Abundant Shale Gas may shrink the energy market

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U.S. Shale Gas Revolution Reverberates in Russia

America’s shale gas revolution

Looking back on the October Revolution in 1917, Lenin famously remarked, “We found power lying in the streets and simply picked it up.” Just replace “power” with “a newfound abundance of domestic energy,” and you get the kind of gushing we’ve been hearing from the gas industry and policy makers since the United States’ so-called “shale gas revolution” began.

Recent developments in horizontal drilling and hydraulic fracturing have dramatically increased the amount of technically recoverable shale gas in the U.S. As a result, the U.S., which a few short years ago was discussing major investments in new liquefied natural gas (LNG) terminals to support its growing gas imports, will be able to meet most – if not all – of its gas demand with domestic supply.

The expected future backwash of LNG into the global market, along with new production of unconventional gas in North America, will force exporters of conventional gas to rethink their energy outlooks. Chief among those will be Russia, the world’s largest exporter of natural gas.

In a statement last week, Alexander Medvedev, deputy chairman of Russian energy giant Gazprom, said that America’s shale gas revolution “could fundamentally reshape the whole world gas market.”
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America’s Massive Shale Gas Revolution Hits Canada Threatening LNG Glut

It’s not just America that could face massive over-supply of natural gas due to new shale-gas extraction technology.

Companies are investigating the potential for shale gas in Canada as well, and it’s already drastically changing the supply/demand dynamic industry expects.

Rigzone:

In Canada, EnCana Corp. (ECA), Nexen Inc. (NXY) and Talisman Energy Inc. (TLM) are among several companies gaining traction in the Horn River and Montney shale formations, both in British Columbia. “Shale gas has a fairly short history of production,” Dawson said. “[Companies] are projecting stable production for 20 to 30 years, but we don’t have a history of that kind of long-term production to say that with any certainty.”

In just six months Canada went from an expected under-supply situation to vast over-supply expectations:

Over the course of six months last year, Canada’s National Energy Board shifted from a prediction that the decline in conventional gas output would far outstrip new shale supplies, to saying that shale gas could satisfy domestic demand “far into the 21st century” and spur exports of liquefied natural gas.

The shifting landscape is forcing investors to rethink projects. A gas shipping terminal in the city of Kitimat on Canada’s West Coast was originally planned to import gas, but in 2008 the terminal owners, Kitimat LNG Inc., realized that shale gas could boost Canada’s output and redesigned it to export LNG. The C$4.1 billion project is scheduled to begin construction this year, and to begin operation in 2014.

Yet the potential shale gas revolution in the U.S. means that Canada will have to find global buyers for any natural gas exports, via Liquefied Natural Gas (LNG):

“Our view is that you need all the shale gas, you need all the frontier gas and you probably need LNG [imports] on top of that,” TransCanada Chief Operating Officer Russell Girling said at a recent conference in British Columbia. Girling said any excess supplies will be eaten away by the decline in conventional gas, the growing demand from Canada’s oil sands industry–which uses natural gas to create steam for bitumen extraction, and new demand from utilities and the transportation sector.

Too much gas or not, Canada will likely have to find more customers for its gas, since its traditional buyer, the U.S., is oversupplied. Recent NEB data show that Canadian gas exports to the U.S. declined 11% in the first 11 months of 2009 compared with the same period a year earlier.

 

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“Every square inch of my district has natural gas under it,” says Tim Murphy, a US congressman, referring to Pennsylvania’s Marcellus Shale, which runs from New York to Tennessee. “It’s going to have an impact on the whole nation.” T Boone Pickens, the 81-year-old oilman who has become a spokesman for the natural-gas industry, told the US congress in October that the United States has more natural gas than all the oil in Saudi Arabia.

If the country converted 6.5 million of its heavy trucks to run on that gas, it could reduce its oil imports from OPEC producers by 2.5 million barrels a day.

In its favour, he notes, gas-fired power stations can be built faster and more cheaply than coal equivalents and offer a better fit with renewable sources because they are easier to turn on and off to supplement wind and solar when the wind drops and the sun doesn’t shine. “Price is the main impediment,” Newell says.

In recent months, when gas fell below US$3 per million British thermal units (mBtu) – a seven-and-a-half-year low – that hardly seemed a cause for concern.