ConoccoPhillips's breakup may spell the end of Big Oil's joint exploration and refining operations

Energy companies worldwide are focusing on shale fields in various parts of the world as a large potential source of natural gas. The New York Times reports that tapping into shale fields is likely to significantly increase the world's reserves of natural gas, the cleanest fossil fuel, and help Europe reduce its dependence on natural gas from Russia.

Until now, North America has been virtually the only area to produce natural gas from shale. Various countries are now studying horizontal drilling techniques, devised in the U.S. about a decade ago, that are key in releasing the gas from shale. China and India are believed to have large potential reserves. In Europe, where current gas prices are high, energy companies are focusing on large shale beds located near cities, which could mean significantly lower gas costs. European companies are also buying rights to shale fields in the U.S., not only to sell gas to the U.S. market, but also to learn specialized mapping and drilling techniques for shale gas. Among the companies interested in shale are Exxon Mobil, Devon Energy, Total, Chesapeake Energy, StatoilHydro USA and Mexico, and ENI.

Heady prediction: “Oil and gas will continue to be pillars for global energy supply for decades to come,” says James Burkhard, a managing director of IHS CERA (Cambridge, Massachusetts), an energy consulting firm. “The competitiveness of oil and gas and the scale at which they are produced mean that there are no readily available substitutes in either one year or 20 years.”

Indeed, the outlook for energy has once again been turned upside down:

• Giant deep-water oil fields have been discovered off the coasts of Brazil, Africa, the Gulf of Mexico and the Arctic: IHS CERA predicts that productive capacity for liquid fuels could rise to 112 million barrels a day in 2030, up from 92.6 million barrels this year
• Canadian oil sands now provide North America with more oil than Saudi Arabia
• The US has increased domestic oil production for the first time since 1991
• New shale-rock drilling technologies have spurred a wave of new natural-gas fields in the US, Europe and Asia
• Natural gas that was once flared in fields is being collected and piped to LNG export terminals around the world; gas prices have plummeted, making it a cost-effective, clean and efficient fuel

Ironically, the reason for the turnaround in supplies is due to high oil and gas prices, which attracted new investments and drilling. Meanwhile technical innovation unlocked new deep-ocean resources: Companies like Shell Oil and BP are exploring and drilling at depths of 10,000 feet (three kilometers) of water, and through several kilometers more of hard rock, thick salt and tightly packed sands using supercomputers, three-dimensional imaging, and drilling rigs that withstand the extreme temperatures and pressures at such depths. New horizontal drilling and advanced fracturing techniques have opened up shale-rock fields, enabling companies to tap gas fields, even those below large cities, such as Fort Worth, Texas.

Cautions: Future supplies depend on government policies in the coming decades. The International Energy Agency (Paris) in its annual global energy report1, released this month, forecasts that energy demand would increase by 36 percent between 2008 and 2035, based on policy commitments announced by various governments. Oil demand could grow to 99 million barrels a day in 2035, up from 84 million barrels in 2009.

1. 1. International Energy Agency: Global Energy Report 2010

Indonesia has 20 million ha or 60% of the world’s tropical peat bogs, which are 50-60% carbon, adding up to more carbon than earth’s overall vegetation. Burning and draining of these bogs to make way for palm-oil plantations releases 2 billion tons of CO₂ annually or 8% of the global emissions from fossil fuels, making it the world’s third largest CO₂ emitter. Under the Kyoto Protocol, this is equal to the amount industrial nations have to decrease their emissions by.

With $30.4 billion of carbon credits being bought and sold in Europe in 2006, there is a massive opportunity for companies to off-set their emissions by investing in conservation schemes to protect Indonesia’s peat bogs. Several investors, including Shell Canada have already set-up dam building projects there. Although it is not yet possible to use peat bogs as part of carbon trading schemes, this is expected to change after the UN Climate Change Conference later this year.

In the meantime, plans and preparations have been put in place to cater for the expected boom in investment projects for peat bog conservation. Local media have not been so enthusiastic, accusing developed nations of using Indonesia as a scapegoat for not cleaning up their own act. For any hope of this scheme working, local issues attached to the peat bogs such as poverty and the perennial burning of the forests must first be addressed. According to Jutta Kill of FERN (Forests and the European Union Resource Network), local communities must be involved from the outset to prevent tensions rising between different parties who each have their own agenda. Also, developed nations could help by not expanding palm oil and biodiesel production at the expense of deforestation.

Companies that choose to offset their carbon footprints voluntarily are not doing enough: Only 34.69 million metric tons of carbon offset credits have been retired so far, estimates First Climate, a carbon asset management company that presented data at the Carbon Sequestration Leadership Forum in London in October. The Voluntary Emissions Reduction (VER) market operates outside mandatory emissions reductions schemes, such as under the Kyoto Protocol or the European Union's Emissions Trading Scheme, which allow individuals and organizations to offset their greenhouse gas (GHG) emissions by funding projects that reduce such emissions, often in developing countries. The voluntary market evolved largely in the U.S. as a market-based mechanism to address climate change and in Europe as a byproduct of implementing the Kyoto pact.

Carbon credits totalling 123 million metric tons, valued at $705 million, were transacted in the global voluntary carbon market in 2008; however, more than 50 percent of those credits were originally designed for the United Nation's Clean Development Mechanism (CDM), but were delayed by bottlenecks in that process. The credits also do not offset greenhouse gas emissions until they are retired or taken permanently off the market by a supplier or purchaser. Still, there may be room for growth: If the U.S. enacts pending climate legislation, Reuters notes that it would allow a total of up to 2 billion metric tons per year of carbon to be used in a cap-and-trade scheme from domestic and international sources.