Print this pageAAPG ANNUAL CONFERENCE AND EXHIBITION
Making the Next Giant Leap in Geosciences
April 10-13, 2011, Houston, Texas, USA
Economic Determinants of the Global Natural Gas Balance
(1) James A Baker III Institute for Public Policy, Rice University, Houston, TX.
Over the past two decades natural gas has become increasingly important in meeting global energy needs. Projected demand growth, largely for power generation, in the U.S., China, and Europe has highlighted the need to expand long distance gas transport capabilities and develop new supplies. The former development has promoted rapid expansion of global trade in natural gas, while the latter has manifested in dramatic expansion of production from unconventional resources, such as shale gas.
As recently as ten years ago, natural gas markets were isolated from each other. Limited availability of regasification, shipping, and liquefaction capacity, as well as prohibitive costs, constrained development inhibited the flow of LNG from one region of the globe to another. Asia was the early focus of the LNG business, largely due to Japanese demands. The U.S., by most accounts, was set to become the focal point for growth in the LNG business at the beginning of the 2000s. However, technical achievements have rendered recovery of natural gas from shale formations to be economically viable thus unlocking a very large domestic resource. This has literally flipped expectations about the direction of the North American gas market upside down in less than a decade.
In North America, rapid growth in shale gas production has changed substantially and altered expectations regarding future prices, the development of frontier resources in Alaska and Northern Canada, and LNG import requirements. The latter prospect in particular has had a ripple effect to international LNG markets, and by displacement, markets in Asia and Europe. Furthermore, developments in North America have sparked interest in shale gas resource potential in other parts of the world, and the experience gained producing shale gas in North America may translate to those regions. The global implication is that the timing of LNG projects and the interest in expanding LNG infrastructure is running headlong into concerns about market availability. Moreover, the abundance of gas supply has forced producers and consumers to consider the effects of increasing gas-on-gas competition. Outside the US this development marks a dramatic shift from the traditional oil-indexed terms that have historically dominated gas transactions.
Sustained rapid development of shale gas is not a certainty. Environmental concerns regarding the potential contamination of water resources are major issues that will likely need to be addressed. In addition, climate policies and energy security policies - possibly including certain renewable portfolio standards or CO2 cap-and-trade programs that grandfather coal resources - will have consequences for global gas markets that can be difficult to project.