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IEA: World Gas Markets Affected by Unconventional Gas

The International Energy Agency (IEA) says the worldwide amount of estimated recoverable gas has doubled over the last few years thanks to unconventional gas resources. The agency noted that a global race for unconventional resources is on.

The IEA released its latest findings Thursday in a 272-page report, "Medium-Term Oil & Gas Markets 2011." It found that unconventional gas production accounted for about 15% of global gas production in 2010, with the lion's share -- 420 billion cubic meters (Bcm) -- coming from North America.

"One single country, the United States, not only represents the majority of unconventional gas production, but is also driving its growth," the report said, citing a 5% increase in total U.S. gas output to 613 Bcm in 2010. "The main contributor to this incremental production is without any doubt unconventional gas, which now represents an estimated 60% of U.S. gas output."

In a companion report, the IEA estimates that recoverable unconventional gas resources worldwide total 406 trillion cubic meters (Tcm). Shale gas accounts for 204 Tcm of that figure, followed by coalbed methane (CBM) at 118 Tcm and tight gas at 84 Tcm.

According to the IEA, shale gas production in the U.S. increased from 90 Bcm in 2009 to an estimated 138 Bcm in 2010. Meanwhile, tight gas and CBM, which had been the "backbone" of unconventional gas production, both declined.

"Over the past few years, the world had realized the astonishing potential of these new resources through the revolution taking place in the United States," the report said, adding that U.S. unconventional gas output increased almost 40% between 2007 and 2010. "This tremendous growth of shale gas explains why it is attracting the most attention [not only] in the United States but also worldwide...raising questions as to whether such growth could be replicated elsewhere and what would be the implications for the energy mix and trade."

One implication, the report found, was a precipitous decline in liquefied natural gas (LNG) imports by the United States. Citing LNG imports totaling 12 Bcm in 2010, the IEA went so far as to say the U.S. has "de facto withdrawn from global LNG markets.

"Companies are now seriously considering LNG exports [from the U.S.] based on Texas shale gas," the report said, specifically mentioning the Sabine Pass and Freeport projects. "This initiative would be a complete reversal for the United States [by] supporting LNG exports from non-stranded resources [and] setting exports before domestic use."

The IEA warned that there was "still a great deal of uncertainty" over whether the growth of unconventional gas production in the U.S. could be sustained because of low prices.

"Many questions are raised on the sustainability of production levels at $4/[Mcf ]to $5/[Mcf]," the report said. "Some producers quote breakeven costs at $2/[Mcf] while others are much higher, up to $6/[Mcf]. The U.S. gas producing industry has already proven to be quite reactive to low price signals over the past years, particularly to the divergence between oil and gas prices."

In Canada, the IEA said unconventional gas development was dependent upon U.S. markets and future prices. The agency pointed out that Canadian unconventional gas production fell by more than 20% over the past four years as exports to the U.S. have slowed. The IEA said Canada produces about 50 Bcm of tight gas and 8 Bcm of CBM, but almost no shale gas.

"Shale gas developments in the medium term will be concentrated around the Horn River Shale basin and could increase significantly, to over 10 Bcm within a few years," the report said. "A possible outlet could be LNG exports. Some shale gas potential also exists in Quebec, but as in the United States, pressure is increasing to put a moratorium on shale gas production."

The IEA also warned that there were several obstacles to the development of unconventional gas, especially environmental concerns, which it said were "increasingly in the spotlight and have deterred exploration in a few countries." The agency recommended that countries identify resource potentials, enacting the necessary regulatory and infrastructure changes and attracting companies with expertise in the industry.

"In the United States, a new source of uncertainty could come from the current study by the U.S. Environmental Protection Agency (EPA) on the effects of shale gas production on water," the report said, adding that the EPA report was expected in 2012. "If additional measures would be required to limit the environmental footprint, this may impact gas production costs and future shale gas developments, as well as prevent shale gas drilling in sensitive areas."

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