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Unconventional Gas Could Account for 42% of U.S. Supply by 2010

A substantial amount of unconventional natural gas reserves await discovery in North America, both in existing basins and new areas, and likely will account for 42% of U.S. gas supply by 2010, according to a report by UK-based energy consulting firm Wood Mackenzie. Unconventional gas, which includes coalbed methane, tight gas sands and shale gas, accounted for 27% of U.S. supply in 2005.

Unconventional oil and gas resource development now is dominated by the independents, which pioneered North American gas and oilsands production. However, Wood Mackenzie noted that as conventional supplies worldwide dwindle, super-majors will establish larger positions in the unconventional arena.

"Wood Mackenzie believes that the size of the unconventionals' hydrocarbon prize is potentially enormous, approaching 3.6 trillion boe of resources globally," said managing consultant Phaedra Powilanska-Burnell. In context, that figure is double the estimate for undiscovered conventional resources worldwide. "International oil companies with growth ambition cannot afford to ignore these unconventional resources."

By 2025, unconventional oil is expected to supply more than 20% of global demand, but unconventional gas "is likely to be at least as important."

Technological advances pioneered in North America are likely to assist increased activity worldwide, Wood Mackenzie predicted. The study also noted that "more attractive fiscal and licensing terms and requirements may also be on offer, smoothing the path for increased entry into the sector."

Short- to mid-term developments are expected to be driven by commodity prices. Wood Mackenzie's medium-term oil price ($40/bbl) and gas price ($5.20/Mcf at Henry Hub) "suggest a favorable environment for the exploitation of unconventional oil and gas (with the exception of shale oil), outside of the existing North America areas. Regional and country-specific factors, therefore, have a large impact on the development of these hydrocarbons."

"The continuing refinement of technologies to increase recovery factors and lower the unit costs will drive these new developments" in North America, according to the study. Powilanska-Burnell added that "as unconventional resources are distributed widely around the globe, the key risk is not discovering the resource, but in identifying areas where the critical factors are in place to enable economic development."

Unconventional hydrocarbon development is likely to grow in Europe, China and India, where supply security issues and a growing market will push new production. Worldwide, however, unconventional exploitation faces long-term obstacles ranging from technological to environmental. Technological advances will be key to securing both acceptable unit costs and limited environmental impact, the report noted. Public approval of unconventional exploitation's ecological footprint and its contribution to global warming also is a hurdle to be cleared, it said.

The study, "Unconventional Hydrocarbons -- The Hidden Opportunity," examines key types of unconventional oil and gas, including heavy oil, tight gas, coalbed methane and shale oil. For information, contact Louise Butcher at louise.butcher@woodmac.com.

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