Energy Outlook: global growth in unconventional gas
IEA says it will account for 64 per cent of North America's supply by 2035
Big reports can be tough to digest. In the coming weeks, we’ll delve into global themes found in the International Energy Agency’s 2011 World Energy Outlook one at a time and relate them to Alberta’s energy sector. The first in this series on U.S. tight oil can be found here. In the second installment we look at the rise of unconventional gas.
Unconventional gas includes coalbed methane (CBM), tight gas and shale gas. The immense potential of this resource has only been realized in the past five to six years, as advances in hydraulic fracturing and horizontal drilling have unlocked vast stores of this gas in North America – most of it from shale rock.
The United States has been at the forefront of the unconventional gas boom, as companies big and small have plumbed the depths of basins like the Barnett, Marcellus, Haynesville and the Bakken to free the fossil fuel from tight rocks. The boom has transformed the North American gas supply picture, reversing dire predictions of declining production and dampening natural gas prices for the foreseeable future.
The search for unconventional gas has now spread to Canada and other parts of the globe. In Canada, the Horn River and Montney basins in northeastern British Columbia have seen the most activity north of the border, but Alberta’s Duvernay and the Utica shale in Quebec have also generated substantial interest (although it’s early days in the Duvernay and opposition due to environmental concerns has shale gas exploration on hold in Quebec.)
What to Expect:
More of the same – both on the exploration and the environmental side. The International Energy Agency (IEA) says gas production of 3.9 and 5.1 trillion cubic meters (tcm) per year is needed to meet projected levels of global consumption by 2035. The IEA says unconventional gas will go from making up 13 per cent of the global supply mix in 2009 to 22 per cent in 2035 – most of it coming from shale and CBM.
In North America unconventional gas is already king of the supply hill. It accounted for 56 per cent of production in 2009 and the IEA says that will rise to 64 per cent in 2035. “In this market at least, it [unconventional gas] should no longer be strictly considered as unconventional,” the IEA writes.
But reaching those numbers will require increased drilling and production of unconventional gas in the U.S. and Canada. That should be good news for the Western Canadian oil patch. But with more fraccing and horizontal drilling than ever going on, it may also lead to more clashes with landowners and environmental groups who contend fraccing contaminates drinking water, uses too much H2O, and can even cause earthquakes. Expect more dust-ups between the industry and a worried public as unconventional gas exploration accelerates.
Companies with designs on shipping liquefied natural gas (LNG) to Pacific Rim markets and businesses in the oilfield services sector. The IEA forecasts China’s import requirements for natural gas alone will grow from 10 billion cubic meters (bcm) in 2009 to 125 bcm in 2020 and 210 bcm in 2035. To secure those volumes, the Middle Kingdom will be willing to pay top dollar for a stable supply of LNG. And with the IEA forecasting North American supply and demand for the cleanest burning fossil fuel to stay balanced, continental prices shouldn’t go up substantially, giving Calgary producers even more incentive to reach new markets for their gas.
As for Alberta’s services industry, pressure pumpers, frac fluid specialists, water and waste treatment firms, and drilling companies with rigs capable of drilling the deep, multi-stage horizontal wells required to extract shale gas, will all benefit from the unconventional boom. Not only will they find their expertise in demand in Western Canada, but as other countries (China, Poland, Australia) develop their large unconventional gas resources, Canadian firms will find business opportunities overseas.
Proponents of Arctic gas projects, and anyone who can’t get the stuff out of North America. Rising production from shale gas, tight gas and CBM is eliminating the need for conventional gas extracted from high cost regions like Alaska and the Northwest Territories. This is why Imperial Oil’s Mackenzie Gas Project seems doomed and it’s why Alaska Governor Sean Parnell is now pushing for gas from the North Slope to be turned into LNG and shipped to Asia. Who wants to sell their gas for US$4 in North America when they can sell it for US$10 or $11 in Japan or China?