Japanese Firms to Explore Shale Gas in the US
A revolution in the methods for producing shale gas in the United States has burst the global natural gas market wide open, with Japanese firms moving to take advantage of the expanding market.
Since the United States developed the current method of extracting shale gas about 10 years ago, natural gas prices have fallen sharply, while countries that produce conventional natural gas have become more amenable when negotiating with other nations or firms over drilling rights.
Capitalizing on this trend, trading firms from Japan, which has few natural resources, have tapped into the new energy supply business by joining shale gas production efforts in the United States.
Shale gas, an unconventional type of natural gas, can be extracted from shale formations at far deeper levels than formations containing conventional types of natural gas. The prohibitive costs of extracting such deposits had previously scared developers away. Experts believe the world has shale gas reserves that may yield as much as 3.2 quadrillion cubic feet of gas, about half the estimated conventional natural gas reserves.
With the new technology, a vertical well is drilled to reach the level of the shale formation and then the bore turns 90 degrees to drill horizontally. High-pressure water or gel is pumped into the well to break up the rock and extract the gas.
Despite higher costs to extract shale gas than conventional natural gas, many shale gas production centers are near industrial sites such as Houston. Considering the time and cost of importing natural gas from the Middle East and other areas, purchasing shale gas from the United States makes economic sense.
The United States produced 1.7 trillion cubic feet of shale gas in 2008, more than half the volume of natural gas consumed in Japan.
In 2009, the United States overtook Russia to become the world's largest natural gas producer. The price of natural gas in the United States has fallen to about 5 dollars per 1 million British thermal units from about 8 dollars in 2008.
Sumitomo Corp. obtained the rights to explore for shale gas in Texas in December, while Mitsui & Co. has acquired the rights to produce shale gas in Pennsylvania. Mitsubishi Corp. and Sojitz Corp. have also entered the U.S. market. While these joint ventures are aimed at producing gas to be consumed in the United States, a similar venture to supply shale gas to Japan could occur at any time due to the world's abundant reserves of the gas.
Tokyo Electric Power Co. plans to invest 1 trillion yen by 2013 to secure rights to produce conventional natural gas overseas, while Tokyo Gas Co. wants to obtain development rights in Indonesia and Australia.
Moves by Chinese businesses should be watched closely, as the country plans to double the volume of natural gas it consumes as its primary energy resource by 2015, a move that could increase global demand for natural gas.
"Japan needs to increase its [natural gas] suppliers now," an official at an oil wholesale firm said.