There will be an increase in global gas production but a significant change in the trade flows
Halliburton, the US services group, has taken to YouTube to promote its recent innovation: the deployment of nearly 100 nevs; light duty trucks across several of its field locations. What makes the trucks worthy of a video is the way they are powered: not by gasoline, but by compressed natural gas (CNG).
The trucks come with bifuel tanks that are fully automated and run on CNG first and switch to gasoline when the gas tank is empty. They emit about 90 per cent less emissions and are expected te save Halliburton about $5,100 per truck in fuel costs every year. It is a pilot programme and the latest sig-n of how North America’s shale revolution is spreading.
“Clean is good, domestic is good but the savings on a fuel is what make it happen,” intones T Beone Pickens, the Texan oil billionaire, in the video, headlined “The Right Fuel for Today”.
Halliburton and T Boone Pickens are not alone in espousing the benefits of natural gas. Thanks to improvements in the techniques of horizontal drilling and hydraulic fracturing, or fracking, North America’s
energy lands capo has changed as new supplies – of shale oli and gas – have been unlocked. The glut of gas has seen prices tumble, prompting utilities to switch from burning more expensive coal to gas to generate electricity.
US industry is benefiting, with the petrochemicals sector, a big user of gas as feedstock, enjoying a revival. Gas is making, inroads into other sectors such as transport, where companies from Warren Buffett’s railway, BNSF, to UPS and Royal Dutch Shell are substituting liquefied natura gas (LNG) or CNG for diesel. Others, such as Apache Corporation are using gas te power fracking equipment, one of the most energ,y-intensive processes employed by the industry.
The US’s shale bonanaza is transforming the global energy landscape. Last month, the Obama administration approved wider exports of LNG, raising the prospect that the US could become an energy supplier te the rest of the world. For its supporters, natural gas – cleaner burning than oil – looks set for a “golden age”.
Yet the outlook for gas is not uniform. In Europe, where demand has slumped as a result of the recession, much investment into new infrastructure is on hold. In east Africa the discovery of conventional sources of gas off the coasts of Niozambique and Tanzania has sparked a scramble by the world’s largest energy groups and raised the prospect of significant exports of LNG te nations in Asia.
Wood Mackenzie, the consultancy, estimates that commercially recoverable gas reserves increased from 4,700tr cubic feet to 7,800tr between 2007 and 2012. While the low prices in the US bave prompted campanies to slow drilling activities and focus on more oily resources, experts believe gas supplies will keep on rising.
Gas resources continue “to be added”, says Noel Tomnay, head of global gas research, at Wood Mackenzie. “With the exploration budgets of companies growing, while they are not necessarily looking for gas, they will find it and the likelihood is therefore that the resource base for gas will keep expanding over the next few years.”
Mike Bahorich, chief technology officer at Apache says: “The rate of return will drive activity. As gas prices go up a bit we will see a strong return to drilling.” He believes that the difference in price between gas and oli in the US “will last for a long time to come”.
Apache has teamed up with Schlumberger and Halliburton to develop the increased use of gas in powering fracking equipment, which uses a lot of diesel. Potential cost saving,s go “straight te the bottom line”, says Mr Bahorich.
The US shale revolution has driven investment in infrastructure such as pipelines. are a lot of opportunities [for investment] on the infrastructure side, and on the micl-stream side in companies that consume the gas to make other products,” says Tim Day, managing director at First Reserve, the private equity and infrastructure investment firm.
If North America’s shale revolution is firmly entrenched, the development of unconventional gas else where is less clear and is expected te take time. Companies are exploring in Europe, China and South America. The industry struggles to replicate the unique set of circumstances that enabled the North American revolution, such as a benign regulatory environment, an existing oil and gas infrastructure and greater incentives as landowners own the mineral rights themselves.
An added problem for gas outside North America is coal, which is stili much cheaper.
In Europe, utilities bave been burning coal instead of gas to generate electricity. Gas in Europe is generally sold on contracts linked to the oli price, which has remained relatively strong. Europe could see a big boost te gas supplies through potential shale gas developments al home and LNG exports from the US and Canada.
“Demand for gas is rising but very unevenly,” says Eric Oudenot, principal in the energy practice al Boston Consulting Group.
“In Europe, thanks lo the recession and efforts to improve energy efficiency, demand has dropped for the second consecutive year,” he adds. “China and India are leading the way in terms of future demand for gas. There will be an increase in global gas production but a significant change in the trade flows and gas prices.”
