Gulf Spill Puts Unwanted Focus On Shale-Gas

Todd Shriber
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The Gulf of Mexico oil spill has certainly opened a lot of eyes among the general public regarding the dangers of exploring for and extracting oil in deepwater locations. Americans can be a fickle bunch. Prior to the Gulf spill, polls showed that a majority of Americans favored some expansion of offshore drilling if for no other reason than to reduce U.S. dependance on foreign oil. That tune has been changed as a result of the spill. The images of oil-soaked birds and displaced workers proliferated by the media probably had something to do with the shift in sentiment.

Now, another corner of the energy industry is under fire and that is shale-gas exploration. Shale-gas is known as an unconventional resource because the extraction process is not what is used to extract gas from traditional deposits. Shale resources have low permeability, requiring horizontal drilling and fracturing to bring the gas to bore within a well. ''Fracking'' involves shooting pressurized water, sand and chemicals into a horizontal shaft a mile or more underground and the sand pries open small fissures in the rock, releasing gas, according to Barron's.

That may sound like a lot of technical jargon and it is, but the process has unfortunately drawn the ire of several members of Congress. Congressional Democrats would like to give the Environmental Protection Agency the authority to regulate hydraulic drilling and that would apply to companies operating in places like the Marcellus Shale and the Eagle Ford Shale. Apparently these members of Congress missed the part where increased regulation in the form of offshore drilling moratorium is acting as a jobs killer.

Remember that part of the allure of developing shale-gas formations is not just the creation of new jobs, but also the cost efficiencies natural gas offers compared to oil. Oil is harder to find these days and that is another reason why oil majors like Exxon Mobil (XOMC) and Royal Dutch Shell (RDS-A) are expanding their shale footprints. The reality is there is something to be said for natural gas as a fuel source. By some estimates, shale-gas could account for 50% of North American power production by 2020.

Unfortunately, the fear mongers are already out in force when it comes to shale-gas. As if Congress getting involved is not bad enough, HBO recently aired a documentary called ''Gasland'' that is, to put it mildly, less than friendly to the idea of shale-gas development. I happened to see the movie and while it is well-made, it is littered with fanciful scenarios that are more about spreading fear than accurate information. In other words, ''Gasland'' is quite biased, but that probably will not surprise you when I tell you that the New York Times gave the film a good review and that ''Gasland'' won an award at the Sun Dance Film Festival.

The movie's impact was felt on Wall Street as Chesapeake Energy (CHK) lost almost 3% and Cabot Oil & Gas (COG) tumbled 7% the day after ''Gasland'' aired, Barron's noted. This highlights the results of scare tactics and the absurdity of picking on natural gas production at a time when it should be embraced.