Analysts predict shale gas demand and prices will go up

Energy companies will harvest an increasing amount of natural gas from dense shale rock formations nationwide, with as much as 50 percent of the U.S. production coming from those sources by 2030, Deloitte analysts predicted Tuesday.

But, they cautioned, concerns about the environmental risks of natural gas extraction could threaten that surge.

“There’s so many wells being drilled and in so many parts of the country that it’s an enormous challenge with the public,” said Peter Robertson, an independent senior adviser who focuses on oil and gas issues for Deloitte LLP. “Every little slip gets enormously magnified.”

Environmentalists and some land owners have raised concerns about the techniques used to unlock natural gas trapped in shale, especially hydraulic fracturing, a method that involves blasting water, sand and chemicals deep under ground to break up the rock. Concerns also have been raised about natural gas escaping from poorly cemented and designed wells and contaminating nearby groundwater supplies.

The fears have sparked calls for bans on natural gas drilling, particularly in the Marcellus shale in Pennsylvania, New York and West Virginia.

“The environmental side of this thing is really critical,” Robertson said during a Deloitte briefing on the future of natural gas in the United States. “That’s where we’ve got to get it right.”

Shale gas made up a small share of U.S. natural gas production in 2005 but has surged since then and in 2010 made up 20 percent of what is harvested domestically. By 2030, the portion will be 50 percent, with the biggest chunk coming from the Marcellus formation, Deloitte forecast.

The boom in shale gas extraction has helped keep prices low — now around $3.39 per million British thermal units. Some industry officials have warned that the price is too low to sustain some of their drilling projects.

But Deloitte expects prices to rebound over time — potentially reaching $8 to $10 per million BTU by 2022. And, even so, Deloitte analysts said there is plenty of natural gas that can be commercially extracted as long as prices are around $4.

“There’s a lot of gas that’s produceable at less than $3,” Robertson said. “But there’s a lot more above $4.”

A continued spread between the price of crude oil and natural gas is likely for at least the next decade, said Roger Ihne, Deloitte’s Mid-America Portfolio leader.
Benchmark U.S. crude has been trading at close to $100 a barrel. That gives natural gas a big advantage, and it aids the North American chemical industry that uses gas as a building block for making other products.

The relatively low natural gas price also gives producers new market opportunities outside the U.S.

It has raised the possibility of exporting liquefied natural gas from the U.S. into higher price markets, such as Japan or Europe, Ihne said. In Japan, for instance, natural gas costs about $14 per million BTUs — a premium that would easily cover the added costs of liquefying and transporting natural gas produced in the U.S.