U.S. Shale Gas and Global Energy Dr. James L. Smith, Southern Methodist University

Hong Kong Baptist University

Workshop on Electricity Reliability, Environment, and CostJune 10, 2014

Today’s Presentation:

• What is shale gas?

• How is it affecting the US energy scene?

• How will it affect global energy markets?

• What are the benefits for Asian consumers and industry?

U.S. Gas Production (tcf)

Shale Beds are the Original Source of Gas

Fracking and Horizontal Drilling are the Keys

Chesapeake Energy Gas Rig -- Pennsylvania

Click to Play Video

Shale Basins are Widespread

Global Shale Basins

Source: U.S. Energy Information Administration

China1,115

Argentina802

Algeria707

U.S.665

Canada573

R.O.W.3,437

Technically Recoverable Shale Gas Resources

Total = 7,299 TCF

Source: U.S. EIA, June 10, 2013

The Contribution of Horizontal Wells

Source: U.S. Energy Information Administration

U.S. Shale Plays Also Attract Foreign Investors

Source: U.S. Energy Information Administration

KNOC Upstream Oil & Gas Projects

Source: U.S. Energy Information Administration

Dramatic Rise of U.S. Shale Gas Production

Potential Future Impact on U.S. Gas Price

Shale Gas Impact on U.S. Price

Source: K. Medlock, “U.S. LNG Exports: Truth and Consequence”

U.S. Coal Consumption for Electricity

Source: U.S. Energy Information Administration, Deutsche Bank

U.S. Coal Exports (net)

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

2005 2006 2007 2008 2009 2010 2011 2012

Net Exports

1,000 short tons

Source: U.S. Energy Information Administration

Shale Gas Pushes Coal into Export Channel

… and depresses the price.

Source: U.S. Energy Information Admin., U.S. Bureau of Labor Statistics

Europe & Asia Receive More U.S. Coal

Source: U.S. Bureau of Labor Statistics

Potential Impact on GHG Emissions

Gas Consumption Represents a GHG Tradeoff

As gas-based emissions rise, emissions from other fuels fall by more.

Source: U.S. Energy Information Administration

How to Replace Nuclear: Coal or Gas?

Global LNG Market Imbalance

Source: K. Medlock, “U.S. LNG Exports: Truth and Consequence”

Profitability of U.S. LNG Exports

2011 2011-2020 2021-2030 2031-2040Feed Gas Cost $3.80 $3.98 $4.69 $5.26Liquefaction $2.92 $2.92 $2.92 $2.92Transport Cost UK $1.07 $1.07 $1.07 $1.07 Japan $2.15 $2.15 $2.15 $2.15Landed Cost UK $7.79 $7.97 $8.68 $9.25 Japan $8.87 $9.05 $9.76 $10.33Market Price NBP $8.84 $7.47 $7.44 $8.09 JKM $11.73 $8.08 $7.98 $8.46Export Margin UK $1.05 -$0.50 -$1.24 -$1.16 Japan $2.86 -$0.97 -$1.78 -$1.87

(all figures in $/mcf)

Source: K. Medlock, “U.S. LNG Exports: Truth and Consequence”

Shale Gas: Focus on China

China Primary Energy Consumption

China: Power Generation

China: LNG Imports are Diversified

The New Russian-Chinese Pipeline Gas Deal

• 38 billion cubic meters/year @ $10/mmbtu

• ≈ 25% of Russian gas exports to Europe

• ≈ 10-15% of total Chinese gas supply by 2020

China’s Shale Gas Upside Potential

Source: U.S. Energy Information Administration

China’s Primary Shale Gas Basins

Source: U.S. Energy Information Administration

China Electric Power: Coal vs. Everything Else

Concluding Thoughts

• Expanding supplies of US shale gas are pushing energy prices down, in the US and abroad.

• Global arbitrage will tend to reduce (but not eliminate) the wedge between U.S. and Asian gas prices.

• Shale gas is pushing coal out of U.S. power generation and into the export stream—resulting in lower coal prices but increased carbon emissions in Europe.

• The U.S. shale gas revolution represents only the tip of the iceberg, with impacts likely to grow as the global abundance of shale resources is recognized and exploited.

• All energy consumers (especially import-dependent consumers like Japan, Taiwan, and Korea) will benefit from the abundance of gas. Producers of competing fuels (coal and oil) will not.

Thank You!

jsmith@smu.edu