Houston, 10 March 2010

The natural gas shale boom in North America has more than doubled discovered gas resources and can supply more than a century of consumption at current rates, an IHS CERA study released Wednesday claims. As recently as 2007, it was widely thought that natural gas was in tight supply and the U.S. would need to import gas, said Daniel Yergin, chairman of IHS CERA. But a long-lasting "shale gale" has squashed that outlook, he said at the annual CERAWeek conference in Houston.

"It has a major impact on that national energy picture ... at the same time it is not something that just transforms the picture. It is a game-changer but there are definite constraints on it in terms of where the markets will be and how it will be absorbed into the power sector," Yergin said.

Shale gas is not new, but technology like hydraulic fracturing to release it from thick rock far underground has vastly improved producers' ability to tap it. Production involves injecting water, chemicals and sand under high pressure into the rock to fracture it to release the gas.

In addition, producers can drill multiple horizontal wells from a single drilling pad that make multiple fractures per well, getting more gas with fewer rigs.

The IHS CERA study said growth in power demand in the next 20 years will likely cause natural gas demand to double its current level of 19 billion cubic feet per day by 2030.

Development of those resources could meet much higher demand without significant increases in natural gas prices, the study said.

Shale gas, coupled with expanded liquefied natural gas import facilities in the U.S. and Canada, as well as increased storage, has created "supply shock absorbers" to respond to disruptions and market imbalances, the study said.

Gas-fired power generation also produces half the carbon emissions of coal-fired generation, which makes gas a more attractive environmental choice as well, the study said. But a limited pool of spare gas-fired capacity would prevent wholesale fuel switching, the study said.

Also, such switching won't reach targets of reducing emissions by 80 percent by 2050, the study said. That would require more non-carbon emitting sources, such as nuclear and renewable, as well as carbon capture and storage, or injecting and storing carbon emissions underground.

The study said uncertainties about shale gas include stringency of future carbon legislation and viability of carbon capture and storage technology.

Tom Walters, president of Exxon Mobil Corp's gas and power marketing company, said during a panel discussion that shale gas's future success depends on policies that promote and support its development.

"We need reliable, open markets and investment frameworks that consider and allow unbiased use of all economic alternative" to reduce emissions, he said.

Walters did not mention Exxon Mobil's pending $27 billion acquisition of XTO Energy Inc , a notable shale player. Other major oil companies have entered the shale arena through asset deals with independent producers that have been longtime shale players, including BP , Statoil and Total.

"We need to stop not investing," Philippe Boisseau, president of gas and power for Total, said during the same session. "That's why we are pushing more gas production." Bill Scoggins, president of the Colorado School of Mines, said during a later panel discussion that the industry has invested $100 billion in shale gas in the last three years excluding the Exxon/XTO deal.

Concerns about how hydraulic fracturing might affect underground water tables have prompted Congress to consider increased regulation.

Sam Langford, vice president of corporate development for Newfield Exploration , said during a panel discussion that such increased oversight would chill drilling "and drive natural gas prices higher pretty quick."

But Richard Stoneburner, president and chief operating officer of Petrohawk Energy , said common sense would likely prevail in the debate over regulation given the lack of proven environmental harm. If not, "a very short period of not being able to fracture or stimulate would have a dramatic effect on supply," he said.

Ends --

By Kristen Hays, Reuters - for Commodities Now