Global Echoes Of The Shale Gas Revolution: “Still In The Pipeline”
In preview of his appearance at the 22nd World Energy Congress in Daegu, Korea, Alastair Newton, Managing Director/Senior Political Analyst at Nomura International plc, offered his preliminary insights on a session he will be moderating there entitled “Natural gas markets and geopolitics: A map in transition.”
One of the topics to be touched upon in the session is shale gas. According to Mr. Newton, it’s not yet clear that the “shale gas revolution” in North America is shaking up global natural gas markets.
“That is, to coin a phrase, perhaps still in the pipeline,” he quips, adding “It’s certainly having a very large impact on American energy markets, even though in the past couple of months, perhaps rather surprisingly, we’ve seen the $20 differential, which had persisted for the last couple of years between NYMEX and Brent, pretty much close as various infrastructure events have happened in the US, which means more oil products leaving the US.”
Meanwhile, he says, the huge price differential for natural gas remains.
Mr. Newton explains: “The last I looked Henry Hub wholesale cost something like $3.50/TCF in stark contrast to mid 2008, when that would have cost around $10.50.”
While he concedes that oil and gas prices were at record highs at that time, those prices, he contends, provide a great benchmark when one considers factors like US competitiveness, especially in the energy and chemicals industries.
Things could really change, according to him, if the US grants more licenses for exporting its unconventional gas. Low natural gas prices there, meanwhile, are not likely to stay that low.
“It’s by no means clear that getting it out of the ground at $3.50 is particularly economic,” he comments. “That’s really why in the last year and a half we’ve seen much more interest in tight oil than in shale gas, which has made a strong showing in US oil production – I think 190,000 barrels a day, which is not all tight oil, but one can see those oil reserves looking increasingly commercially attractive if the price stays at that level.”
Still, he says oil prices are unlikely to drop to the low prices seen a decade ago.
But how possible does Mr. Newton think it is to replicate the shale gas revolution in other parts of the globe? There are some considerations, he says.
“Technically, the stuff is not very straightforward to get out of the ground. From what I understand, each field has unique characteristics, which means that technology that works in one place will not necessarily work in another without some tweaking.
“Secondly, America has a significant lead in terms of learning how to use the technology to extract unconventional gas and oil and it is likely to be some time before the rest of the world catches up, unless they can import US technology along the way,” he adds.
Thirdly, he emphasizes that it’s not just a US story, but a North American one.
“If one looks at projections for energy self sufficiency by ‘date X’ it seems as if the US could become energy self sufficient by 2035, but North America could be energy self sufficient some time before that, especially if Mexico’s President, Enrique Peña Nieto, is successful in driving through significant liberalization of the Mexican energy market and facilitating foreign investment into the country, which would be essential to exploiting Mexico’s shale gas reserves, which have been estimated by the EIA to be the sixth largest anywhere in the world; if you consider that Canada has the fifth largest and the US the fourth largest, it underlines that the story belongs to the whole of North America, not just to the US.”
While Mr. Newton believes it is realistic that North America will be able to deliver large volumes of unconventional gas to other places around the world, he notes the political hurdles. He says, “Some lobbies are arguing that the US should keep its gas to itself, and indeed the oil. You need a license to export oil and gas from the US Department of Energy, and not too many of those have been issued over the last few years.
“That said, there are clear signs that the US is gearing up to export and the first destination I would point to would be Japan: we’re already seeing contracts being signed for Japanese investment into LNG with the aim of shipping gas there, and it wouldn’t surprise me at all to see some fairly major agreement between the US and a very energy deficient Japan, which is paying quite significantly above market rates for gas in particular at the moment,” he explains.
He notes Japan’s diplomatic efforts with Russia to ease the former’s current lack of energy security, considering the difficulties of putting Japan’s nuclear plants back online post Fukushima.
Meanwhile, Mr. Newton contends the development of shale gas in China could vastly change the energy game in the Middle East, if not in Asia.
He states: “China is estimated by the EIA to have the world’s largest reserves of shale: over 1,000 BCF. So far, China’s efforts to get the stuff out of the ground have not been very successful, but I don’t think we should underestimate China’s ability to get this sorted, one way or another.”