WoodMac: Pay attention to 'unconventional gas revolution'

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, July 23 -- Global unconventional gas has the potential to reshape global gas dynamics, according to a report by analyst Wood Mackenzie. Indeed, according to the report’s authors, companies that position themselves early will be best placed to benefit from the “unconventional gas revolution.”

Rhodri Thomas, a principal analyst from WoodMac’s unconventional gas service, said, “Development of just a small proportion of this resource could dramatically change local gas markets with further implications for global gas dynamics.”

Specifically, according to Thomas, unconventional gas could reduce import requirements, provide additional export sources, and impact global gas pricing. “There is huge potential but there are also huge associated challenges and uncertainties,” Thomas said.

“For potential suppliers, specific issues include the need to develop a gas marketing strategy cognizant of lengthy initial ramp-up periods, potentially unreliable early production and often illiquid local markets,” said Noel Tomnay, head of global gas service for WoodMac, and coauthor of the report.

“Such strategy development will likely include partner screening, particularly for those companies without a suitable gas portfolio and/or local gas marketing capabilities,” Tomnay said.

The authors note in particular the potential effect of unconventional gas on geopolitics, especially in Europe where “successful development of unconventional gas will mean indigenous supply for countries which currently rely on imports.”

According to Tomnay, reduced import dependency could “significantly blunt” the future pricing power of key gas exporters such as Russia.

“In Asia, the potential for indigenous unconventional gas production is higher than in Europe and the relative expectation of import dependency lower,” said Tomnay. As a result, he said, the impact of unconventional gas “could be greater” in Asia than in Europe.

Unconventional gas in fact “could put a significant dent in, or even negate, incremental gas import requirements in key Asian markets and could also provide an additional competitive threat to future LNG export expansion from high cost projects such as in Australia.”

While the longer term impact of unconventional gas could be profound, the reality is that outside of North America and eastern Australia the economics and logistics of undertaking large scale unconventional gas operations have yet to be proven.

More to the point, some of the key success factors behind the rapid growth in North America are missing. As a result, the pace of growth is likely to be slower than that witnessed in North America and substantial volumes on a global scale are unlikely before 2020.

“It is too early to say how the future of unconventional gas will play out, but it is clear that stakeholders across the gas value chain—gas suppliers, resource holders, buyers and policy makers—need to understand the possible impact of future developments,” said Thomas.

“Those that do this early and monitor key signposts will be best placed to benefit from the unconventional gas revolution,” Thomas said.

Contact Eric Watkins at hippalus@yahoo.com.

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