Shale Gas: Not An Overnight Success
Shale gas revolution making waves across the globe
You only need to take a look at natural gas supplies in the United States in the last year to know that big changes are afoot around the world, according to Hideomi Ito, Natural Gas Analyst at the International Energy Agency, who spoke about the Impact of Unconventional Gas on Global Markets at Shale Gas World 2010 in Warsaw, Poland.
“The US became the largest natural gas producer in the world in 2009,” he noted, “producing approximately billion cubic meters per year, with about half of that coming from unconventional.” “It didn’t happen overnight,” explained Ito, “but took decades for the unconventional revolution - comprised of CBM, shale gas and tight gas - to take hold.” He said that the production forecast for natural gas had been revised upward several times, an indication of how difficult it was to make a forecast for unconventionals.
According to Ito, the impact on the market has been apparent in two aspects: regional and global. “Impact has been significant on US LNG terminals, which had 9 billion cubic meters in 2008. Only 10% of their capacity was used in 2009,” he said, “and there’s been a 14% decrease in imports to the US from Canada.” Ito added, “A lot of investment has been made in the US market but there has been a change in plan – like plans to receive LNG, which it now wants to export.”
He spoke of a global issue, which he said was controversial: a natural gas oversupply since 2008 mainly due to economic crisis. “There’s also lots of new LNG capacity hitting the market from Qatar and Russia. Due to the oversupply, the spot price has decreased significantly.” “LNG targeted US terminals but is now going to Europe, Middle East and Latin America,” opined Ito. “The US success story has been exporting the revolution.” Now, he said, showing a graph, US NLG terminals were significantly underutilized. Ito spoke of global developments, like in Australia where 5-6 coal bed methane projects are looking to convert to LNG. “If those all come on line that will mean 32 million tons of LNG coming onto the market.”
Furthermore, he mentioned China’s very ambitious target of producing 30 billion cubic meters of natural gas by 2020. “India also has plans for shale gas tenders, and there are large CBM resources in Indonesia,” he said. “China has a very ambitious target,” contended Ito. “They say their production will reach it but they don’t have much expertise; they want to gain that from the acquisition of upstream abroad. They don’t have the infrastructure to transport the gas. Prices have been kept very low, but price reform will be required if they want to produce unconventional gas or it won’t be economically feasible.”
“In Europe,” explained Mr. Ito, “Poland is attracting many major and smaller O&G companies; I expect a lot of drilling will happen before the end of 2012, but a lot of study needs to be undertaken. It’s still at the pre-drilling stage and there are many uncertainties.” He added, “They have been producing a lot of coal already, so it’s active competition between coal and natural gas.”
Ito showed a map of unconventional gas activities in Europe. “Conoco-Phillips, Exxon Mobil, and Shell are involved as well as many small companies. Lots of activity needs to be done to see how much gas is underground and how much is recoverable.” “Can the success story be reproduced in Europe?” asked Ito. “It’s not that easy, an idea I suppose we all share. We don’t know where the gas is located, where the sweet spot is and a lot of assessment needs to be done.” He said there were key success factors to bear in mind: identifying where the gas was, how much was recoverable, the availability of rigs and skilled engineers.
“Acceptance by local communities is important, especially in Europe, a highly populated area,” said Ito, who mentioned that trucks coming in and out, and the noise they created were a very difficult issue. Unconventionals required lots of resources and good management, he said, also mentioning the infrastructure issue: “Unless you have it, it requires a lot of investment capital to get the gas to market.” The fate of shale gas around the globe may also be contingent on how things pan out for shale gas in the United States, according to Ito. “The Environmental Protection Agency in the US is doing a study on the environmental impact of unconventionals and will issue a report by 2012,” he explained. “If the outcome is negative, it could have a significant impact on worldwide unconventional gas production.”
Still, Ito concluded, “In the future, 90% of our natural gas should come from unconventionals, so we see a bright future.”