Acceleration of shale natural gas development not only has lowered the price of natural gas but will exert downward pressure on the price of crude oil, said an official with the International Energy Agency (IEA) Thursday.
"A lot of the shale gas plays in the U.S. are fairly wet," which means that they have large amounts of natural gas liquids (NGL) that can be mixed with oil production and keep pressure on oil prices, said IEA Managing Director Jim Burkhard during a Senate Energy and Natural Resources Committee hearing on the energy and oil market.
"More gas...means more natural gas liquids, which are becoming an important factor in oil production at the margin. This is one reason why we see the oil market as being relatively well supplied for 2011. Abundant gas should help keep oil prices down," he said.
"For all these [reasons] the IEA is very excited about gas and will release a special report on the 'Golden Age of Gas' here in Washington in June," Burkhard told the Senate panel.
In addition to the U.S., shale activity is growing in Australia, India, China and Poland, he said. "It's probably going to take several years to know individual results. However it's already clear that by causing a glut in supply, shale gas is shifting patterns of trade, having a major impact on gas prices around the world."
Due to the influence of shale gas, the Energy Information Administration (EIA) doesn't expect the U.S. wellhead price of natural gas average to get above $5/MMBtu until 2020, said EIA Administrator Richard Newell. The agency also projects that domestic oil imports will decline to 42% by 2035 due in part to rise in NGLs that would displace conventional oil.
Liquefied natural gas (LNG) imports, once destined for the U.S., are now going to Europe and Asia instead. And the low prices for natural gas in relation to oil have raised the competition for pipeline gas, "giving consumers in Europe a break. Gazprom's not very happy about that," Burkhard said.
In the U.S., the prospects for domestic natural gas production "have dramatically improved" over the last several years due to the emergence of shale development, Newell said. Domestic shale production has increased fifteen-fold over the last decade, and proved reserves of shale gas have tripled over last year, which caused the EIA to reassess the U.S. shale resource base, he said.
EIA found that technically recoverable shale resources are more than double what it assumed in its 2010 outlook. As a result, it sees gas production increasing 25% over the next 25 years and projects that gas imports and prices will in turn be significantly lower than what it previously assumed. The lower prices will underpin a 17% increase in consumption over the same period, according to EIA (see Daily GPI, Dec. 17, 2010).
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