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Unconventional Gas Could Change Geopolitical Landscape

Source: Reuters 5/29/2012, Location: Middle East

A boom in unconventional natural gas over the next 20 years could see the United States and others benefit from cheaper energy while the importance of the Middle East declines, the International Energy Agency (IEA) said. Growth in shale and other newly available forms of natural gas in the United States and China could match gains made in conventional gas in Russia, the Middle East and North Africa combined, IEA Chief Economist Fatih Birol told Reuters in an interview.

"Unconventional gas will fracture the status quo, and will be a complete game changer with major geopolitical implications," Birol said.

High natural gas prices over the past years have helped spur investment in previously unavailable, unconventional gas reserves that include so-called tight-gas, shale gas, and coalbed methane resources.

Yet a boom in these resources can only happen if measures are taken to ensure these reserves are extracted in a socially and environmentally satisfactory way, the IEA said in a report presented in London.

Environmental group Green peace said in reaction to the report that it opposed the exploration of unconventional gas.

"Green peace opposes the exploitation of unconventional gas reserves because the impacts have not been fully investigated, understood, addressed and regulated," it said. "The IEA report essentially affirms that these concerns are real but falls short of actually addressing them."

The IEA report underscored the economic gains offered by the rapid growth in unconventional gas, with "countries that were net importers of gas in 2010, including the United States, gaining the wider economic benefits associated with improved energy trade balances and lower energy prices."

Australia, India, Canada and Indonesia are also set for big increases in unconventional gas production, it said. "The share of Russia and countries in the Middle East in international gas trade declines from around 45 percent in 2010 to 35 percent in 2035," the report said.

For Europe, where shale gas production is expected to play a smaller role than elsewhere, Birol said that unconventional gas growth could still be enough to offset an ongoing decline in conventional gas output.

"The main benefit for Europe will that there will be lower gas import prices, putting pressure on oil-indexation of traditional gas supply contracts," Birol said.

Europe's main gas suppliers, Russia and Norway, sell their gas under long-term contracts that are linked to the oil market.

Because oil prices have remained firm on strong demand from emerging economies while European gas prices have fallen on weak domestic demand, European gas suppliers are forced to sell imported gas to their customers at a loss, and utilities lose money when generating electricity from imported gas.

The IEA said this price structure could change as a result of a global unconventional gas glut.

The report said that natural gas could become the world's second most important energy source after oil within the next two decades, should the right rules be introduced to ensure safe and environmentally sustainable use of unconventional gas resources.

Global gas demand could rise by over 50 percent between 2010 and 2035 and reach 25 percent of the world's energy mix, overtaking coal to become the second largest primary energy source after oil, the IEA said.

Growth in the gas sector would equal the combined growth in the coal, oil and nuclear sectors and outstrip expansion in the renewable energy sector, the IEA said.

"Production of unconventional gas, primarily shale gas, more than triples to 1.6 trillion cubic feet in 2035," the IEA said.

"The share of unconventional gas in total gas output rises from 14 percent today to 32 percent in 2035."

It noted the majority of the gas production increases would come after 2020, as producers needed time to develop a commercial unconventional gas sector.

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Related Categories: Coalbed Methane  General  Heavy Oil  Methane Clathrate  Oil Sands  Oil Shale  Shale Gas  Tight Gas  Tight Oil 

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