(EnergyAsia, June 13 2013, Thursday) — The boom in shale gas development and supply in North America has sparked a surge in gas use as a transportation fuel, gas-to-liquids production and lubricant base stock manufacturing, said New Jersey-based consultant Kline & Company.
With shale gas production forecast to grow to nearly 13 trillion cubic fee (tcf) by 2025 to account for 45% of total US gas supply, industries are finding ways to harness the cheap abundant feedstock to enhance their competitiveness.
Kline & Company said its recent white paper documents and analyses the boom in shale gas resource acquisitions and development in North America over the past three years.
Previously confined to under-capitalised independent producers who refined horizontal drilling and hydraulic fracturing technology to tap into the once-marginal tight gas reservoirs in Appalachia, the Central US, and Western Canada, the continent’s massive shale reserves have now attracted attention from the majors. ExxonMobil, through its acquisition of XTO Energy in 2010, along with other majors and Asian companies have since bought into US and Canadian shale gas plays, with total capital commitments exceeding US$100 billion.
While the long term strategic merits of this massive inflow of capital remain unclear, the short-term effects have been profound, said Kline & Company.
The focus of North American natural gas production has shifted to developing shale gas resources at a frenetic pace, with US shale gas output growing from 1.5 tcf in 2007 to 7.8 tcf in 2011.
As a result, US net gas imports have fallen from a peak of 3.6 tcf in 2007 to 1.5 tcf in 2012. The Department of Energy has recently forecast that the US will become a net exporter of natural gas by 2020, thanks to the gush of shale gas supplies.
North America is at the start of a boom in building natural gas transportation infrastructure, with 13 liquefied natural gas (LNG) terminals now in operation, said Kline & Company. Most will be built for export, with more projects expected to follow.
Historically high differentials now exist between oil products and natural gas. Given the large volume of potential gas supply that has been shut-in or undeveloped in North America due to weakness in pricing, the high spread between oil and gas prices is expected to become the industry norm until longer-term, demand-side response can bring some equilibrium to the market, said Kline & Company.
Gas-to-liquid (GTL) plants, which require a large and sustainable premium between oil and gas prices, are perhaps the most salient indicator of the changing North American gas paradigm. A secondary consideration of GTL plant design lies in the potential to channel some portion of paraffinic wax produced from Fischer-Tropsch (F-T) condensation toward the production of very high quality (Group III) lubricant base stocks.
“If GTL becomes embedded in the mainstream refined products supply as a function of sustained high oil/natural gas price differentials and a learning curve reduction in new facility capital-intensity, GTL plants will begin to put pressure on conventional refinery margins,” said Kilne & Company.
The growth in GTL base stocks supply will ensure that this product will emerge from the shadows of an internally-captive supply to one with a rapidly-growing merchant market where it will compete directly with conventional oil-based Group II and Group III base stocks.
Key players who may take advantage of this source of new supply are large lubricant marketers who are not significantly backward-integrated into base stock supply, such as BP/Castrol, Fuchs, and Ashland/Valvoline, as well as large NOCs who wish to lead advanced lubricant formulations in their home markets, but do not wish to assume the costs and risks associated with GTL investments.