw says that “what we are seeing is definitely an issue of climate change. Over the years, drought or seasons of scarcity have become more frequent”. In his opinion, the current drought must be taken as a warning: “It is time to manage water in a better way.”

However, he continues, “the good news is that this country is not exploiting its full potential in terms of sustainable water consumption, so there’s plenty of room for improvement.”

Meanwhile, water has become an issue, with scarcity hitting particularly hard the agricultural sector, which accounts for 60 percent of the water consumed despite the sector’s limited impact on the Lebanese economy (agriculture contributed to 5.9% of the country’s gross domestic product in 2011).

“Some municipalities are limiting what farmers can plant,” explains Gabriel Bayram, an agricultural advisor with KDS, a local development consultancy.

Minjauw believes that there is a real danger “in terms of food insecurity because we have more people [like refugees] coming while production is diminishing.” Nevertheless, he points out that the current crisis has increased the interest of government and farmers in “increase the quantity of land using improved irrigation systems, such as the drip irrigation system, which consume much less water.” Drip irrigation saves water – and fertiliser – by allowing water to drip slowly through a network of  tubes that deliver water directly to the base of the plant.

FAO is also working to promote the newest technologies in agriculture within the framework of a 4-year plan to improve food security and stabilise rural livelihoods in Lebanon.

Sheik Osama Chehab, in charge of the Osman Bin Affan Mosque, explains that, 20 years ago, water could be found three metres under the ground surface. “Yesterday,” he told IPS, “we dug 120 metres and did not find a drop.”

Digging wells has long been the main alternative to insufficient public water supplies in Lebanon and, according to the National Water Sector Strategy, there are about 42,000 wells throughout the country, half of which are unlicensed.

However, notes Farajalla “this has led to a drop in the water table and along the coast most [aquifers] are experiencing sea water intrusion, thus contaminating these aquifers for generations to come. The more we deplete our groundwater reserves, the less we can rely on them in the coming season. If next year we have below average rainfalls, the water conditions will be much worse than today.”

Besides, he cautions, “most of these wells have not passed quality tests. Therefore there are also risks that water use could trigger diseases among the population.”

The drought is also exacerbating tensions between host communities and Syrian refugees.

The rural municipality of Barouk, for example, whose springs and river supply water to big areas in Lebanon, today can count on only 30 percent of the usual quantity of water available. However, consumption needs have risen by around 25 percent as a result of the presence of 2,000 refugees and Barouk’s deputy mayor Dr. Marwan Mahmoud explains that this has generated complaints against newcomers.

However, Minjauw believes that “within that worrisome context, there is the possibility to mitigate the conflict and turn it into a win-win situation, employing both host and refugee communities in building long-term solutions for water management and conservation as well as forest maintenance and management. This would be beneficial for Lebanese farmers in the long term while enhancing the livelihoods of suffering people.”

For Farajalla, part of the problem related to water is that “there is a general lack of awareness and knowledge among decision-makers” in Lebanon, and he argues that it is up to civil society to lead the process, pressuring the government for “more transparency and better governance and accountability” in water management.

He claims that “the government failed with this drought by not looking at it earlier.” So far, a cabinet in continuous political crisis has promoted few and ineffective measures to alleviate the drought. One of the most recent ideas was to import water from Turkey, with prohibitive costs.

“Soon, you will also hear about projects to desalinate sea water,” says Farajalla. “Both ideas are silly because in Lebanon we can improve a lot of things before resorting to these drastic measures.”