Development of unconventional gas resources in India, China and Europe will have an incremental effect on global gas markets rather than a disruptive one, contrary to what was seen in North America, Edinburgh-based energy consultants Wood Mackenzie said Thursday.
Europe, China and India have an estimated 280 Tcf of unconventional gas resources, but unlocking these reserves poses a huge infrastructure and logistical challenge, Wood Mackenzie said in a statement announcing the release of its latest report "The Potential Impact of Global Unconventional Gas Growth."
"We estimate that these major and growing gas importers have enough unconventional gas production potential to meet, in aggregate, over 20% of demand in their own markets by 2030. However, our analysis suggests that this unconventional gas resource would have an incremental impact on global gas pricing, rather than a disruptive change," Stephen O'Rourke, senior analyst for Wood Mackenzie's Global Gas Research Service, said.
"In the Pacific basin, higher unconventional production in China and India would not be a zero sum game. If unconventional production in these countries fulfills its potential, which we forecast could be 230 billion cubic meters by 2030, we forecast that up to 50 billion cu m of LNG could be displaced from China and India by 2030," O'Rourke said.
"However, in reducing the weighted average cost of gas it would also generate additional demand," he added.
"Additional Chinese and Indian unconventional gas would reduce the requirement for LNG in the Pacific basin in the longer term and increase LNG availability to the Atlantic. However, the Pacific would still require LNG volumes from the Middle East and Atlantic to meet demand through the forecast period."
Wood Mackenzie believes that for Europe to meet its potential, a fall in development costs is necessary.
The resulting increase in higher indigenous unconventional supply -- which could be by as much as 60 billion cu m/year in 2030 -- combined with the increased availability of LNG to the Atlantic from the Pacific market could place pressure on the major piped importers to Europe, with Russia particularly affected.
"This resulting supply pressure could result in reduced spot prices both in Europe and in the Pacific, but not until after 2025," O'Rourke said.
The report concludes that fundamentally, any substantial production from untapped unconventional resources will require three things: the commerciality of the resource to be established, the development of a strong supply chain, and the implementation of a clear regulatory framework. "In a scenario where China, India and Europe meet their full production potential, we assume that they have successfully proven the geology, and acquired the strong supply chain and clear regulatory framework necessary to support the intensive development required in large-scale unconventional projects," O'Rourke said.
In Europe, "meeting its full potential would require in excess of 170 rigs active and drilling 2,700 wells a year by 2030. Presently there are only two hydraulic fracturing crews active in Europe," he added.
