(Montreal – September 13, 2010) Long-term growth in shale gas production is expected to play an important role in shaping North and South American, as well as 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 around policies that support reduced carbon emissions — something that expanded natural gas use will achieve relative to other fossil fuel alternatives.
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 these unpredictable factors. Also, it should be noted that natural gas production in Canada has fallen significantly in the past five years as the industry has underinvested in conventional gas because of the challenging price economics.
“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 exploration and production 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 regulations. Asia is still expected to drive the bulk of growth, along with India and the Middle East.
The question is whether North America’s success in exploiting unconventional resources can be repeated on a global basis. Most importantly, pricing needs to be robust enough to encourage sufficient capital investment in new projects where infrastructure may also need to be developed.
According to Munro, the current supply/pricing environment has also changed economics for conventional liquefied natural gas (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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