Our Bright Unconventional Energy Picture

Mark Green
Posted February 19, 2014

The outlook for U.S. energy from shale and other tight-rock formations just keeps improving. Two new assessments underscore this.

First, a panel hosted this week by CSIS revisited the National Petroleum Council (NPC) report on U.S. unconventional natural gas issued in 2011 and concluded that new discoveries and technologies paint an even brighter picture than NPC did nearly three years ago. Key points:

• While cumulative conventional natural gas production to date is about 1,000 trillion cubic feet (tcf), recent and expected growth in unconventional recoverable natural gas estimates could support ultimate onshore natural gas recovery of up to 10,000 tcf – more than twice as high as NPC’s high supply case of 4,656 tcf.
• The trajectory of recent and current production trends is such that NPC’s low-supply case should be disregarded entirely.
• The NPC conclusion that natural gas market growth should not be constrained by the availability of U.S. natural gas is re-confirmed.

EIA’s natural gas projections, showing the estimated continuing surge in shale natural gas output:

“There is a lot of gas, an awful lot of gas,” said panelist Douglas Tierney, Encana vice president for business development. “And now the real question is, what do we do with it?”

Already we’ve seen benefits of the U.S. shale natural gas revolution, developed through advanced hydraulic fracturing and horizontal drilling. An IHS study estimates that by 2015, lower natural gas prices (resulting from increased production) will boost manufacturing activity, leading to 2.8 percent higher industrial production. By 2025 industrial production will be 3.9 percent higher. IHS:

US manufacturers are benefitting from the availability of a secure supply of low-cost natural gas, especially for manufacturers in energy-intensive industries. Energy-intensive sectors like energy-related chemicals, petroleum refining, aluminum, glass, cement, and the food industry are expected to invest and expand their US operations in response to declining domestic prices for their energy inputs.

Combined with oil from shale and other tight sources, unconventional energy’s long value chain and energy-related chemicals activity supported 2.1 million jobs in 2012. IHS projects it will support 3.9 million jobs by 2025. Meanwhile, increased production and use of domestic natural gas has played a major role in lowering U.S. carbon dioxide emissions to their lowest level since 1994.

Natural gas from shale can strengthen the United States’ global trading position, provided policymakers make decisions that allow the export of U.S. liquefied natural gas (LNG).  U.S. natural gas supplies are ample to serve domestic demand and friendly overseas customers. The U.S. Energy Information Administration’s Adam Sieminski at the CSIS event:

“Even with greater use of natural gas domestically, EIA’s estimates are that there is plenty left over, that the U.S. will become a net exporter of natural gas very shortly, before the end of this decade. Last year we thought it would be early in the next decade, and these things keep creeping up. … Then we have LNG exports – this is not a forecast of who’s going to get a permit. This is a forecast based on how the national energy model that EIA uses allocates the economic viability of natural gas exports, and what we’re saying is that these numbers are going to grow fairly substantially over time.”

Now the second assessment. A new report by Fitch Ratings says U.S. production of oil from shale will continue moderating global crude prices. Unconventional oil production is a big part of EIA’s projection that overall U.S. oil output will near 9.6 million barrels per day by 2016, a level not seen since 1970. EIA’s oil production projection, showing skyrocketing growth in tight oil:

Detail from the Fitch report:

Many of the benefits of the U.S. oil and gas fracking revolution accrue only to the U.S.: increased employment and GDP, a lower trade deficit, a booming petrochemical industry, manufacturing benefits across a range of other energy-intensive industries, cheaper and cleaner electricity. These are the benefits of increased energy independence — more and cheaper domestic oil and gas. But all oil-consuming countries benefit from the stabilizing effect of increased U.S. output on world oil prices. This is the benefit of energy interdependence — the linkage of U.S. and world oil markets through reduced imports of crude and increased exports of products.

Oil and natural gas from shale and other unconventional sources are leading the U.S. energy renaissance, propelling America into a new era of abundance – especially relative to narrative of the preceding years. The Energy Department’s Paula Gant at the CSIS event:

“This is a fundamentally new landscape that we’re looking at from an energy perspective. … We’re shifting from a psyche as Americans that has previously in my lifetime been framed by one of energy scarcity, and we’re shifting into a psychology of abundance. This is completely new territory for us.”

New and exciting territory, if we choose energy policies that allow safe and responsible development of America’s energy wealth. A bright picture – and opportunity, indeed.