Shale boom passing by S.W. Colorado

BP economist says new fields getting more play

DENVER – The Four Corners, which sat at the center of previous energy booms, is largely being left out of the action as a revolution in shale gas drilling ripples across the world.

Christof Rühl, chief economist for BP, has traced a chain reaction from shale drilling in the United States that has moved east across the globe.

The Four Corners once was the epicenter of the nation’s best natural-gas field, the San Juan Basin. While the field remains productive, energy companies are chasing gas and oil from tight shale rocks in massive new fields all across the country.

“The (shale) resource globally is widespread, but for the foreseeable future, most of it will come out of the United States,” Rühl said Wednesday.

He credited open competition and private control of gas and oil as the reasons that companies developed the hydraulic fracturing techniques necessary to tap shale rocks here and not in other countries with government-owned gas and oil fields.

Rühl was in Denver for the Colorado Oil and Gas Association’s annual convention, and he sat for an interview with The Durango Herald.

He is not involved with the part of BP’s business that decides where to drill, so he could not speak specifically about the San Juan Basin, where production has been dropping since 2003.

But Rühl said energy companies are shifting their investment decisions now that the country is awash in cheap natural gas.

“One region’s gain is another region’s pain,” he said.

Instead of drilling more traditional natural-gas wells or coal-bed methane wells – the kind that are found in the San Juan Basin – companies now drill shale oil wells, which often produce natural gas as a byproduct. That helps in an era of historically low natural-gas prices.

“If you have it as a byproduct, basically every price above zero is a good price,” Rühl said.

The rush into shale drilling has led to an oversupply of natural gas and also made the United States by far the world’s leading gas producer.

U.S. natural-gas prices averaged $8.85 per million btu in 2008, the year the Great Recession began. They plunged to less than $4 the next year and to $2.76 in 2012, according to BP’s Statistical Review of World Energy, which Rühl oversees. Enticed by cheap gas, electric utilities have rushed to abandon coal in favor of gas in their power plants.

“Last year, what we have seen is the biggest replacement of a single fuel with another fuel at least for the last 40 years, probably on record,” Rühl said.

But the coal mines didn’t shut down.

Rühl said American coal was released onto the world market. It found its way to Europe, where it replaced natural gas – which is more expensive there – in power plants.

And this is where the global energy shake-up affects Southwest Colorado a second time.

European natural gas then went to Asia to replace energy from nuclear power plants, which Japan shut down after the tsunami and meltdown at its Fukushima plant.

That leaves nuclear power as the biggest loser – bad news for anyone looking for the return of a previous energy boom, when Southwest Colorado was at the center of the country’s uranium industry.

“We had the lowest nuclear production last year since 1984,” Rühl said. “We think the share of nuclear in global energy will remain relatively constant.”

The massive shifts will change more than just the local economy. U.S. oil production jumped a stunning 13.9 percent in 2012, according to BP’s Statistical Review of World Energy, while U.S. oil consumption fell slightly. Rühl thinks that means the Middle East will become less important to the United States and more important to China, the world’s second-largest energy consumer.

And the shift from coal to gas in U.S. power plants helped create the country’s biggest annual decline in greenhouse gases, he said.

But the global decline in carbon emissions wasn’t as big as it could have been because Europe now is burning more American coal, he said.

jhanel@durangoherald.com

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