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Developments in Unconventional Gas & Implications for Global Gas Markets
Trevor Morgan Managing Director Menecon Consulting Unconventional Gas Summit Singapore, 17-18 February 2011
Roadmap
The US experience with unconventional gas
Unconventional gas developments in the rest of the world
Global outlook for unconventional gas and implications for global gas markets
Unconventional gas: what is it?
Gas produced using new techniques that improve flow rates from reservoirs previously considered un-commercial
New techniques involve drilling horizontal wells & hydraulic fracturing at multiple intervals
Includes:
> Tight gas – gas contained low permeability rock
> Coalbed methane – gas contained in (typically unmined) coal beds
> Shale gas – gas contained in low-permeability shale (typically source rock)
> [methane hydrates too, but commercial production is some way off]
The revolution started in the US
Unconventional gas now accounts for over half of total US gas production with tight gas the leading unconventional source, but shale gas output is growing fastest
US gas production by type in the New Policies Scenario
0
100
200
300
400
500
600
700
1990 1995 2000 2005 2008 2015 2020 2025 2030
Shale
CBM
Tight
Conventional
bcm
Source: IEA, World
Energy Outlook 2010
US has numerous shale gas plays
Almost all the US shale gas produced today comes from the Barnett Shale, but output from several new shales – notably Haynesville, Fayetteville & Marcellus – is rising fast
Unconventional production is different
All wells, regardless of their productivity, peak early & decline quickly, so many wells have to be drilled in quick succession to keep total production up
0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
0 10 20 30 40 50 60 70 80 90
Mo
nth
ly p
rodu
ctio
n (m
cm)
Cumulative production (mcm)
> 60 mcm
45 to 60 mcm
30 to 45 mcm
15 to 30 mcm
< 15 mcm
Gas production profiles from Barnett Shale horizontal wells
Interest in unconventional gas in the rest of the world is growing
There are possibly large resources outside of North America and lots of interest, but there has been limited drilling as yet
Australia
Many CBM projects
planned;1st CBM-based
LNG approved in 2010
China
Target to meet 10% of
demand by 2020 but CBM
development so far slow &
shale gas in early stages
Indonesia & India
Exploration drilling
for shale & CBM
just starting
Latin America
Shale & tight gas
just discovered in
Argentina
(Neuquén Basin)
& interest in Chile
Europe
lots of interest, but
minimal drilling to date
& costs may be high
Middle East, CIS & Africa
Very large resources but
conventional gas likely to be
developed 1st
The resource base is huge
Resources of unconventional gas – especially shale - in place are large globally, but how much is economically recoverable at current prices?
0 50 100 150 200 250 300
Asia-Pacific
N.America
FSU
Latin Amreica
Mideast & N. Africa
Europe
Sub-Saharan Africa
Tcm
Shale gas
CBM
Tight gas
Global unconventional gas resources in place
But there are large potential barriers to their development
Resource base – quality & implications for costs uncertain
Environmental issues – notably treatment of waste water
Access to land and resources
Local opposition – resistance to an unfamiliar, invasive industry
Availability of rigs, other equipment & personnel – and water
Proximity to existing pipeline infrastructure
Implications of unconventional gas for global gas markets
Significant impact already
> The unexpected increase in US unconventional production has contributed to the global supply glut
> Combined with weak demand, has almost removed the US from the global gas market as less need to import LNG
Longer term impact
> Can the US revolution be replicated in the rest of the world?
> How will unconventional gas affect prices, pricing arrangements & investment in conventional gas?
Global demand slumps but starts to bounce back…
Economic recovery – especially in non-OECD countries – and, in Europe, cold weather drive gas demand back up
Primary natural gas demand (year-on-year change)
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
2007 2008 2009 2010*
OECD
Non-OECD
World
* Preliminary estimate
Source: IEA, Natural
Gas Information 2010;
Menecon Consulting
analysis
US unconventional gas production carries on rising
Lower prices since mid-2008 have led to a fall in conventional gas drilling & a leveling off of CBM output, but shale gas output has kept growing strongly
US natural gas gross withdrawals (monthly)
0
500
1000
1500
2000
2500
Jan-06 Jan-07 Jan-08 Jan-09 Jan-10
Bcf
Total
Shale gas
CBM
Source: EIA
The wave of new LNG capacity is not over yet
Between the start of 2009 and the end of 2013, the world will add around 130 bcm/y of new liquefaction capacity – an unprecedented expansion
A glut emerges and threatens to persist
Even if no new pipeline or LNG project is commissioned before 2020, unused capacity would still total over 150 bcm & the utilisation rate would still be only 80% by 2020
Natural gas transportation capacity between major regions
Source: IEA, World
Energy Outlook 2010,
New Policies Scenario 0
100
200
300
400
500
600
700
800
2007 2008 2009 2010 2011 2012 2013 2014 2015
bcm
50%
55%
60%
65%
70%
75%
80%
85%
90% Unutilised capacity
LNG trade
Pipeline trade
Capacity utilisation rate
(right axis)
Keeping gas prices low relative to oil
US & continental European gas prices decoupled in 2008 but have started to converge as the oil-price linkage has weakened
Gas import prices (monthly)
Some signs of spot indexation?
Supply glut starts to emerge
Sep-1
0
Nov-1
0
Unconventional gas is set to play a growing role in global supply
Over a third of the increase in global gas production comes from unconventional sources, their combined share of production rising from 12% in 2008 to about 19% in 2035
World natural gas production by type in the New Policies Scenario
Source: IEA, World
Energy Outlook 2010 0
1 000
2 000
3 000
4 000
5 000
2008 2015 2020 2025 2030 2035
bcm
0%
4%
8%
12%
16%
20% Shale
Coalbed methane
Tight
Conventional
Share of unconventional
(right axis)
Concluding remarks
The boom in unconventional gas in the US has & will continue to affect global gas balance
Potential to replicate US experience in other parts of the world, but costs uncertain & will in any case take time
Rapid development would help keep prices down & hasten shift away from oil-indexation in long-term contracts
But risk that unconventional gas hype may discourage LNG & pipeline investment – what if it disappoints?
