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Shale gas no magic bullet for US energy supply, says IHS Cera

Shale gas is transforming the North American energy market, but the US may not be able to take advantage of all its resources, says IHS Cera

SHALE-GAS explorers have more than doubled the US' gas resources in recent years, says IHS Cera. Daniel Yergin, the consultancy's chairman, describes their spectacular success as "the most significant energy innovation so far this century" – one that means the country can contemplate exporting liquefied natural gas rather than importing it. Tom Nicholls reports from Houston.

Gas prices, while low, remain economic for large tracts of shale gas: half of the 1,800 trillion cubic feet (cf) of discovered resource can be developed at present prices, says IHS Cera's chief energy strategist, David Hobbs.

Yet despite the resource's proliferation, its low production costs and its benefits to US energy-supply security, the country may not be able to make use of it all. "Shale-gas is long lasting and has a significant impact on the North American energy picture," says Hobbs – giving the US greater flexibility to react to disruptions and market imbalances in the natural gas sector. "But it's not something that transforms the picture."

Power generation is an obvious growth channel for gas supply, but while immediate fuel-switching away from coal would generate valuable short-term greenhouse-gas (GHG) emissions savings, the capacity to achieve such a shift does not exist.

And it may not be built. Growth in power demand over the coming two decades will probably lead natural gas demand for power generation nearly to double by 2030 from 19bn cf/d, says the consultancy, but "simply replacing coal-fired generation with gas-fired units will not allow the often discussed target of 80% reduction in GHG emissions by 2050 to be met".

Uncertainty over the stringency of future carbon-reduction legislation and the viability of carbon capture and storage (CCS) technology, which has yet to be demonstrated at scale, are threats to natural gas' place in the power-generation fuel mix, says a new IHS Cera study, Fueling North America's Energy Future: The Unconventional Natural Gas Revolution and the Carbon Agenda.

"Because of the uncertainty of the stringency of climate-change policy and the viability and cost competitiveness of CCS, there is the possibility that new gas-fired power plants may not run for their intended life spans," says IHS Cera vice-president Lawrence Makovich. "For the industry, the most prudent way to protect itself against future uncertainty remains through a resilient, diversified portfolio." Indeed, achieving the 2050 target will require non-carbon-emitting technologies, including nuclear and renewable power generation, as well as significant advances in CCS, says IHS Cera.

Meanwhile, the transport sector's ability to consume more natural gas is also limited, says Yergin. There is some potential for increasing the number of natural gas vehicles in use in the US. However, natural gas would be competing not just with oil, but also with "policy driven increases in fuel efficiency, electric vehicles and biofuels" – restricting its probable market share.

But shale-gas drilling is unlikely to be stopped for environmental reasons. Concerns over the effect of drilling and hydraulic fracturing on drinking water have intensified as production has moved into densely populated areas of the US northeast (see p27).

But IHS Cera does not think that there will be much impact – certainly not in connection with fracing: shale-gas deposits are typically several thousand metres below the level of aquifers, it says. And, with thick layers of impermeable rock in between, there is "little risk" that the process would contaminate drinking water – "as long as you've drilled the well properly". A bigger risk is the disposal and treatment of produced water, but this process is standard in many petroleum operations and is also highly regulated, the consultancy points out.

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