Caspian Report - Issue: 08 - Fall 2014

FATIH MACIT, HOLLY REHM
12
SINCE THE START OF THE SHALE REVOLUTION, 150,000
HORIZONTAL WELLS HAVE BEEN DUG AT A COST OF
APPROXIMATELY $1 TRILLION.
ing companies such as China’s Sinopec,
France’s Total, and Norway’s
Statoil. 17 Since the start of the shale
revolution, 150,000 horizontal wells
have been dug at a cost of approximately
$1 trillion. 18 Each shale well
costs between $3 and $12 million
to drill. 19 Top overseas companies—
such as Japan’s Mitsubishi Corp and
Mitsui & Co— continue to invest in
shale oil and gas in the U.S., despite
major write-downs of more than
$600 million as a result of low gas
prices and reduced reserve estimates
over the past two years. 20 However,
there continue to be positive incentives
for foreign companies to invest
in shale energy, including operating
in a stable country with low political
and legal risks, and gaining knowledge
of fracking and horizontal drilling
which could be useful in development
of domestic shale reserves. 21
A report by IHS Global Insight estimates
that more than $5.1 trillion in
capital expenditures will be spent in
the U.S. unconventional oil and gas
industry between 2012 and 2035,
with around $3.0 trillion of that spent
specifically on unconventional natural
gas activity. The report further
notes that employment in the unconventional
oil and gas sector supported
1.7 million jobs in 2012, projected
to double, reaching 3.5 million jobs in
2035. Finally, in 2012, the unconventional
gas and oil industry accounted
for nearly $62 billion in federal, state,
and local taxes. IHS projects that
shale oil and gas activities will cumulatively
generate more than $2.5 trillion
in tax revenue between 2012 and
2035. 22
Moreover, additional supplies of domestic
natural gas have put downward
pressure on prices in the U.S.,
saving the country billions in energy
expenditures. The U.S. price of gas
dropped close to $2 per million Btu
in 2012, but has since risen—thanks
to an extremely cold winter—and is
now fluctuating around $4-$5 per
million Btu. This is still nearly 3 times
lower than the price in Europe and almost
five times lower than in Asia. 23
Lower gas prices have saved the U.S.
approximately $300 billion annually
in comparison with consumers in Europe
and Asia. 24
Further, cheap gas and a rise in natural
gas liquid production has led to
boom in manufacturing, specifically
in the chemical and petrochemical industry.
An increase in unconventional
oil and gas drilling has also led to a
rise in the production of natural gas
liquids (NGLs), which include ethane,
propane, butanes, and light naphtha.
17.
EIA, “Foreign investors play large role in U.S. shale industry,” http://www.eia.gov/todayinenergy/
detail.cfmid=10711. Accessed June 17, 2014.
18.
Hefner, “The United States Gas.”
19.
IHS Global Insight (2012) “America’s New Energy Future: The Unconventional Oil and Gas
Revolution and the US Economy,” 19.
20.
James Topham, “Japan trading houses keep faith in U.S. shale despite writedowns,” http://www.
reuters.com/article/2014/05/08/japan-trading-house-shale-idUSL3N0NO0J820140508.
Accessed June 17, 2014.
21.
EIA, “Foreign investors play large role.”
22.
IHS Global Insight, “America’s New Energy Future,” 2.
23.
BP, “BP Statistical Review of World Energy June 2014,” http://www.bp.com/content/dam/bp/
pdf/Energy-economics/statistical-review-2014/BP-statistical-review-of-world-energy-2014-
full-report.pdf. Accessed June 20, 2014.
24.
Hefner, “The United States Gas.”