Long-term growth in shale production already is reshaping the North American markets and could reconfigure the world's natural gas markets, a report by Ernst & Young asserts.

The consulting group issued "The Global Gas Challenge" on Monday at the World Energy Congress in Montreal.

"The unconventional natural gas business may have already changed the overall supply and demand balance in North America, and perhaps globally," said Barry Munro, leader of Ernst & Young's Canadian oil and gas practice. "It's possible we could be onto something big, but there are many underlying uncertainties, including growing environmental concerns, technology challenges, water availability and land issues."

According to the report, unconventional gas resources "have the potential to fundamentally impact global supply and demand balances; the long-term viability is still maturing."

Gas demand will depend on the strength of the economic recovery as well as long-term uses for gas production, noted the consultant. "For supply, more clarity is needed around policies that support reduced carbon emissions -- something that expanded natural gas use will achieve relative to other fossil fuel alternatives."

Through 2030 global gas demand is tracking to grow by 1.5% a year, but growth likely will be influenced by "unpredictable factors," said Munro. For example, Canadian gas output has fallen significantly in the past five years because of industry underinvestment related to challenging price economics.

"At a global level, the immediate risk is that the current low price environment dissuades natural gas players from investing in new projects," said Munro. "This initiates a cycle beginning with underinvestment by exploration and production companies, and ultimately resulting in not enough gas to meet demand."

According to the report, continued gas demand in the developing countries should support growth. "Abundant supply and favorable carbon emissions relative to oil and coal should also help to attract favorable regulations. Asia is still expected to drive the bulk of growth, along with India and the Middle East."

The question, noted the report, "is whether North America's success in exploiting unconventional resources can be repeated on a global basis. Most important, pricing needs to be robust enough to encourage sufficient capital investment in new projects where infrastructure may also need to be developed."

The current supply/pricing environment also has changed the economics for conventional liquefied natural gas (LNG) projects in Canada, and arguably for every LNG project across the world, noted Munro. Challenging economics and restricted access to capital may alter any expected LNG-supported demand growth in many regions.

"A truly global gas market will not emerge until there is greater flexibility in gas supplies, increased transportation between regions and more gas-on-gas competition," he said. "It's time to start thinking about natural gas from a different perspective, and as a viable long-term energy source for multiple uses."

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