The "reality and potential" of expanding natural gas and liquids from shale continues to have a dramatic impact on the regional and global balances for both economies, PIRA Energy Group said Monday in a new report.
The energy consultant released its Annual Scenario Planning Guidebook in "the most uncertain economic environment in decades," the New York City-based firm stated.
"While the production to date has been almost entirely in North America, those volumes have already been sufficient to alter global markets via changes in North American trade patterns," said consultants.
The comprehensive study assessed the outlook to 2030 for oil and gas markets, a study that also is performed annually by many producers internally as well as publicly, including BP plc and ExxonMobil Corp. BP, which provided a forecast to 2030, in January predicted that the United States would become the largest global liquids producer as soon as this year (see Shale Daily, Jan. 17). In its report to 2040, which was issued in December, ExxonMobil forecast that unconventional gas would dominate North American supply (see Shale Daily, Dec. 12, 2012).
PIRA's reference case and alternative high and low cases provided quantitative forecasts and detailed assumptions on the global economy, energy and environmental policy, technology, and producer strategies. Key "signposts," which are developments that have the potential to fundamentally impact energy markets, subsequently are monitored throughout the year by PIRA, to determine whether prices are tracking its reference case outlook or deviating toward a scenario case.
Shale resources development outside of North America is still in its early stages, but it is likely to expand rapidly by 2020, according to the consultant.
"The impacts will go far beyond the crude and gas balances, with significant implications for relative pricing, refining, trade, energy policy, inter-fuel competition, and even the macroeconomic outlook," said consultants. "In regards to the flat price, developments in shale over the past 12 months, coupled with continued weakness and uncertainties in the global economy, have caused PIRA to lower its longer-term price outlook for both liquids and gas."
However, the upside price risks, particularly in the oil markets, haven't disappeared.
"No one knows how the Arab Spring will play out or how long the transition will take, but it has been chaotic to date, and the risks that the chaos will spread or lead to extended periods of ungovernable, or failed, states are very real," said PIRA President Mark Schwartz, who directs the scenario planning service. The "growing supply losses" in the Middle Eastern countries are known "and with uncertainties over Iran still facing the market, it is perhaps not surprising that global crude prices have held flat despite the rapid and anticipated growth in shale.
"So, while it is easy to remain optimistic on global supply due to the success of shale liquids, it is important to note that, up to now, every barrel of incremental North American shale liquids production has been more than offset by losses of production due to political disruption."
U.S. coastal crude prices still are connected to the global market, but natural gas prices have disconnected, which has made the gap between gas and liquids "extremely wide" in North America.
"PIRA anticipates that the market will find a way to utilize discounted natural gas in higher value applications." Liquefied natural gas exports from North America to oil-linked markets "will rise later this decade, slowly eroding the arbitrage opportunity as U.S. gas prices are pulled up and global gas prices are pushed down. Gas use in transportation is getting increased attention around the world from the U.S. to the Middle East to China and may move forward in meaningful volumes post-2020, even with only minimal government support."
PIRA still is projecting strong natural gas growth in electric power generation, but it noted that "Europe has disappeared from the list of growth markets due to the combination of incentives for renewables, weak top-line electricity growth, high gas prices and low carbon prices. Europe appears to have a unique combination of these characteristics, but the potential of renewables, with strong government support of production and use, may have a greater upside than many anticipated."