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Yergin: 'Shale Gale' Transforms Gas Market

The "shale gale" that has swept across the United States and into Canada already has more than doubled the size of discovered natural gas resources in North America and is enough to satisfy more than 100 years of consumption at current rates, according to a study by IHS Cambridge Energy Research Associates (CERA).

The study, "Fueling North America's Energy Future: The Unconventional Natural Gas Revolution and the Carbon Agenda," was issued at CERAWeek 2010 in Houston last Wednesday. According to IHS CERA, the recent expansion of gas resources provides the potential to transform North America's energy landscape.

"This is simply the most significant energy innovation so far this century," said IHS CERA Chairman Daniel Yergin. "As recently as 2007 it was widely thought that natural gas was in tight supply and the U.S. was going to become a growing importer of gas. But this outlook has been turned on its head by the shale gale."

The emergence of shale gas is "dramatically augmenting natural gas supply and opening new opportunities for competition among different energy sources."

Growth in power demand over the next 20 years likely will lead natural gas demand for power generation to nearly double by 2030 from its current level of 19 Bcf/d, according to the study. Substitution of coal-fired generation with natural gas-fired power generation will result in short-term greenhouse gas (GHG) emission reductions because a natural gas-fired plant has half the carbon emissions of coal-fired plants.

However, a limited pool of "spare" gas-fired capacity exists, which prevents wholesale fuel switching, the study noted.

"Simply replacing coal-fired generation with natural gas-fired units will not, however, allow the often discussed target of 80% reduction in GHG emissions by 2050 to be met," said the study. "This will require the deployment of noncarbon-emitting technologies including nuclear and renewable power, as well as significant advances in carbon capture and storage (CCS)."

The IHS CERA analysis drew on six months of research and dialogue with many stakeholders, including U.S. and Canadian government and regulatory agencies, consumers, oil and gas companies, gas and electric utilities, environmental and other nongovernmental organizations and financial institutions to uncover the key opportunities and challenges presented by the unconventional natural gas revolution. More than 100 stakeholder organizations participated in the study.

"The shale gale has shifted natural gas from a constrained resource to an abundant one, with wide-ranging implications for the energy future in North America," said IHS CERA chief energy strategist David Hobbs. "This new abundance of natural gas provides a crucial additional 'shock absorber' for supplies, providing greater flexibility to react to disruptions and market imbalances."

Water, however, both because of its use in hydraulic fracturing and produced water disposal and treatment methods, has emerged as the top environmental issue, "particularly as the center of gravity of development moves from the traditional oil and gas producing areas to the more densely populated U.S. Northeast," the study noted.

Also on the horizon is the stringency of any future carbon reduction legislation, as well as the viability of CCS technology. These two uncertainties could impact how natural gas fits into the generation fuel mix in the future, said IHS CERA.

"The power industry has a multiple-decade planning horizon," said IHS CERA's Lawrence Makovich, who is a vice president. "Because the uncertainty of the stringency of climate changes policy and the viability and cost competitiveness of CCS, there is the possibility that new gas-fired power plants may not run for their intended life spans. For the industry the most prudent way to protect itself against future uncertainty remains through a resilient, diversified portfolio."

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