The growth of unconventional natural gas holds major implications for global markets and prices in the years to come, the World Energy Council (WEC) said Friday.
The UK-based council's analysis, "Unconventional Gas, A Global Phenomenon," was compiled with project partner Accenture Strategy. In 2012 WEC researchers predicted shale gas would have a significant impact on the dynamics and prices of future gas markets. The latest study explored the implications of the its growth and implications.
"The bearing of unconventional gas on changing market dynamics should not be underestimated," the researchers said. "Now that Australian coalbed methane and U.S. shale gas are emerging on the global market as liquefied natural gas (LNG), the impact will no longer be contained to regional markets." Besides the major players, which include China, other countries such as Mexico, Saudi Arabia, South Africa, Poland and Turkey also have "significant potential" for shale gas development.
Three trends cited by WEC that are emerging as the "most meaningful" in a global context are:
● Interconnected markets from excess supplies have led to price normalization and other structural shifts toward a transparent market across Asia, Europe and North America;
● International growth of unconventional gas by exploration and production operators in Australia, China and Argentina, is growing supply outside of North America; and
● U.S. unconventional gas has emerged as one of the most cost competitive asset types, which continues to shift industry capital toward flexible, shorter-cycle investments in North America shale assets.
"The key uncertainty, outside North America, is whether gas can be made available at prices affordable to consumers, while offering suppliers incentives for continued infrastructure investments," said researchers. "Unconventional gas reduces concerns about security of supply by providing a new cast of gas suppliers who will bring competition, liquidity, consumer bargaining power and a clear price signal to the market."
Unconventional gas "is causing a shift in the dynamics of the natural gas market, which will be felt for many decades to come," WEC Secretary General Christoph Frei said. "Its spread around the world is being accelerated because it can make gas more affordable to consumers and reduce concerns about the security of supply. So far, the surprising resilience of the U.S. shale gas market has led the way in the shale gas boom, and whilst other countries may not have the unique characteristics of the U.S., they will learn how to become LNG producers or exporters which will change the global dynamics of energy."
Lower oil prices and weakened Asian demand have resulted in the "virtual disappearance of the price spread between the Japanese LNG and UK markets in 2016," according to the WEC. To realize the "full potential" of the global gas phenomenon, researchers highlighted the need for some "decisive interventions" to alleviate market uncertainty.
Industry needs to bring a "higher degree of focus to portfolio allocation, risk management and efficiency, and continue to seek new and innovative investment partnerships to deliver projects," said the report. Meanwhile, policies need to be established by regulators and lawmakers that "promote a liquid market and competition needed for security of supply and the formation of clear price signals." In addition, consumers should evaluate the economic and environmental benefits of diversifying energy assets with gas in power, industry, transportation and chemicals "and consider innovative investment partnerships to secure supplies."
"Already, the rapid growth in unconventional gas has significantly disrupted global trade flows," Frei said. "With concerns about affordability and security driving exploration into unconventional resources outside of North America, unconventional gas will continue to be a key factor in how the world energy market develops. In particular, continued growth in the U.S. and Australia will significantly influence the balance of supply and demand with Argentina, China and Saudi Arabia emerging as unconventional gas producers out to 2020-2025."
Accenture's Melissa Stark, managing director of the energy industry group and co-author of the report, said the research emphasizes "the smooth nature and optionality of the U.S. shale gas supply. The U.S. LNG exports are very different from any supply we have seen before because this supply can come onstream very quickly in response to market demand and prices. This LNG supply is driving fundamental changes and commercial innovation in the global LNG market."