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Fueled by Shale, U.S. to Remain Largest NatGas Producer to 2035, Says BP

North America's fuel mix will undergo significant upheaval to 2035, with natural gas, fueled almost entirely by unconventional production, overtaking oil as the dominant fuel, BP plc reported Wednesday.

The 2017 edition of the annual BP Energy Outlook, which provides key trends for fossil fuels, renewables and carbon policy to 2035, was unveiled in London by Group CEO Bob Dudley and chief economist Spencer Dale. The "world will almost certainly turn out differently" than the outlook, Dale said, but the judgments presented "add real value" concerning the risks and uncertainty ahead.

Over the forecast period, BP expects the United States to remain "the largest producer of natural gas in the world, accounting for 25% of production in 2035," Dale said.

"We have been repeatedly surprised by the strength of U.S. tight oil and shale gas," he said. "Technological innovation and productivity gains have unlocked vast resources of tight oil and shale gas, causing us to revise the outlook for U.S. production successively higher. In the 2013 Energy Outlook, U.S. tight oil was projected to reach 3.6 million b/d by 2030 -- that level was surpassed in 2014."

Following a "brief retrenchment" from low prices and falling investments, "U.S. tight oil production is now expected to plateau in the 2030s at nearly 8 million b/d, accounting for almost 40% of total U.S. oil production." Meanwhile, U.S. shale gas "is expected to grow by around 4%/year over the outlook. This causes U.S. shale gas to account for around three-quarters of total U.S. gas production in 2035 and almost 20% of global output. The past surprises in the strength of the shale revolution underline the considerable uncertainty concerning its future growth."

Shale Gas On Path to 48 Bcf/d

Shale gas production in the United States could reach 48 Bcf/d by 2035, according to the forecast. Eventually, shale gas production also should increase in Canada and Mexico, collectively to around 3 Bcf/d. The growth in shale gas would offset declines in regional conventional supplies, which are forecast to decline by 2 Bcf/d.

All of the gas won't be used in North America, with liquefied natural gas exports (LNG) reaching nearly 18 Bcf/d by 2035, according to BP. North America's share of global LNG exports is expected to peak around 2030 at nearly 30%, and by 2035, North American LNG exports account for about 25% of global trade.

North American liquids supply is seen expanding by nearly 9 million b/d by 2035, driven by U.S. tight oil (4 million b/d), natural gas liquids (4 million b/d) and Canadian oilsands (2 million b/d).

"By 2035, North America supplies 26% of global liquids supply, compared to 22% today," researchers said. "The shifting pattern of global demand and supply cause regional oil imbalances to shift and become more concentrated."

In particular, BP said the increase in tight oil production, coupled with declining demand, may further reduce North America's reliance on oil imports, "with the region set to become self-sufficient by 2021. The removal of the U.S. crude export ban "helps this adjustment process."

In the outlook's "stronger shale" case, global shale resources would be significantly higher than in the base case -- 50% higher for oil and 20% higher for gas in the United States, growing 100% for oil and 50% for gas elsewhere, while productivity would 20% higher by 2035.

"As a result, global supplies of tight oil and shale gas are much greater than in the base case," Dale said. "The higher weight of shale gas within gas supplies, and the greater ability of gas to substitute for other fuels, means the impact is more marked for shale gas than for tight oil."

North American shale gas production is forecast to reach about 72 Bcf/d higher by 2035, with North America's share accounting for almost one-third of global gas supply in BP's "stronger shale" case. Tight oil output in North America would reach 16 million b/d by 2035, nearly twice its level in the base case, with its share of global liquids output at 14%.

U.S. gas demand is forecast to increase by almost 21 Bcf/d by 2035, with power generation increasing by 14 Bcf/d, industry by 5 Bcf/d, and transport by 3 Bcf/d, while "other" declines by 1 Bcf/d. Demand in Canada and Mexico increases by 10 Bcf/d, driven mostly by power generation and industry.

In North America, gas, joined by growth in renewables, should displace coal in power generation by 2035. The share of gas in power generation is seen reaching 36% by 2035, compared to 22% today. Gas in industry is forecast to have a 46% market share by 2035, while gas in transport reaches a 4% market share.

Over the forecast period, BP's base case assumes North American gross domestic product grows by more than 60%, "but solid gains in energy efficiency mean that the energy required to fuel the higher level of activity grows by just 6% over the outlook."

Although renewables account for a modest net increase in energy consumption, fossil fuels are expected to be the dominant forms of energy in North America's energy mix, accounting for 78% of total energy consumption in 2035, down from 83% today.

Gas Only Fossil Fuel Growing Market Share

"Gas is the only fossil fuel with a growing market share, supported by strong supply growth, particularly of U.S. shale gas, and by environment policies," the outlook said. Meanwhile, North American oil demand should by 1 million b/d over the period.

"U.S. tight oil production continues to grow, although at a gradually moderating pace," said researchers. "Combined with rising Canadian production, this allows North America to become a net oil exporting region by 2021. Coal demand declines by 51% over the outlook, to the lowest level in our dataset going back to 1965."

Hydropower is expected to see growth of about 8% by 2035, while nuclear output declines by 13%. Renewables should grow rapidly, increasing 5.1%/year throughout the forecast period.

"The speed of transition to a lower-carbon energy system is a key source of uncertainty affecting the outlook" for North America. Under the "faster transition" case, based on a rising carbon price, there are tougher vehicle standards and significant energy efficiency. Total North American energy demand declines in the faster transition case (minus 0.2%/year versus 0.3% in the base case). Fossil fuels decline by 21% in the faster transition, with their share in total energy falling from 83% to less than 70% by 2035.

"Natural gas still increases in the "faster transition" case, however, accounting for a little more than one-third of total energy demand in 2035. However, the rate of decline in oil consumption would speed up (minus 1.1%/year versus minus 0.3% in the base case). Coal consumption suffers the most, falling by more than 80% to its lowest level in our dataset going back to 1965. The big winner in the "faster transition" case is renewables, with over a four-fold increase in output (8%/year). Renewables' share in the energy mix grow from 4% today to 17% by 2035 in the "faster transition" case.

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