Deloitte Study says Other Nations Might Eventually Catch Up
If the United States is able to mass produce shale gas, could not other countries with huge deposits do the same? Not necessarily, says a new study, which points to the technical challenges and greater costs that may slow progress elsewhere.
The global consultancy Deloitte Touche Tohmatsu Limited examined whether the shale gas boom here could be copied around the world. It found, in the short run, that the United States will remain the dominant player — with all the implications that they may hold for exporting the fuel to Asia and to Europe.
“Each country is positioned differently on the spectrum of shale gas development,” says Adi Karev, global leader for energy and resources at Deloitte Touche, in a document called ‘Oil and Gas Reality Check 2013.’ “The mere existence of shale gas does not immediately lead to energy independence or make a major impact on the global energy market.”
The author then goes on to profile four nations with shale gas reserves: Poland, China, Argentina and the United States. Poland has potential but it has not had positive — initial — results. China is working hard but will not soon reach a point in which it could be a net exporter. Argentina, meantime, is having luck and is looking to scale up production.
In the United States, shale gas, or unconventional natural gas, is expected to comprise a greater percentage of the fuel used to power electric generation. At the moment, the nation is awash in the fuel, which has kept such prices relatively low compared to competing sources such as coal. Many expect that dynamic to change as demand increases, not just by power plants but also by the transportation sector.
The U.S. Energy Information Administration estimates that world shale technically recoverable resources outside this country are 5,760 trillion cubic feet. That’s a big jump from studies done a few years, or 40 percent more.
“The U.S. shale gas revolution was three decades in the making …,” says Karev. “Although other countries, particularly Poland, China and Argentina, want to replicate this success, these countries still have a long road ahead before they can begin to see the gas volumes and supporting infrastructure needed to dramatically lower domestic natural gas prices and create export opportunities.”
The author is upbeat on this country’s export potential. Part of that is because Japan, which has no oil or gas of its own, could buy natural gas from the United States in the form of “liquefied natural gas,” or LNG, which is fuel that is frozen before it is shipped to where it is needed.
Here, natural gas is now about $4 per million Btu, with futures not expected to go much higher. By contrast, in Asia, it has been as high as $18 for the same unit. Japan spent $65 billion on LNG exports in 2012, the paper says. That’s 25 percent more than in 2011, which is the year the tsunami and earthquake wiped out its Fukushima nuclear plant and caused it to rethink its generation portfolio.
Oil is a global commodity that is affected by those conflicts in oil producing nations. Those prices have remained high. Natural gas, meanwhile, is largely a regional fuel that has been left unscathed by recent events. Considering Japan: It has gotten much of its LNG from Qatar, which links its prices to oil.
“The anticipation of US LNG exports potentially undermining oil-price indexation has heightened in light of recently announced Henry Hub-linked contracts,” says Karev. “BP, Cameron LNG partners, and Cheniere have agreed to supply Asia Pacific buyers with US LNG linked to Henry Hub gas prices, which could see Japan’s import prices in the range of $10-12/MMBtu compared to $14-16/MMBtu for oil-linked contracts.”
While LNG has risen from 5 percent of the global market to 10 percent, the author says that it has some obstacles ahead. Namely, national governments and their partners must figure out a way to beat the high cost of production and transportation. In the United States, meanwhile, the potential regulatory environment is now under review. Further, the author says that 12 liquefaction plants are under construction around the world that will increase LNG supplies by 84 million tons by 2017, which will bring down prices of the commodity.
For the time being, the United States is well-positioned to export its shale gas in the form of LNG. But as other countries with high shale gas reserves attract the capital and the technology to access those natural resources, they could become competitors and put downward pressure on global prices.