The United States will remain the largest global unconventional natural gas producer to 2040, with the output trajectory defined mostly by shale gas, the International Energy Agency (IEA) said Tuesday.
In its flagship World Energy Outlook 2015 (WEO), the global energy watchdog said that because about 10% of the estimated recoverable shale gas resource has been produced to date, "there is no sign as yet that the shale storm is about to subside."
Boosted by U.S. unconventional gas resources, coal by the mid-2020s is expected to be supplanted as the largest source of U.S electricity generation and by the mid-2030s, gas will overtake oil as the most utilized fuel in the nation's primary energy mix. Like last year, the WEO is forecasting natural gas will be the world's most in-demand fuel to 2040 (see Daily GPI, Nov. 12, 2014).
Shale gas by itself is projected to grow from current levels of around 420 bcm (14.93 Tcf) as of mid-2015 (324 bcm for base year 2013) to a peak level around 570 bcm (18.36 Tcf) in the 2020s. Shale gas then is seen tailing off in the 2030s to reach 460 bcm (16.24 Tcf) in 2040. However, if output of tight gas and coalbed methane (CBM) is included, "unconventional gas rises to more than 85% of total U.S. gas production by the 2020s."
Significant uncertainties surround the outlook for shale gas, but the economic calculation at the heart of the shale gas boom is simple. Most of the production from a well is produced within the first few years because of high decline rates, so discount rates have less significance.
"What does matter is that the value of the recovered gas -- and liquids -- per well exceeds the cost of drilling and completing the well," researchers said.
As U.S. producers work through their shale gas resource bases, they will be forced to move from the sweet spots to less productive zones, which means that a certain point, the volume of gas recovered per well is going to begin to decline. Concentrating on liquids-rich gas resources also mean that wet gas areas are depleted more quickly, with producers then moving back to drier gas production.
Offsetting the effect of the declines is continued technology gains, which may further reduce the costs of drilling/completion and increase recovery per well. How much more technology could be squeezed from wells, though, is uncertain.
"It is likely that the easiest and most dramatic of these technology gains have already been captured and we assume that the rate of improvement is set to slow," the report said. The effects on productivity by moving from outside the core areas "outweigh technology-based cost reduction."
In WEO's New Policies Scenario, the breakeven price for gas production increases as producers move rigs to less-productive areas. The scenario forecasts that gas prices will reach $7.50/Mcf by 2040. "Ultimately, this produces a plateau in shale gas production in the 2030s, and then a subsequent decline, as U.S. shale gas starts to lose its competitive edge against other sources of gas."
Uncertainties about the trajectory of domestic shale gas remain because it's still not clear how big the resource is, the extent of the sweet spots or even the additional gains that advanced technology could bring.
According to the WEO, global unconventional gas resources are huge, with estimates for shale gas, tight gas and CBM accounting for more than three-quarters the size of the conventional gas resource base.
"But a bright outlook for unconventional gas is far from assured," the report said. Previous WEO analysis, notably its special report, "Golden Rules for a Golden Age of Gas" issued in 2012 underlined how the future for unconventional gas depends on whether it can be developed profitably and in a socially and environmentally acceptable manner (see Shale Daily,May 30, 2012).
"Neither of these elements can be taken for granted," researchers said. Producing unconventional gas outside the United States has been difficult. "And while regulation and industry practice in tackling social and environmental impacts have continued to evolve and improve -- and more is known about the hazards and how they can be mitigated -- public opinion about the balance of risks and benefits remains skeptical in many countries; in some cases, public opposition effectively precludes any spread of the unconventional gas revolution."
In the New Policies Scenario, the contribution of unconventional gas to global gas production grows steadily to 2040, rising in volume terms from around 630 bcm (22.248 Tcf) in 2013 to almost 1,700 bcm (60.034 Tcf) in 2040, by which time it accounts for around one-third of total gas output. More than 60% of the total growth in gas supply is attributable to unconventional resource development.
While North America contributed 90% of the total in 2013, this share is seen declining as the rest of the world escalates, initially in Australia through CBM development and then elsewhere. More than half of the global production of unconventional gas projected in the New Policies Scenario in 2040 comes from the United States and China.
Also gaining steam over the projected forecast is Mexico, which shares some shale gas formations with the United States, notably the Eagle Ford Shale. "We see shale gas production starting only in the early 2020s, but rising rapidly from there and reaching 60 bcm (2.12 Tcf) by 2040," WEO researchers said.