Global Shale Gas: Redrawing the Energy Supply Map

Shale

ver the last decade, exploration and development of shale gas has transformed the US energy profile. The US Energy Information Administration (EIA) has called it “a ‘gamechanger’ for the US natural gas market”—due to the vast new resources of domestic gas that shale deposits represent.

But the US is not the only country betting on fracked shale gas to be a more important part of its energy future. Across the globe— from Argentina to China—countries are scrambling to explore and develop shale gas deposits. Although it will take years to fully catalog the exact size of these resources, the emerging evidence suggests that shale gas could have as much impact on the global energy supply as it has already had on the US energy supply.

3 KEY FINDINGS

  • Global shale gas reserves will be an increasingly important energy resource globally.
  • Tapping into shale gas could have a range of impacts Gas-to- liquid technology could make natural gas a more important fuel for vehicles. It will also likely become a more common alternative to coal for electricity production.
  • A global expansion in shale gas production has the potential to create new energy superpowers.

RESOURCE WINNERS

The US has a significant share of the 6,622 tcf of global shale gas resource at 862 tcf, and it has an early lead in exploiting this emerging energy resource. A range of other countries have significant shale gas resources, though, and will play an increasing role in shaping the future of global natural gas supplies. The distribution of global technically recoverable shale gas indicates that several countries have the opportunity to directly benefit as this resource is developed.

  • China. China has a massive shale gas resource. This will make it possible for China to shift a greater proportion of its energy production away from heavily polluting, coal-fired powerplants. As of July 2012, China has already drilled 62 trial wells, with 24 of these wells successfully producing natural gas for industrial use.5 China’s latest five-year plan sets aggressive targets for shale gas development. Under the plan, shale gas output would rise from 6.5 billion cubic meters per year in 2015, to 100 billion cubic meters per year by 2020.
  • The US and Canada. The combined shale gas resources of the US and Canada rival the size of China’s. The recent development of North American shale gas has pushed natural gas prices to 10-year lows, and offers the potential for the US to reduce its dependence on oil imports from the Middle East. A mature gas distribution and petrochemical infrastructure may make North America more appealing for chemical production and manufacturing.
  • Argentina. Shale gas could turn Argentina from a natural gas importer to a gas exporter. And while Argentina’s recent seizure of foreign shareholders in YPL (the leading national energy producer) could deter future foreign investment, the firm is already planning to invest $12 billion in developing shale gas and shale oil resources between 2013 and 2017.
  • Mexico. Shale gas could provide a new income stream to supplement the declining revenues from the country’s conventional oil production. PEMEX has long-term plans to develop 4,000 shale gas wells that could generate 1 billion cubic feet per day (bcfpd) of gas.South Africa. Shale gas could help to alleviate shortages in electricity that have triggered rolling blackouts and disruptions to industry. Despite a vocal backlash against shale gas fracking by environmental activists, the drilling moratorium on fracking was lifted in September 2012.

    Australia. Australia’s limited natural gas demand and its substantial shale gas resources may allow it to surpass Qatar as the leading exporter of liquefied natural gas by 2020. Its proximity to China, South Korea, and Japan may position it to be a major Asian energy supplier, and provide an alternative to energy imports from the Middle East.

3 BUSINESS IMPLICATIONS

  • The US has a substantial lead on other countries in developing and exploiting shale gas resources. This gives US shale gas developers, as well as the related segments of the US gas and oil services industry a lead in fracking expertise and technology. Development of global gas shale resources will give US companies with fracking expertise a significant advantage in exporting their expertise and services to other countries. The US State Department is supporting this opportunity with their Global Shale Gas Initiative, which is facilitating the transfer of expertise and fracking best practices to other nations.34
  • Regions of the world with large quantities of shale gas could see increased industrial and petrochemical production activity. Inexpensive natural gas has already jump-started the construction of new facilities in the US sited to take advantage of low-cost natural gas. In Louisiana, Nucor Steel is building a $3.4 billion steel production plant and Dow is building a new ethylene production plant and restarting an older ethylene facility that had been shuttered.35 And while today it is heavy industry and petrochemical production seeking out inexpensive natural gas, in the future energy intensive datacenters, supercomputers, and cloud computing infrastructure may migrate towards these areas.
  • Natural gas can power heat pumps and absorption chillers that can cool industrial, commercial, and residential structures. Although natural gas cooling equipment has greater up-front costs, payback periods for large units can be as short as 4 years.36 Electric utilities are likely to increase efforts to promote and subsidize natural gas air conditioning systems in order to reduce the peak demands placed on the electrical grid by heavy use of electric air conditioning during heat waves.