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North American Shale 'Ka-boom' Transforming Markets Worldwide

Booming shale plays in the United States have proved to be more than transformational domestically, according to Jeff Welch, head of North American Gas for EDF Trading North America -- they are having "mind-boggling" implications worldwide.

"When we talk about international interest in North America...it's not a shale 'boom,' it's a shale 'ka-boom,'" Welch said Monday at the LDC Gas Forum Southeast in Atlanta. "The reason I say that is that it's a rattle felt around the world. It's truly definitional, it's changing, and it's very, very, very significant."

Most obviously, the massive output from North American shale plays has allowed the continent to influence energy prices after decades of having them dictated by foreign energy sources.

"North America historically was a price taker, and what this transition is allowing us to do is to be a marginal molecule price maker," Welch said. "That's in natural gas, it is turning into that as well with LNG [liquefied natural gas] and to a lesser degree, even coal.

"Why did we do that? How can we do that? Obviously, a large geologic resource that we have significant knowledge on, and an absolutely world-class technology function that is continuing to extract efficiencies...the efficiencies in what we're able to do and the capabilities that we have on the upstream side are absolutely world beating, they're foundational and they're going to allow the North American resource base to continue to have a very significant place at the table."

International interest in North American shale is in it's second phase, Welch said. The first wave came as shale producers were trying to gain production expertise; the second has been about trying to find ways to bring previously stranded natural gas to premium markets. The third wave, which has already begun, will focus on the capability to compliment the movement of product.

China has a larger estimated resource base than North America, and there are several other countries with significant amounts of natural gas and oil in the ground. But North America has the advantage of an industry populated by fast-moving independent drillers that are willing to take risks, and a financial sector that is willing and able to invest in shale projects.

"We don't have that in some of the other countries," Welch said. "China really lacks the royalty scheme...it's a little more challenging geology; the population centers in China are on the eastern coast, the shale reserves are in the western portion of the country, and there's a significant amount of infrastructure that has to ensue for development, to allow that resource base to reach the population centers." Argentina has concerns about government intervention; Saudi Arabia has water issues and is focused on crude oil production; European countries face geology problems, rig shortages, tax pressures and opposition to hydraulic fracturing, he said.

Private ownership of mineral rights also gives the United States a distinct advantage. "It is a key differentiator when we're dealing with nationalized interests in countries, including those with our neighbors to the South, with Pemex, in Mexico," Welch said.

The evidence of international interest in North American shale plays can be seen in some of the larger deals that have been announced in the last year, including the C$15.1 billion purchase of Calgary-based Nexen Inc. by China's CNOOC Ltd. (see Shale Daily, Jan. 29), Petronas' bid to take over Progress Energy (see Shale Daily, Aug. 1, 2012) and BHP Billiton's merger with Petrohawk (see Shale Daily, Aug. 22, 2011), Welch said.

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