In this section we explore further how countries like Argentina, Canada and the United States are managing their shale gas resources and how they are fitting into their energy mix both in the short and long term.
United States – Transforming from importer to exporter?
In the United States, companies have unlocked access to rich shale gas reserves and there is tremendous activity as the country ramps up for full-scale production. Shale gas is in the midst of a boom across the country.
The United States mostly relies on oil, gas and coal—which are less expensive and more abundant. Renewable energy technologies, such as solar, wind, geothermal and biomass power generation, are gaining traction, but are not yet viable at a utility scale level to play a significant role in the country's energy mix in the near future.
There are signs that the United States is poised to become significant player in the global natural gas market.
Therefore, shale gas production has the potential to transform the energy market in the United States and beyond. The United States has traditionally relied on imports, primarily from Canada, for its natural gas needs. The size of US shale plays and the recent investments in developing them could make the United States self-sufficient. In 2008, the country imported 13 percent of its natural gas supply. That figure is expected to drop to nearly 1 percent by 2035. There are signs that the United States is poised to become significant player in the global natural gas market. The United States has been working to repurpose some natural gas processing and conversion facilities, originally designed for imports, to handle exports of shale gas in the form of LNG.
The speed and scale of US shale gas development is straining the resources of potential producers, requiring them to quickly boost their manpower and technological capabilities. The average age of US oil patch workers is rising, and the pool of workers with the right middle management skills is shrinking. Specialized equipment for drilling, processing and transporting shale gas is in short supply. Companies are wrestling with growth and struggling to continue to meet internal business needs. Keeping up with the volume of activity is straining their internal systems and processes. Other issues include procurement and strategic sourcing issues, reorganizing capital spending, and tax planning.
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Canada – Slower off the mark
Canada is the world's third largest producer of natural gas, with an average annual production of 6.4 trillion cubic feet1. Canada has traditionally been known to possess significant conventional gas reserves, and the country was a key supplier of natural gas to the United States for decades until the recent shale boom in the country. Canada now trails the United States in developing its nascent shale gas resources. But with conventional natural gas sources in decline, Canada's industry is turning to unconventional sources, including shale gas.
While large-scale commercial production of shale gas in Canada has not yet started, many companies are now exploring for and developing shale gas resources in Alberta, British Columbia, Quebec, and New Brunswick. According to Canada's National Energy Board (NEB), development of shale gas, and other unconventional resources, will help ensure supplies of natural gas are available to the growing North American natural gas market for many decades. The NEB predicts that shale gas will likely help the country meet its domestic requirements for natural gas "far into the 21st century."2
Canada currently exports about 50 percent of the natural gas it produces, but it lacks the processing facilities to liquefy and ship liquefied natural gas (LNG) beyond North America. With US production rising, Canada will need to develop other markets for its excess natural gas supplies, and there are signs that the industry is preparing to invest in the necessary infrastructure. There is a proposed $5 billion project to develop an LNG export terminal in northeastern British Columbia. This terminal would allow Canada to export LNG to Japan, South Korea and China, allowing Canadian producers to enter markets beyond the United States for the first time.
With their rising energy demands and higher natural gas prices, the rapidly developing countries of Asia could present strong prospective markets for Canadian LNG. Asian markets natural gas prices are on average 2 to 3 times that of North American. However, Canada can expect to face fierce competition in the region if Australia and China also boost production to serve the Asian market.
1Canadian Association of Petroleum Producers.
2National Energy Board, A Primer for Understanding Canadian Shale Gas (Government of Canada, November 2009).
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Argentina – Looking for a rise
Preliminary exploration in South America suggests that sizable shale gas deposits lie beneath several countries including Argentina, Brazil, Colombia and others. In fact, shale reserves in Brazil are estimated to be the second biggest in the region after the United States, but there has been little interest or investment in exploring this resource. Argentina is the only South American country that seems set to embark on full-scale shale gas production, primarily in the Neuquén Basin. Deposits in Argentina are projected to be so big that development will be very important to the country's economy. Although some shale gas wells have already been developed, Argentine producers will need to conduct more drilling and hydraulic fracturing to develop its shale gas reserves. In a 2011 survey of oil and gas executives conducted by KPMG in Argentina, most respondents said they expect shale gas production to occur within three to five years3. As in other parts of the world, most shale gas projects in Argentina are being undertaken as joint ventures, including large global energy entities.
Argentine politicians appear to support shale gas development. Given Argentina's current reliance on expensive natural gas imports from Bolivia and Qatar, Argentina is putting a priority on developing its own sources. In fact, all shale gas projects that come on line will be included in Argentina's Gas Plus framework – a government initiative that allows better selling prices for new offers of this fluid.
While some opposition to fracking technology has been expressed in the media, most reports echo concerns being raised in the United States and local opposition on the ground seems to be minimal.
In our view, the development of shale gas in Argentina will be valuable to the country and occur at reasonable prices. Further, given the Argentine government's willingness to support these projects, we expect that shale gas field development will continue to be allowed.
3KPMG in Argentina, Energy and Natural Resources Survey 2011.
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