How Natural Gas Is Changing Global Energy Market
"Just a couple of years ago, the development of unconventional gas was a silent revolution taking place in the United States, but it is now having widespread effects on global energy markets," Birol noted. "The prospects for gas demand, pricing and trade patterns have all shifted significantly and there is now a surge of interest from countries all around the world in improving their security of supply through exploitation of unconventional gas."
But unconventional gas extraction is not without its problems, or critics.
"There are always two sides to a coin," Birol said in an email. "While the process of hydraulic fracturing has been around for decades, the rapid increase in the number of wells in the United States and the large number of companies who drill them has been accompanied by growing concerns about the environmental effects of the exploitation of unconventional resources. Land use, water scarcity, pollution of water supplies and greenhouse gas emissions are increasingly being scrutinized."
Birol said the environmental concerns need to be addressed, but the the benefits of this new natural gas production are significant, particularly as natural gas increasingly replaces coal in the energy mix, lowering carbon emissions.
"Industry practices are much more uniform than people think," Hersh said. "I think the fracking issue will end up being resolved in more oversight and more reporting, which will just add a layer of cost. It's too important an industry...and it has too many jobs associated with too much economic benefit, that it won't be killed."
The U.S. Energy Information Administration says there is now 2,200 trillion cubic feet of recoverable gas in the U.S., while the country consumes about 1 percent of that annually, or 22 to 23 trillion cubic feet a year.
“Total shale gas production is increasing in terms of total U.S. production. We’re a little over 30 percent,” said John Staub of the EIA. Just a dozen years ago, shale gas provided about 2 percent of U.S. natural gas production.
There's another side benefit of the gas production, the impact of which has yet to be seen.
"What's been a bigger surprise is what's been coming along with the natural gas itself—the natural gas liquids," said John Kilduff of Again Capital. "It's been a recent phenomena, but it's enough to put it on the radar screen."
Natural gas liquids are used in plastics production and are the equivalent of a high grade light crude.
The economic impact of the gas boom is difficult to measure and has resulted in all kinds of forecasts in terms of employment.
President Obama pushed for drilling for shale gas during his State of the Union speech as a way to boost the economy. He said the industry could create more than 600,000 jobs by the end of the decade.
J.P. Morgan economist Michael Feroli recently studied the impact of the natural gas boom on the economy and found it is not significant enough to break the economy out of its current growth trend.
"It's certainly a positive. No doubt about that. The question is whether it's meaningful enough to really alter the contour of the expansion," he said.
The direct impact on hiring from the energy industry alone has not been huge, as the industry is not highly labor intensive, Feroli said. He notes that over the past two years, hiring by the sector has grown by an average 6,000 per month. The oil and gas industry employs 724,000 workers, or 0.5 percent of the total nonfarm employment.
But a clear impact from the energy industry shows up in capital expenditures. Feroli said investment spending for structures and machinery for oil and gas extraction amounts to about $160 billion—10 percent of all business capital expenditures. A decade ago, the industry's share of cap-ex was just 4 percent.
The impact on the consumer is also unclear. However, IHS CERA calculates that the average American household stands to save nearly $1,000 this year because of cheaper natural gas used for heating, cooking and in electricity generation by utilities.
The CERA Week conference runs from Monday to Friday, and is one of the global energy industry’s biggest events. The situation with Iran and international sanctions against it will be a major topic of discussion.
“The environmental debate about hydraulic fracturing will be part of the conference,” said Yergin.
The first day of CERA Week focuses on energy policy in an election year, and it flows from oil industry discussions in the first day, natural gas in the second day to sessions on electric power, renewables, and the future of energy later in the week.
Dozens of industry CEOs are among the approximately 300 attendees, from all aspects of the energy industry and from governments around the globe. Some of the key speakers include Exxon Mobil CEO Rex Tillerson; Royal Dutch Shell CEO Peter Voser; ENI CEO Paolo Scaroni and General Electric CEO Jeffrey Immelt.
Renewables will also be a major topic. “Wind today is almost becoming a conventional energy source,” said Yergin. “There’s been tremendous progress over the last ten years in terms of scale and impact.”
Many see natural gas as a bridge to a future when the world is less dependent on fossil fuels, which create greenhouse gases.
“Cheap gas has created more pressure for renewables,” said Yergin. However, he said the industry is especially challenged in the era of fiscal austerity. “Fortunately, these renewables have come down in cost, but it adds to the competitive pressure on them.”
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