Is the World on the Verge of a Shale Oil Boom?

PetroChina Company Limited (ADR) (NYSE:PTR), Asia’s largest energy producer, has plans to drill 400 shale wells in the country over the next few years. But management only expects to drill 20 pilot wells by year-end. It wants to see production results before committing to a full-scale program.

In China the problem is cost. Of the 130 shale gas wells drilled in the country, only a few are producing over 40,000 cubic feet per day. At $13 million to $16 million to complete each well, this is the production figure needed just to break-even.

…because drilling for shale is a tough business.
But these problems aren’t limited to China and Poland. Shale plays elsewhere will face the same issues as well for a couple of reasons.

First, the biggest issue preventing a global shale boom is cost.  According to The Financial Times, the IHS study estimates the cost of the average shale well inside North America at $5.6 million versus with $8 million outside North America.

Second, environmentalist will also play a role in the global shale development. Politicians in Texas and North Dakota may be less concerned about the environmental consequences of shale drilling, but you can be sure their counterparts in other nations won’t be. Fracking has already been banned in France and will likely face opposition in other countries as companies look to tap new shale plays.

And finally, the pace of global development would hinge on many above-ground issues as well. Government policies-such as regulation, land access constraints, and taxation-could slow development.

Foolish bottom line
Investors should be skeptical about headlines proclaiming a global shale energy boom. At the moment, it remains an entirely a U.S. phenomenon. Just because the resource is in the ground doesn’t mean you can extract it profitability.

The article Is the World on the Verge of a Shale Oil Boom? originally appeared on Fool.com and is written by Robert Baillieul.

Robert Baillieul has no position in any stocks mentioned. The Motley Fool recommends Chevron.

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