What’s new in the shale gas revolution?

Maybe it says something when talk of unconventional gas being a game changer starts to seem like old hat. So many facets of the US shale gas revolution — the shift in LNG shipments to European markets, the contribution to a gas glut in key consumer markets — now get taken for granted.

So what’s new? To start with, there’s what might be termed informed speculation concerning Europe’s unconventional gas potential. There are some very large figures out there, including a serious suggestion that the underlying resource potential could yield as much as 200 billion cubic metres a year (Bcm/y) by 2030 — or more than Russia’s entire exports to both EU and non-EU Europe.

The idea that Europe possesses an unconventional resource base that could actually be tapped sufficiently to produce as much as 200 Bcm/y of course remains unproven. After all, the first wells in Sweden have yet to be completed while results from a vast swath of E&P investments in Poland will not be known for at least a year or two. But at least one respected organization studying the issue considers this a serious proposition. And after all, even if unconventional gas should yield only a fraction of such volumes, that would still be enough to cause significant market readjustments.

Then there’s the contribution that the mere prospect of shale gas discoveries has already had on one major international gas agreement, the recently concluded accord between Poland and Russia.

Third, Russia itself appears to be waking up to the fact that it cannot necessarily take its predominant export market, the European Union, for granted.

Fourth, there’s the possibility that the next major testing ground for unconventional gas will prove to be China, not Europe.

Perception plays a major role. Just the whiff of a gas boom down the line is already shaping policy changes. In less than a year, the Polish government has performed a major U-turn concerning long-term gas supplies from Russia. Last winter, for example, just as a string of external specialists that included senior figures from the International Energy Agency were urging Poland not to be in any great hurry to sign a new long-term agreement with Russia, government officials were readying — and then initialling — what appeared to be final contract documents with Gazprom for increased supplies out to 2037.

Eight months on, buoyed by booming E&P interest in prospective unconventional gas development in Poland, Warsaw appears to have concluded a very different agreement. Instead of lasting for 27 years, it will only run for 12, during which time Poland will gain a much better sense of just what contribution shale gas can make to its future and, indeed, whether it might even turn Poland into a net gas exporter.

Of course, the prospect of shale gas was not the only factor that prompted a policy change; there was considerable EU input, with the European Commission determined to secure open access for the portion of the Yamal pipeline system that transits Poland. And the impact of the April 10 Smolensk air crash, in which Polish President Lech Kaczynski died, should not be underestimated for its impact in changing the tenor of Russian-Polish relations. But there is no doubt that the mere prospect of shale gas played a significant role in strengthening Warsaw’s resolve to hold out for a much shorter agreement than the accord initialled in January.

As for Russia, itself, there are still plenty of analysts, including some in Moscow, who consider that Gazprom remains in denial concerning the potential of shale gas. However, it is quite clear that a considerable coterie of Russian gas experts take the issue very seriously indeed. The possibility that Russia might have to re-evaluate its export prospects was at the heart of a fascinating set of discussions on the future of the European gas market convened by the Gas Exporting Countries Forum during Russian Energy Week in Moscow on October 25.

There are other elements worth bearing in mind. The rise of unconventional gas in Europe might serve to drive out not gas imports, but some of the more heavily subsidized renewable energy output.

There’s also the real possibility that China, with a prospect of significant domestic production in both conventional and unconventional gas and increasingly confident of assured conventional gas imports, is likely to start a major expansion of domestic gas consumption. This is the view of Professor Philip Andrews-Speed, a China energy analyst who told a conference in Astana earlier this month that he considered these factors might prompt Beijing to raise demand estimates — and demand in China is very much a function of government expectations concerning supply — to as much as 300 or even 400 Bcm/y from 2020 onwards.

What all this means is that there’s now a new bottom line for gas: uncertainty. There’s not much point in attempting to forecast the global gas balance beyond 2020 because right now we can only guess — we simply do not know — just how deep the unconventional gas revolution will go. But this writer’s guess is that it really is going to go pretty deep.

Platts