Unconventional Resources Hold Promise, and Uncertainty

MONTREAL, Sept. 14 /PRNewswire/ -- Long-term growth in shale gas production is expected to play an important role in shaping North American, European and Asian natural gas demand, according to a new report released today by Ernst & Young at the World Energy Congress.

"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."

'The Global Gas Challenge' finds that while unconventional gas resources have the potential to fundamentally impact global supply and demand balances, the long-term viability is still maturing. On the demand side, uncertainties exist around the state of economic recovery and expanded long-term uses for new natural gas production. For supply, more clarity is needed in terms of policies that support reduced carbon emissions – something that expanded natural gas use will achieve.

Global gas demand is forecast to grow by 1.5% per annum through to 2030, although according to Munro, growth will likely be influenced by some of these unpredictable factors.

"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 E&P companies, and ultimately resulting in not enough gas to meet demand."

According to the Ernst & Young report, continued demand for natural gas in the developing countries will support growth in global gas demand. Abundant supply and favourable carbon emissions relative to oil and coal should also help to attract favourable regulation. Asia is expected to drive bulk of growth, along with India and the Middle East.

The question is whether the success of unconventional resources in North America and announced expenditure to create LNG facilities can be repeated on global basis. Most importantly, pricing needs to be robust enough to encourage capital investment in projects. Prices are currently low as a result of an abundant supply of natural gas.

According to Munro, the current supply/pricing environment has also changed economics for conventional LNG projects in Canada, and arguably for every LNG project across the world. Again, challenging economics and restricted access to capital will 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," Munro 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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SOURCE Ernst & Young