The Role of Unconventional Natural Gas in the Global Supply Base

Jul 12, 2016

Overview

Nexant recently completed a Process Evaluation/Research Planning report that profiles and assesses global unconventional natural gas production – shale gas, tight gas, coal bed methane, and natural gas hydrates - and analyzes the future impact on the global gas trade.  Today, fairly few countries have appreciable commercial unconventional gas production bases.  Looking ahead, the inability of conventional natural gas supplies to meet global demand will be a principal driver of unconventional gas resource development. 

Selected Findings

Far from being an overnight phenomenon, the recent surge in global unconventional gas production is the result of decades of research and development by myriad of individuals and organizations around the world, especially in the United States.  These efforts focused on unconventional resource identification and ways to increase the permeability of unconventional hydrocarbon reservoirs.  The term “unconventional” refers to the methods that are used to produce natural gas molecules, as well as the types of substrate from which the molecules are produced.  These resources cannot be commercially developed unless the production wells are artificially stimulated.  The optimum techniques applied to enhance gas production are a function of the reservoir characteristics and of the prevailing economic conditions, which include the costs to employ the techniques, the gas price, and the size of the gas market. 

Conventional gas accounts for the majority of current global gas production (85 percent), but unconventional gas has made significant gains in recent years.  Today, shale gas comprises almost 12 percent of global gas production, with coal bed methane accounting for just over two percent.  Looking ahead, conventional gas retains its dominance over forecast global production, although its share falls somewhat, to 83 percent of world output in 2021 (over 117 trillion cubic feet; tcf).  Unconventional gas comprises over 17 percent (almost 24.5 tcf) of world output by the end of the forecast period.  Much of the forecast increase in unconventional gas production hails from North America.  However, unconventional gas production also features in the production profiles of Africa, Asia, the Asia Pacific, Europe, and Latin America over the next five years.  Nexant’s projection for global gas production by type is illustrated in Figure 1.

Figure 1 - Projected Global Gas Production by Type (2016 Estimated; 2021 Forecast)

Countries that hope to echo the successes enjoyed by North American unconventional gas producers in recent years are highly cognizant that the economics of unconventional gas resource development are extremely variable: the economics of commercial development in certain countries (e.g., the United States) cannot simply be superimposed on another’s.  Although the contemporary low oil price environment has eroded the research and development budgets of energy companies, history demonstrates that players with the ability to employ exploration and production technology innovations that minimize costs stand a better chance of weathering difficult market periods and capitalizing on market recoveries.  The challenging oil price environment of 2016 could contribute to the technical innovations that will yield the unconventional gas production gains of tomorrow.  Although the economics of global unconventional gas development are not uniform, they will all benefit from the cost reductions that stem from continued advances in research and development, and the application of new exploration and production technologies. 

The PERP report “Unconventional Natural Gas” was published in June 2016.  The table of contents may be viewed or downloaded on the NexantThinkingTM website.  The report may also be ordered via the NexantThinkingTM website.