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Shale Abundance Reduces Volatility, Increases Demand, Consultant Says

Shale production will accelerate growth in demand for natural gas, and eventually revive drilling, by stabilizing supplies and prices for decades to come, Canada's National Energy Board (NEB) has been told (see Shale Daily, Oct. 22).

"The importance of the shale revolution would be difficult to overestimate," says a report prepared by California-based Navigant Consulting Inc.

One of the most important aspects of shale gas development is that the overwhelming reserves and production have removed excess volatility from the market, giving both producers and end-users the gift of longer-term planning and reliability, according to the report filed at the NEB in support of an application by Jordan Cove LNG for a 25-year license to export 15.6 Tcf of Canadian gas via a liquefied natural gas (LNG) port proposed on the Pacific Coast of Oregon.

The pre-shale era fueled rewarding price spikes for producers with periodic shortage scares caused by exploration risk, "out-of-phase" timing of drilling and demand, and mismatches between pipeline services and consumer regions, recalls Navigant. But the brief revenue bonanzas inflicted a heavy and lasting penalty by discouraging growth of gas use, adds the consulting firm.

Speculators love volatility, but a volatile market "affects investment decisions, amplifying a feedback loop of uncertainty. In the end, price volatility has been a major cause of limits on the more robust expansion of natural gas as a fuel supply source despite its advantages over other energy forms as an environmentally clean, abundant and affordable energy resource," says Navigant.

Astronomical volumes of previously untapped deposits -- made available by advancing drilling technologies of horizontal drilling and hydraulic fracturing that enable the industry to adopt a manufacturing approach to supply development -- radically alter the energy economics outlook.

The dependability of shale gas production as a result of its abundance, as well as its reduced exploration risk as compared to conventional gas resources, creates the potential to improve the alignment between supply and demand, which will in turn tend to lower price volatility. The vast shale gas resource not only has the potential to support a larger demand level than has been yet seen in North America, but at prices that are less volatile.

"The importance of the shale revolution would be difficult to overestimate," says the report prepared to support Jordan Cove, which is a U.S. project with a Canadian owner, Veresen Inc. in Calgary.

In a forecast looking out to 2045, the Navigant report sees gas as an increasingly strong candidate to replace dirtier fuels, such as the one billion tons of coal currently burned each year by U.S. power plants with an annual air emissions cost estimated by the U.S. Environmental Protection Agency to be 2.09 billion tons of greenhouse gases.

Nowhere is the demand growth effect of the shale resource revolution expected to be stronger than in Canada's western economic powerhouse. Alberta is emerging as the nation's leading gas growth market, thanks largely to rising thermal oilsands extraction and associated power generation, says Navigant.

As of 2045, Canadian gas demand is forecast to rise by 92% to 19.5 Bcf/d. The strongest performance is expected in Alberta, where consumption is projected to go up by 144% to 11.3 Bcf/d from the current 4.7 Bcf/d.

Canadian industrial gas use is expected to grow by 117% to 9.2 Bcf/d as of 2045 from 4.3 Bcf/d. Consumption by gas-fired power plants across the country is forecast to jump by 276% to 4.2 Bcf/d from 1.1 Bcf/d this year.

As of 2045, Alberta industrial gas demand, driven by the oilsands, is forecast to increase by 200% to 7.4 Bcf/d from 2.5 Bcf/d in 2013. Power generation in Alberta, currently dominated by aging coal-fired plants, is expected to use 2.3 Bcf/d of gas as of 2045, up 495% from 400 million cubic feet per day this year.

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