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Shale gas discovery and development in USA to change market dynamics

 
With the discovery, development and subsequent increase of shale gas production in USA, the country has moved from being a gas importer to self-sufficiency, along with a natural decrease in gas prices. Shale gas has become an important and permanent feature of US energy supply. Daily production has increased from less than 1 billion cubic feet of gas per day (bcfd) in 2003, when the first modern horizontal drilling and fracture stimulation was used, to almost 20 bcfd by mid-2011.
As per the US Energy Information Administration (EIA), the output of USA gas production is predicted increase almost threefold between 2009 and 2035. Also, EIA issued a prediction report of global shale gas volume outside USA, by evaluating 48 basins of shale gas in 32 countries outside USA (in which its resources has been known). As per esdm.go.id, resources in USA are estimated at 862 Tcf, and at 5.760 Tcf of recoverable shale gas resources in the rest of the world. This adds up to total global recoverable shale gas resources of 6.622 Tcf. In its comparison perspective, prediction of the world’s recoverable gas resources (not included shale gas) is 16.000 Tcf, which means that shale gas resources add more than 40% of the world’s gas volume. The experiment excluded some type of shale gas resources potency because of data limit, and also excluded potency in offshore basins. So, the potency of shale gas resources is bigger based on this early calculation.
Rising US natural gas production from shale formations has weakened Russia’s hold on its European customers, and this trend will accelerate in coming decades, concluded researchers from Rice University’s Baker Institute. Researchers forecast Russia’s gas market share in Western Europe could decline to 13% by 2040 from 27% in 2009. Iran’s ability to tap energy diplomacy as a means to strengthen its regional power also could be hindered by rising US gas production. The study forecast US shale production could quadruple by 2040 from 2010 levels of more than 10 bcfd, reaching more than 50% of total US natural gas production by the 2030s. US shale gas development could limit the need for the US to import LNG for at least 20-30 years, thereby reducing negative energy-related stress on the trade deficit and economy. By creating greater competition among gas suppliers in global markets, shale gas also could lower the cost to average Americans of reducing greenhouse gases as the country moves to lower carbon fuels. Other findings of the study include that US shale gas will:
• Reduce competition for LNG supplies from the Middle East and thereby moderate prices and spur greater use of natural gas, an outcome with significant implications for global environmental objectives.
• Combat the long-term potential monopoly power of a "gas OPEC."
• Reduce U.S. and Chinese dependence on Middle East natural gas supplies, lowering the incentives for geopolitical and commercial competition between the two largest consuming countries and providing both countries with new opportunities to diversify their energy supply.
• Reduce Iran’s ability to tap energy diplomacy as a means to strengthen its regional power or to buttress its nuclear aspirations.
The entry of major oil companies into some of these plays adds to the belief that they are commercially viable. There are as many reasons for big companies to enter shale gas plays as there are big companies but the most obvious reason is reserves. Reserve replacement has been a challenge for major oil companies for at least the last decade as opportunities in the international arena have contracted. North American shale gas plays offer a temporary solution. For the short term, shale plays provide a means to add reserves.
After spending a decade to move chemical production to the Middle East and Asia, Dow Chemical Co is leading the biggest expansion in the U.S. as shale gas revives the industry’s economics. Akin to other majors, Dow plans to build crackers at an investment outlay of US$1.5 bln. These crackers will be the first to be built in the U.S. since 2001 and the largest wave of additional capacity, John Stekla, director at Chemical Market Associates. As per Bloomberg, the plunge to a 9 year low in the price of natural gas is driving this renaissance. New drilling methods are opening up vast shale formations from Texas to West Virginia. U.S. chemical investments stemming from shale gas may top $16 billion, creating 17,000 jobs directly and another 400,000 indirectly, according to the American Chemistry Council. Dow will spend about US$4 bln to construct a cracker near the Gulf Coast by 2017, reopen another in Louisiana, and build two propylene plants. Occidental Chemical Co., Chevron Phillips Chemical Co. and Formosa Plastics Corp., are mulling plans to build crackers on the Gulf Coast, while LyondellBasell Industries NV (LYB) may invest in one. Royal Dutch Shell Plc (RDSA) said in June it plans to build a cracker in Appalachia, the region’s first in half a century.
Increased U.S. gas production has helped create a cost advantage over producers in Europe and Asia, where petrochemicals are made primarily from oil derivatives. The gas advantage could help companies like Dow and LyondellBasell earnings triple from their 2010 level. The shift in the industry is already being felt at the Port of New Orleans, which is expanding after chemical exports jumped 34% a year ago. U.S. exports of polyvinyl chloride, or PVC plastic, have tripled since 2006. Over 20% of plastics output was exported last year, double the level recorded before the recession. U.S. chemical exports exceeded imports in 2010 for the first time in a decade. Shale gas has helped the US emerge as a low-cost producer of many of these products. Production from the Marcellus shale already has turned a US$100 million deficit in the U.S. balance of trade for chemicals to a US$3.7 billion surplus last year.
Still, environmental concerns may lead the government to restrict shale-gas drilling, which in turn could drive gas prices higher. Restrictions on exploration in New York and parts of Pennsylvania have increased chemical producers’ anxieties about their new plants. Various environmental groups are seeking full or partial bans on hydraulic fracturing (fracking), which releases gas from shale-rock formations. The process, in which millions of gallons of chemically treated water are forced underground to free the gas, can contaminate drinking water. Demand may not support all the crackers currently on the drawing board. The price tag for each plant typically doubles once infrastructure and downstream plants that make polyethylene and polypropylene are included.
The rush to produce natural gas in the Marcellus Shale, has produced a well-documented battle with producers over the environmental impact of the chemicals used to help extract the hydrocarbons, as per Reuters. An equally vexing, if less controversial, battle now looms- to ensure enough pipelines are built, quickly enough, to funnel the gas into the deep Northeast market. As broader public opinion turns increasingly hostile toward the fracking industry, getting land rights and regulatory approvals necessary to build the estimated 100 plus miles of new lines and procuring land for associated infrastructure that will be needed becomes harder and harder. That challenge has not yet slowed investment; but it could soon, and could prove as great a risk to expansion as the state and federal crack-down on fracking.
Additionally, exploration of global shale gas outside USA could be delayed if gas price is still low. That would be cheaper for countries to buy gas than to develop their own resources. For example Mexico, recently they build six Gas Power Plant, but plan to increase gas import as its power plant fuel, even though state-owned enterprise Petroleos Mexicanos (Pemex) has just found for about one trillion cubic feet of gas reserves.
 
 
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  Aug 30, 2011
 
 
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