The story of shale gas is the story of a revolution. Some analysts are even talking about a 'paradigm shift' which has so far impacted the US gas market by reducing gas prices and import volumes from Canada and LNG.
Less than 10 years ago, the US decided to build numerous LNG import terminals to counter the decline of its indigenous source of conventional gas. Today, its LNG terminals are vastly under-utilized and the US is self-sufficient in gas supply thanks to crucial technological developments that allow the country to unlock vast unconventional sources of gas. Shale gas which has grown to over 10% of US gas production has increased 8-fold over the last decade.
The phenomenon of shale gas is set to continue its exponential growth, in the US and abroad -- notably in Europe, China and Latin America. The race between energy companies to find sweet spots of unconventional gas is only starting.
However as the impact of shale gas is increasingly felt on global gas market, the expansion of shale gas could become more constrained due to environmental concerns. A few questions remain to be answered to understand better the scale of this revolution:
1) What is the impact of shale gas on global gas market and LNG
How will the competition between shale gas and LNG unfold in the next five years? In a nutshell, the story is who is pushing who out of the game.
2) Can shale gas be developed in an environmental safe way?
The US is currently focusing on a big controversy about potential risk of water contamination in New York watershed if the Marcellus shale gas play is extracted in some NY counties' watershed. The breakthrough technology used to produce shale gas is a combination of horizontal drilling and hydraulic fracking. There are worries that introduction of chemicals in the watershed during hydraulic fracturing as well as water spill could pollute drinking waters.
These environmental concerns could expand to international markets where shale gas will be developed as technology transfer happens.
3) How and where this new source of supply can be used? What are the markets and outlets for this shale gas?
- Displacement of coal in power plants. But retirement of old coal plants takes time.
- Electric sector
- Transportation. As natural gas vehicles are unlikely to extend beyond the fleet of heavy duty trucks, buses and taxi, gas could be used to produce electricity for electric cars.
- Exports of LNG from the US is a long-term perspective, not yet on the agenda.
4) Can we expect a competition between coal and gas?
In the absence of a price on carbon or cap and trade regulation, and until carbon capture and sequestration (CCS) is available, gas investment will be favored.
