|
How natural gas can grab ‘golden’ status Unconventional production could vault gas to dominant global position, but only if industry and government win over public, IEA says Wesley Loy For Petroleum News
The world is poised for a natural gas boom, but only if industry and regulators make a good showing that it’s safe to produce abundant unconventional resources such as shale gas, a new report from the Paris-based International Energy Agency says.
“In our judgment, a key constraint is that unconventional gas does not yet enjoy, in most places, the degree of societal acceptance that it will require in order to flourish,” the report says. “Without a general, sustained and successful effort from both governments and operators to address the environmental and social concerns that have arisen, it may be impossible to convince the public that, despite the undoubted potential benefits, the impact and risks of unconventional gas development are acceptably small.”
A year ago, on June 6, 2011, the IEA released a report that posed the question: “Are We Entering a Golden Age of Gas?”
The new report is a follow-up to the first and is titled “Golden Rules for a Golden Age of Gas.”
It lays out what it’ll take to allow natural gas to maximize its position in the global energy mix.
The ‘golden rules’ The report looks at three types of unconventional gas resources — shale gas, coalbed methane and tight gas — and the enormous contribution they could make to overall natural gas production by 2035.
The authors estimate that remaining technically recoverable resources of unconventional gas worldwide approach the size of remaining conventional resources, which amount to 420 trillion cubic meters, tcm.
But unconventional gas extraction has ignited controversy, for a variety of reasons.
“Producing unconventional gas is an intensive industrial process, generally imposing a larger environmental footprint than conventional gas development,” the report says. “More wells are often needed and techniques such as hydraulic fracturing are usually required to boost the flow of gas from the well. The scale of development can have major implications for local communities, land use and water resources. Serious hazards, including the potential for air pollution and for contamination of surface and groundwater, must be successfully addressed.”
To overcome public fears, the IEA report offers a set of “golden rules” for industry and government to follow. Among them: Engage local communities prior to exploration; establish baseline environmental indicators such as groundwater quality; make sure communities share in the economic benefits; make smart decisions about where to drill and fracture; put into place robust rules on well design, cementing and so forth; consider minimum depth limits on hydraulic fracturing to reassure people the operation is well away from the water table; recycle fresh water used in operations; strive for zero venting and flaring of natural gas; support robust regulatory regimes; and accept independent evaluation of environmental performance.
Especially in the United States, where the scale and pace of unconventional gas development has been greatest, the report warns of the “likelihood that regulation will be driven by events. For example, an environmental incident linked to unconventional gas development could crystallize public views and prompt new restrictions on unconventional gas production or the use of hydraulic fracturing.”
A revolution halted? In a May 29 press release announcing the new report, IEA Executive Director Maria van der Hoeven observed: “The technology and the know-how already exist for unconventional gas to be produced in an environmentally acceptable way. But if the social and environmental impacts are not addressed properly, there is a very real possibility that public opposition to drilling for shale gas and other types of unconventional gas will halt the unconventional gas revolution in its tracks. The industry must win public confidence by demonstrating exemplary performance; governments must ensure that appropriate policies and regulatory regimes are in place.”
Applying the golden rules could increase the cost of developing a typical shale gas well by 7 percent, the report’s authors estimate.
The report makes two projections: a “golden rules case” and a “low unconventional case.” The position of natural gas in the world energy mix is very different under the two scenarios.
Under the golden rules case, total gas production surges to 5.1 tcm in 2035, from 3.3 tcm in 2010.
“Greater availability of gas has a strong moderating impact on gas prices and, as a result, global gas demand rises by more than 50% between 2010 and 2035,” the report says. “The increase in demand for gas is equal to the growth coming from coal, oil and nuclear combined, and ahead of the growth in renewables. The share of gas in the global energy mix reaches 25% in 2035, overtaking coal to become the second-largest primary energy source after oil.”
Under the low unconventional case, total gas production reaches 4.6 tcm in 2035, and the share of gas in the global energy mix increases only slightly, from 21 percent in 2010 to 22 percent in 2035. Gas remains well behind coal.
North America focus The report summarizes the status of unconventional gas development around the world.
“Until recently, unconventional natural gas production was almost exclusively a U.S. phenomenon,” the report says. “Tight gas production has the longest history, having been expanding steadily for several decades. Commercial production of coalbed methane began in the 1980s, but only took off in the 1990s; it has leveled off in recent years. Shale gas has also been in production for several decades, but started to expand rapidly only in the mid-2000s, growing at more than 45% per year between 2005 and 2010. Unconventional gas production was nearly 60% of total gas production in the United States in 2010. While tight gas and shale gas account for the overwhelming bulk of this, shale gas is expected to remain the main source of growth in overall gas supply in the United States in the coming decades. The United States and Canada still account for virtually all the shale gas produced commercially in the world, though ... many countries are now trying to replicate this experience.”
Those countries include Mexico, which has the fourth-largest shale gas resource base in the world after China, the United States and Argentina.
Mexico’s government is “keen to exploit shale gas resources to boost the country’s flagging output of conventional oil and gas.”
In IEA’s golden rules case, total U.S. gas production grows about 34 percent between 2010 and 2035, with almost all of the increase coming from shale gas production.
In the low unconventional case, U.S. gas production peaks around 2015 and then goes into decline.
“On the other hand, higher gas prices and limited unconventional production in the Low Unconventional Case prompt a mini-renaissance in conventional gas output,” the report says, “driven by the investment capital and rigs freed up by the shrinking unconventional sector and the possible opening of more offshore and Arctic acreage as the United States struggles to reduce its imports and the associated bills.”
The IEA report, which The New York Times called “required reading for regulators and the industry,” is available at http://bit.ly/JKm399.
| 