A Shortfall in Shale Gas Supply Will Make Imported Liquefied Natural Gas (LNG) Our Default Fuel

Dr Frank Clemente, Energy-Facts.org

“Our [LNG] projects are long term [and] linked to oil prices … we are ramping up … we believe that in the coming two or three years there will be a shortage of gas.”  — Mohammed al Sada, Qatari Minister of Energy, March 2010 [1]

Recent calls to close highly productive coal power plants blithely ignore the problems associated with increasing our dependence on natural gas for power generation. With conventional natural gas production projected to decline more than 33 percent in the next decade, shale gas is the only significant viable source of new domestic gas production in the United States.

The size of the risky bet we would be making on highly questionable sources is staggering.

Consider, for example, that shale gas is projected to account for almost 60 percent of our incremental gas by 2020. LNG is projected to account for 23 percent. Thus, 83 percent of projected new gas depends on either the unknown productivity of shale gas or upon gas imported from other countries.

There is little doubt that the gas is there in both cases. The questions are:  (A) How much will be delivered? and (B) What will it cost?

If Shale Gas Did Not Deliver as Projected by 2020
 

 

A shortfall of shale gas will inevitably lead to increased LNG imports in a world where 60 percent of the resource outside the United States is controlled by Russia, Iran, Qatar and Venezuela.

For readers who believe the scenario of only one third of the projected incremental shale gas actually being delivered is overly pessimistic, please consider:  In 2000, the EIA stated “production from conventional sources is projected to grow rapidly through 2010.” But production actually was lower in seven of the next eight years.[2]

The Global Competition for NG / LNG Will Be Intense

 

In 2008, European countries were able to bid LNG cargoes away from America even though prices in U.S. were over $10 — twice as high as they are now.

Professor Peter Hartley and his associates at Rice University have dealt extensively with the link between oil and natural gas prices at the global level, concluding that a ratio of approximately 7.4 is the long-term linkage.[3]  Thus, if oil prices were $70 per barrel, Hartley and his colleagues calculate that the global price of natural gas would be $9.40.

The Globalization of Natural Gas Prices
“Russia and Qatar [are] exploring possible means of adjusting their gas sales strategies to avoid head-to-head competition that could undermine the oil-indexed pricing both still support for their baseload long-term sales. … aiming to come up with a strategy to minimize price competition out to 2025.” [4]

References:
[1] Reuters, March 26, 2020
[2] http://www.eia.doe.gov/
[3] http://www.rice.edu/energy/publications/naturalgas_na.html
[4] Energy Intelligence Report, March 2010

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