OGJ Washington Editor
WASHINGTON, DC, Apr. 8 -- Potential natural gas production from shale formations has dramatically improved North America’s supply outlook, three panelists agreed during a Washington energy conference. The technology behind it also could change gas supply patterns overseas and influence domestic demand for other fuels, they added.
US supply assumptions have been turned upside down in the last 3 years, they observed at the Apr. 7 natural gas breakout session at the Annual Energy Outlook Conference cosponsored by the US Energy Information Administration and Johns Hopkins University’s School for Advanced International Studies. “I sometimes wonder if we would have built 14 bcf of LNG import capacity if we’d known about this,” said Benjamin Schlesinger, president of Benjamin Schlesinger & Associates LLC, Bethesda, Md.
Michelle M. Foss, chief economist and head of the University of Texas at Austin’s Center for Energy Economics, suggested that US shale gas development will respond to market demand. “I also think the potential could be greater if the technology improves further,” she said. “There have been some major strides combining lateral drilling with fracturing. But try to imagine being able to drill microscopically. All of the pore bases in these domestic formations are different. So are geological environments and water availability. There are still challenges.”
It could take longer overseas, according to Andrew Slaughter, business environment manager for Royal Dutch Shell PLC’s Upstream Americas division in Houston. “In North America, we have a very efficient development process, with relatively quick consumption. Other areas face major distances between production sites and markets, and have to deal with stranded supplies,” he said, adding that governments could take 20 years to change policies and energy firms operate in a 45-to-50-year investment timeframe.
“Europe is struggling with similar issues,” said Foss. “It’s looking at what we do with shale gas because countries there have some too.” Slaughter agreed that shale gas offers potential in Europe, but said it will take longer to develop than in the US. “Its significance is that a lot of it is in countries like Poland and Ukraine, which have relied heavily on Russia for their gas,” he said. “If it isn’t developed, their heavy reliance on coal also could continue.”
Discussions of developing supply alternatives to Russian exports grew more serious after the first big cutoff 2 years ago, Foss said. Slaughter said that delays on the Yemal and other long-distance pipeline projects have slowed the process down. Schlesinger said Europe’s biggest difference from the US could be that its pipelines are not independent but are affiliates of major national producers, which has an impact on their operations and strategies.
China’s demand for gas also will be important, the panelists agreed. “Despite its coal resources, China is about to become a coal importer. That could direct it more to gas,” said Slaughter. The country has shale gas formations, Foss noted, “but the one caveat is that its geology is very complicated, with a lot of tectonics and fracturing,” adding, “It’s going to be very aggressive in its import growth, at least 37%.” Schlesinger added that China will need to do more than develop its shale gas: “It needs pipeline and distribution infrastructure.”
Glen Sweetnam, director of EIA’s international, economic, and greenhouse gases division and the session’s moderator, noted that the National Petroleum Council, in its 2007 “Hard Truths” report, forecast significant LNG demand growth in Europe and the US by 2030. When he asked if shale gas’s potential has made this prediction obsolete, the panelists said that LNG still matters. “It’s more than just gas. It’s liquids, particularly along the Gulf Coast,” said Foss.
Slaughter said it is hard to generalize about LNG in Europe. “Spain has its own situation because it’s about 75% LNG dependent. That’s different from eastern Europe with its shale gas supplies and increasingly flexible import contracts,” he said. Customers and suppliers worldwide are pressing for more flexible LNG contract terms, according to Foss. “The big experiment for customers in Japan is indexing LNG’s price to gas instead of oil,” she said. “Suppliers also want the flexibility to change destinations in response to prices.”
Evolving national climate-change strategies could have their biggest impact on gas by changing how coal is used, Schlesinger suggested. “I think coal’s long-term future is in gasification. The sooner the industry realizes it, the better,” he said. “We have one large-scale gasification plant in this country which lost money for years, but is capturing carbon efficiently and sending it to Saskatchewan for enhanced oil recovery.”
Many people assume that more countries will adopt systems which put a price on carbon emissions, but no one is certain what those programs will involve, Slaughter said. “If you get a level playing field across all fields, gas could do quite well,” he said.
Schlesinger said, “I think the capture aspect of carbon capture and storage could be a bigger challenge than expected, particularly capture stack gases. This might make pretreatment more appealing, particularly for coal and possibly for gas.” Pipeline capacity is another CCS aspect which needs to be addressed, he added. “There’s only about 3,000 miles of carbon dioxide pipeline in this country now,” he said. “The industry will need to grow because distances between carbon generation and storage sites are usually so great.”
Domestic shale gas development investment, meanwhile, may require other changes, the panelists said. Foss said, “There may be more long-term contracts. I think conversations are taking place already.” Schlesinger said, “Moving regulators to accept long-term contracts will be a hard sell, particularly since short-term markets are so transparent.”
Foss said, “There’s been a critical wave of risk-taking independent producers who have got things going in this country, but the majors will need to provide sustainability. It’s the usual story.” Domestic shale gas formations also are largely on private instead of public land, she added. “This makes it possible to reach decisions in a few months instead of several years. It’s been a big factor in the rate of shale gas development,” she said.
State policymakers also should consider more than one approach to increase revenue as shale gas projects are developed, Slaughter said. “They can tax new economic activity that results from it instead of just the molecules that are produced,” he said.
Contact Nick Snow at firstname.lastname@example.org.
EIA Energy Conference: Experts see shale gas affecting overseas supplies