Why reports of huge shale finds don’t mean much until the oil starts flowing

In Ukraine, Shell has signed a $10 billion deal to develop shale gas. And in Australia, the share price of a small Brisbane company called Linc Energy has surged since its announcement of a shale oil find of 3.5 billion recoverable barrels. So the days of Ukraine living under Russia’s thumb are numbered. And Australia is on the cusp of becoming the world’s next oil exporting nation. Right?

No.

For the signal of a shift of such magnitude, the news to look for is not such announcements, but the day when supplies begin to flow from a shale gas or shale oil play anywhere in the world apart from North America. In the US, shale gas and shale oil supplies have surged, helping the country’s balance of payments, providing chemical and steel companies with cheap feedstock, and making refiners rich.

But drillers have yet not managed to economically drill for shale deposits anywhere else. The difference is mainly in the shale geology—drillers have vastly more data on US shale than for any other place on the planet, and have not felt confident yet in what they have found in Europe, China or elsewhere.

There is potentially much out there. In 2011, the US Energy Information Administration released a study of the shale gas potential of 32 countries. Its initial estimate was that, outside the US, there is a massive resource base of 5,760 trillion cubic feet of technically recoverable shale gas. The largest single nugget is in China—1,275 trillion cubic feet, the EIA says. Here is the EIA map:

The reserves are so vast that, especially in China’s case, successful production would be a paradigmic change. But the headline announcement will be a company announcing investment in actual production infrastructure.