Description
Shale gas has the potential to turn the world’s energy industry on its head. It’s abundant. It’s cheap. It burns cleaner than fossil fuels. And it’s being found almost everywhere.
KPMG GLOBAL ENERGY INSTITUTE
Shale Gas –
A Global Perspective
kpmg.com
KPMG INTERNATIONAL
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member ?rms of the KPMG network of independent ?rms are af?liated with KPMG International. KPMG International provides no client services. All rights reserved.
Contents
Shale gas shakes up the world energy markets 2
Shale gas – The Americas perspective 6
United States – Transforming from importer to exporter? 6
Canada – Slower off the mark 9
Argentina – Looking for a rise 10
Shale gas – The European perspective 11
Western Europe – Uncertain future 11
Eastern Europe – Hedging bets 13
Shale gas – The Asia-Paci?c perspective 15
Australia – The price of extraction 15
China – Five-year strategic plan 16
Burning bright? – 5 risks that could dim
the future of shale gas 18
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member ?rms of the KPMG network of independent ?rms are af?liated with KPMG International. KPMG International provides no client services. All rights reserved.
2 | Shale gas – A global perspective
Shale gas shakes up the
world energy markets
Shale gas has the potential to turn the world’s energy industry
on its head. It’s abundant. It’s cheap. It burns cleaner than
fossil fuels. And it’s being found almost everywhere.
But for shale gas to become the game-changer that some
analysts predict, the industry has to surmount tremendous
reputational and regulatory hurdles. And there are no
guarantees that natural gas prices will ever rise high enough to
make the high costs, ?nancial risk, and extended development
periods worth the returns. Even still, with the prospects of
substantial pro?ts and stable, secure supplies, players at the
national and industry levels are placing their bets.
By offering countries a cheap, carbon-friendly way to help
meet their energy needs, shale gas has the potential to
displace fossil fuels in selected locations and potentially
slow the development of renewable sources. With shale
gas deposits being found in areas that previously had no
exploitable gas reserves, shale gas production could turn
countries that traditionally import natural gas into producers,
making them more self-suf?cient with domestic supplies.
And shale gas deposits are being found in both mature and
underdeveloped energy markets, opening the potential to
level the playing ?eld when it comes to supply and demand.
For shale gas to become the game-
changer that some analysts predict, the
industry has to surmount tremendous
reputational and regulatory hurdles.
Shale gas has become a viable energy source due to the use
of hydraulic fracturing, or “fracking”, technology to extract it.
Fracking technology, has been used in oil reservoirs and tight
formations for many years without raising any signi?cant
concerns compared to the more traditional methods
of extraction. Increased scrutiny on the environmental
impact of the technology and its potential to cause greater
environmental harm in the shale gas context – with its
shallower deposits, greater permeability and more super?cial
formations – is a result of the greater role this energy source
could play in a country’s overall energy mix as discussions
about energy security and resource scarcity continue to gain
momentum on the world stage.
All energy production creates safety and environmental risks.
The extent to which shale gas will be a larger component
of the energy mix will depend, to a certain extent, on the
environmental protection versus economic growth trade-off.
In some countries, such as France, environmental concerns
have caused regulators to suspend or ban hydraulic fracturing
in some areas completely. Other countries, such as Argentina
and China, may be willing to take on greater environmental
risks to advance shale gas production in order to become
more self-suf?cient and to meet rising energy demands. An
attractive side bene?t of full-scale production is the substantial
number of new jobs that full-scale production would open for
low-skilled workers in these countries.
For companies subject to greenhouse
gas emission reduction targets, natural
gas usage may offer more “tick-the-box”
benefits than traditional fossil fuel sources.
Once captured and processed, natural gas is one of the cleanest
burning and lowest carbon content fossil fuels. In addition to
the economic bene?ts, developing new natural gas supplies
may provide a means to help countries meet their greenhouse
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member ?rms of the KPMG network of independent ?rms are af?liated with KPMG International. KPMG International provides no client services. All rights reserved.
Shale gas – A global perspective | 3
gas emission targets. For companies subject to greenhouse
gas emission reduction targets, natural gas usage may offer
more “tick-the-box” bene?ts than traditional fossil fuel sources.
At the consumer level, regions that rely on oil-based heating,
such as parts of the United States, could bring their emissions
down by encouraging homeowners to convert to natural gas
heating. Additional incentives could be granted to encourage the
development and sale of natural gas-powered vehicles.
In the following pages, we examine the current state of shale
gas development in selected countries of the world. We
also offer our views on the prospects of shale gas as part of
the world’s energy mix – and whether this source of energy
really is the game-changer that some have claimed. In the
?nal section, we highlight ?ve key risks that could impact the
future viability of shale gas production:
1. If and when natural gas prices will rise in North America is
the big unknown – currently supply outstrips demand.
2. How shale gas development will impact investment in
renewable energy sources and how much environmental
regulation shale gas-related activities will attract are also
uncertain.
3. With price uncertainty, managing costs and ?nancing risks
are top priorities for the industry.
4. The level of future shale gas development will hinge
on the industry’s ability to control reputational risk and
manage public opinion by minimizing environmental and
community impact.
5. As shale gas transforms supply and demand of the world’s
energy mix, geopolitical factors will continue to create risk.
Shale gas production – Key success factors
In this publication, we examine the current conditions and outlook for the shale gas production in the Americas, Europe, and the
Asia-Paci?c regions. In evaluating the environment and prospects for the shale gas industry in various parts of the world, the
following factors are critical.
Supply Shale gas plays must be big enough to warrant the tremendous investment in time and money required to
extract and fully exploit it. The play should be suf?ciently close to markets to facilitate distribution.
Demand Natural gas prices are currently depressed in some regions (e.g. the Americas), and the wealth of newly viable
shale gas plays could drop prices even farther. But as oil and gas production from conventional sources continues
to decline, the local price of natural gas relative to other energy sources will dictate whether the long-term
investments required to develop and exploit a play will produce suf?cient returns.
Infrastructure Shale gas production and distribution requires more than wells. Production sites must be adequately serviced
by roads and pipelines, for example, and special processing and transportation facilities are required to liquefy
natural gas for marine transport.
Regulatory support Private companies need their country’s support to develop large-scale shale gas production capacity.
A well-developed, stable regulatory regime, predictable access to permits and licenses, and government
subsidies for exploration and development are crucial.
Reputational risk While the environmental safety of shale gas production is still under study, many shale gas developers are
meeting strong opposition from environmental groups on the basis of health and safety concerns related to
hydraulic fracturing technology and water usage.
Geopolitical context For many countries that rely on natural gas imports, energy security is a concern. Shale gas could help them
become more self-suf?cient. On the other hand, countries that are traditional oil and gas exporters will need to
react to their changing markets. The resulting political issues could radically alter relations between countries.
For further information, please contact:
Wayne Chodzicki
KPMG in Canada
T: +403 691 8004
E: [email protected]
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member ?rms of the KPMG network of independent ?rms are af?liated with KPMG International. KPMG International provides no client services. All rights reserved.
4 | Shale gas – A global perspective
Distribution of global shale gas resources
Canada
Netherlands
Germany
Morocco
France
Algeria
Tunisia
Libya
Norway
Sweden
Ukraine
Poland Lithuania
Turkey
UK
South Africa
Pakistan
Qatar
Russia
India
China
Australia
Venezuela
US
Colombia
Bolivia
Chile
Note: 1 Russian has the largest proven natural gas reserve of nearly 1570 tcf.
However, data on Shale gas reserve is not available.
2 Data on Russia and Middle East was not provided by EIA, due to
reasons such as lack of information availability.
Source: World Shale Gas Resources: An Initial Assessment of 14 Regions Outside the
United States, EIA April 5, 2011
Paraguay
Uruguay
Argentina
Mexico
Brazil
0–100 trillion cubic feet
100–200 trillion cubic feet
200–300 trillion cubic feet
300–400 trillion cubic feet
Greater than 400 cubic feet
Technologically recoverable global shale gas reserve estimates
Country Shale Gas Reserves, Trillion cubic feet
France 180
Poland 187
Brazil 226
Algeria 231
Libya 290
Canada 388
Australia 396
South Africa 485
Mexico 681
Argentina 774
US 862
China 1,275
Others 647
Source: World Shale Gas Resources: An Initial Assessment of 14 Regions Outside the United States,
EIA, April 5, 2011
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member ?rms of the KPMG network of independent ?rms are af?liated with KPMG International. KPMG International provides no client services. All rights reserved.
Shale gas – A global perspective | 5
Canada
Netherlands
Germany
Morocco
France
Algeria
Tunisia
Libya
Norway
Sweden
Ukraine
Poland Lithuania
Turkey
UK
South Africa
Pakistan
Qatar
Russia
India
China
Australia
Venezuela
US
Colombia
Bolivia
Chile
Note: 1 Russian has the largest proven natural gas reserve of nearly 1570 tcf.
However, data on Shale gas reserve is not available.
2 Data on Russia and Middle East was not provided by EIA, due to
reasons such as lack of information availability.
Source: World Shale Gas Resources: An Initial Assessment of 14 Regions Outside the
United States, EIA April 5, 2011
Paraguay
Uruguay
Argentina
Mexico
Brazil
0–100 trillion cubic feet
100–200 trillion cubic feet
200–300 trillion cubic feet
300–400 trillion cubic feet
Greater than 400 cubic feet
Hydraulic fracturing – What are the environmental risks?
Natural gas is in many respects a clear and ef?cient
burning fuel and has the potential to lower carbon
emissions with fuel switching plays. However, risks
remain since shale gas development around the world
has met with ?erce opposition from local residents and
environmental groups due to environmental concerns
over the hydraulic fracturing, or “fracking”, process.
Fracking involves drilling a well bore into the reservoir
rock formation and then forcing water, sand and
chemicals into the well at high pressure to create
fractures or ?ssures in the rock. Once the fracture is
open, the released gas ?ows out of the fractures and
into the well bore. In addition to shale gas, the process
has recently been applied to extract gas from coal
seam and tight sand deposits.
With the impact of fracking operations still under study,
the jury is out on the extent to which the process
may be harmful to the environment. Some speci?c
concerns being raised by environmental groups, media,
and regulated companies are as follows:
Groundwater Contamination
Some have asserted that fracking chemicals used in
the process could leak into underground rivers and
reservoirs and ultimately into drinking water supplies.
The health effects of long-term exposure to chemicals
commonly used in fracking are being evaluated by
regulatory agencies.
Gasi?cation
When gas migrates into groundwater, the build-up
of pressure due to gasi?cation may lead to tremors
or explosions. Aquifer gasi?cation due to shale gas
development has been cited as a potential cause for
recent minor seismic activity in the United Kingdom,
though these claims are largely uncertain at this point
and being investigated.
Water Usage Risks
Fracking can be water intensive depending on the
water management methods used. This may pose
risks in water restricted areas.
Surface Water and Soil Risks
Risks may also arise from the volume of chemicals
that need to be stored at the drilling site and from
the liquid and solid waste produced during drilling
and fracking.
Spills and Blow-outs
Well blow-outs can cause spills that could spread into
the surrounding soil and into wetlands, streams and
waterways. There are also concerns that wastewater
kept in storage ponds could over?ow in high rains.
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member ?rms of the KPMG network of independent ?rms are af?liated with KPMG International. KPMG International provides no client services. All rights reserved.
6 | Shale gas – A global perspective
Shale gas –
The Americas perspective
United States – Transforming from importer to exporter?
In the United States, companies have unlocked access to rich
shale gas reserves and there is tremendous activity as the
country ramps up for full-scale production. Shale gas is in the
midst of a boom across the country, with existing reserves
being put into full production in Pennsylvania, Louisiana and
Texas, and with new reserves being discovered, recently, for
the Marcellus, Eagle Ford, and Utica reserves.
The United States mostly relies on oil, gas and coal—which
are less expensive and more abundant. Renewable energy
technologies, such as solar, wind, geothermal and biomass
power generation, are gaining traction, but are not yet viable
at a utility scale level to play a signi?cant role in the country’s
energy mix in the near future.
There are signs that the United States is
poised to become significant player in
the global natural gas market.
Therefore, shale gas production has the potential to transform
the energy market in the United States and beyond. The
United States has traditionally relied on imports, primarily from
Canada, for its natural gas needs. The size of US shale plays
and the recent investments in developing them could make
the United States self-suf?cient. In 2008, the country imported
13 percent of its natural gas supply. That ?gure is expected
to drop to nearly 1 percent by 2035. There are signs that the
United States is poised to become signi?cant player in the
global natural gas market. The United States has been working
to repurpose some natural gas processing and conversion
facilities, originally designed for imports, to handle exports of
shale gas in the form of LNG.
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member ?rms of the KPMG network of independent ?rms are af?liated with KPMG International. KPMG International provides no client services. All rights reserved.
Shale gas – A global perspective | 7
Canada
Venezuela
US
Colombia
Bolivia
Chile
Source: World Shale Gas Resources: An Initial Assessment of 14 Regions Outside the United States, EIA April 5, 2011
Paraguay
Brazil
Uruguay
Argentina
Mexico
0–100 trillion cubic feet
100–200 trillion cubic feet
200–300 trillion cubic feet
300–400 trillion cubic feet
Greater than 400 cubic feet
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member ?rms of the KPMG network of independent ?rms are af?liated with KPMG International. KPMG International provides no client services. All rights reserved.
8 | Shale gas – A global perspective
Forecasts for Consumption of Various Energy Sources in the US, Figures in Quadrillion British Thermal Units (Btu)
Year Natural gas Oil Coal Nuclear Wind Hydro
2015 25.77 39.10 19.73 8.77 1.40 2.92
2020 26.00 39.38 20.85 9.17 1.41 3.00
2025 25.73 39.84 22.61 9.17 1.49 3.04
2030 26.58 40.55 23.39 9.17 1.54 3.07
2035 27.24 41.70 24.30 9.14 1.59 3.09
Note: Oil includes petroleum-derived fuels and non-petroleum derived fuels, such as ethanol and biodiesel, and coal-based synthetic liquids and Petroleum coke.
Also included are natural gas plant liquids and crude oil consumed as a fuel.
Sources: Annual Energy Outlook 2011, EIA.
Projected US net imports of natural gas
1990
Sources: Annual Energy Outlook 2011, Reference Case Presentation, EIA, Decemeber 26, 2010, Technically Recoverable Shale Gas Resources Jump 134 Percent.
Canadapress, May 16, 2011
T
r
i
l
l
i
o
n
c
u
b
i
c
t
e
e
t
30
25
20
15
10
5
0
1995 2000
Net Imports
2005 2010 2015 2020 2025 2030 2035
Natural Gas Supply Natural Gas Consumption
The speed and scale of US shale gas development is straining
the resources of potential producers, requiring them to
quickly boost their manpower and technological capabilities.
The average age of US oil patch workers is rising, and the
pool of workers with the right middle management skills
is shrinking. Specialized equipment for drilling, processing
and transporting shale gas is in short supply. Companies are
wrestling with growth and struggling to continue to meet
internal business needs. Keeping up with the volume of
activity is straining their internal systems and processes.
Other issues include procurement and strategic sourcing
issues, reorganizing capital spending, and tax planning.
More regulation is expected that will
require more disclosure related to
environmental impacts in general and
water issues in particular.
As with all energy sources, shale gas in the United States
is receiving strong focus from NGOs (non-governmental
organizations) and government agencies, and such
opposition can delay the permitting and production schedule.
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member ?rms of the KPMG network of independent ?rms are af?liated with KPMG International. KPMG International provides no client services. All rights reserved.
Shale gas – A global perspective | 9
For example, many states such as New York, Texas and
Pennsylvania, which have sizable plays near populated
centers, are poised to potentially impose additional state-level
regulation regarding water and air emissions on existing and
new operations. In addition, the US EPA has been petitioned
by environmental groups to regulate disclosure of chemicals
used in the fracking process and is also in the process of
drafting regulations for additional regulation of air emissions.
It is expected that the trend of new regulations and disclosure
requirements will continue with respect to water usage and
fracking chemicals, in addition to air emissions (speci?cally
Volatile organic compounds (VOC) emissions).
The risk remains that an issue in one company within a shale
play quickly becomes the issue of the entire shale play due to
the degree of NGO attention in these shale play geographies.
However, US producers can take steps to manage public
perceptions and potential reputational harm by proactively
educating local of?cials and working with community groups
to understand and mitigate concerns where possible.
These companies can also help maintain a positive image
by adopting transparent corporate sustainability reporting
processes, proactive operational practices, and strong
stakeholder engagement processes.
Despite these concerns, US energy companies are moving
full steam ahead to develop domestic shale gas capabilities.
Some of these companies are also looking beyond their
borders to invest in countries like China and Argentina, which
have sizable shale gas reserves but largely undeveloped
production capabilities.
Canada – Slower off the mark
Canada is the world’s third largest producer of natural gas,
with an average annual production of 6.4 trillion cubic feet.
1
Canada has traditionally been known to possess signi?cant
conventional gas reserves, and the country was a key supplier
of natural gas to the United States for decades until the recent
shale boom in the country. Canada now trails the United
States in developing its nascent shale gas resources. But with
conventional natural gas sources in decline, Canada’s industry
is turning to unconventional sources, including shale gas.
While large-scale commercial production of shale gas in Canada
has not yet started, many companies are now exploring for and
developing shale gas resources in Alberta, British Columbia,
Quebec, and New Brunswick. According to Canada’s National
Energy Board (NEB), development of shale gas, and other
unconventional resources, will help ensure supplies of natural
gas are available to the growing North American natural gas
market for many decades. The NEB predicts that shale gas
will likely help the country meet its domestic requirements for
natural gas “far into the 21st century.”
2
Forecasts for delivered energy consumption by sources in Canada, Quadrillion British Thermal Units (Btu)
Year Natural gas Oil Coal Nuclear Renewable
2015 3.6 4.5 1.0 1.3 4.3
2020 3.8 4.4 1.0 1.4 4.9
2025 4.3 4.4 1.0 1.5 5.2
2030 4.7 4.5 1.0 1.7 5.7
2035 5.2 4.7 1.1 1.8 6.0
Sources: International Energy Outlook 2011, EIA.
Early drilling at Quebec’s Utica shale reserve shows promise.
Preliminary estimates suggest the reserve could hold more
than 20 trillion cubic feet of recoverable gas. Producers are
proceeding with caution, but if estimates are correct, shale
gas development in eastern Canada could tilt the balance of
production away from the western provinces. Quebec now has
next to no infrastructure to support extensive production, but
the province’s proximity to the Ontario and northeastern US
markets make it well situated to exploit its shale gas deposits.
1
Canadian Association of Petroleum Producers, athttp://www.capp.ca/canadaIndustry/naturalGas/Pages/default.aspx#6eM9ROT7pZEr
2
National Energy Board, A Primer for Understanding Canadian Shale Gas (Government of Canada, November 2009).
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member ?rms of the KPMG network of independent ?rms are af?liated with KPMG International. KPMG International provides no client services. All rights reserved.
10 | Shale gas – A global perspective
With US production rising, Canada will
need to develop other markets for its
excess natural gas supplies.
Canada currently exports about 50 percent of the natural gas
it produces, but it lacks the processing facilities to liquefy
and ship lique?ed natural gas (LNG) beyond North America.
With US production rising, Canada will need to develop other
markets for its excess natural gas supplies, and there are
signs that the industry is preparing to invest in the necessary
infrastructure. In October 2011, the NEB issued the ?rst
long-term license to export LNG, clearing the way for a
proposed $5 billion project to develop an LNG export terminal
in northeastern British Columbia. This terminal would allow
Canada to export LNG to Japan, South Korea and China,
allowing Canadian producers to enter markets beyond the
United States for the ?rst time.
This terminal would allow Canada to
export LNG to Japan, South Korea and
China, allowing Canadian producers to
enter markets beyond the United States
for the first time.
With their rising energy demands and higher natural gas
prices, the rapidly developing countries of Asia could
present strong prospective markets for Canadian LNG.
In 2010, for example, Japan’s LNG prices averaged
USD$10.91 per million British thermal units (MMBtu),
compared to Canada’s natural gas price average of
USD$3.69/MMBTU.
3
However, Canada can expect to face
?erce competition in the region if Australia and China also
boost production to serve the Asian market.
Argentina – Looking for a rise
Deposits in Argentina are projected to
be so big that development will be very
important to the country’s economy.
Preliminary exploration in South America suggests that sizable
shale gas deposits lie beneath several countries including
Argentina, Brazil, Colombia and others. In fact, shale reserves
in Brazil are estimated to be the second biggest in the region
after the United States, but there has been little interest or
investment in exploring this resource. Argentina is the only
South American country that seems set to embark on full-scale
shale gas production, primarily in the Neuquén Basin.
Deposits in Argentina are projected to be so big that development
will be very important to the country’s economy. Although
some shale gas wells have already been developed, Argentine
producers will need to conduct more drilling and hydraulic
fracturing to develop its shale gas reserves. In a 2011 survey of
oil and gas executives conducted by KPMG in Argentina, most
respondents said they expect shale gas production to occur
within three to ?ve years.
4
As in other parts of the world, most
shale gas projects in Argentina are being undertaken as joint
ventures, including large global energy entities.
Argentine politicians appear to support shale gas development.
Given Argentina’s current reliance on expensive natural gas
imports from Bolivia and Qatar, Argentina is putting a priority
on developing its own sources. In fact, all shale gas projects
that come on line will be included in Argentina’s Gas Plus
framework – a government initiative that allows better selling
prices for new offers of this ?uid.
While some opposition to fracking technology has been
expressed in the media, most reports echo concerns being
raised in the United States and local opposition on the ground
seems to be minimal.
In our view, the development of shale gas in Argentina will be
valuable to the country and occur at reasonable prices. Further,
given the Argentine government’s willingness to support
these projects, we expect that shale gas ?eld development will
continue to be allowed.
3
German Federal Of?ce of Economics and Export Control (BAFA); Energy Intelligence Group, Natural Gas Week.
4
KPMG in Argentina, Energy and Natural Resources Survey 2011, available online at: www.enr-kpmg.com.ar
For further information, please contact:
Katherine Blue
KPMG in the United States
T: +404 222 7606
E: [email protected]
Steven Estes
KPMG in the United States
T: 214-840-2448
E: [email protected]
Néstor García
KPMG in Argentina
T: 54-11 4316-5870
E: [email protected]
Wayne Chodzicki
KPMG in Canada
T: + 403 691 8004
E: [email protected]
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member ?rms of the KPMG network of independent ?rms are af?liated with KPMG International. KPMG International provides no client services. All rights reserved.
Shale gas – A global perspective | 11
Shale gas –
The European perspective
Western Europe – Uncertain future
Greater competition, high production
costs and low margins are curbing
the appetite for investment shale gas
production start-ups.
In Western Europe, sizable quantities of shale gas and other
unconventional fuel supplies have been reported in the United
Kingdom, the Netherlands, Germany, France, Scandinavia and
Norway. Exploration activity is occurring, primarily through joint
ventures to share risk and know-how. But due to a wide range
of economic, environmental and regulatory obstacles, the
prospect of large-scale shale gas production remains doubtful.
Additionally, European investors are watching the United States
to see if US players decide to develop the country’s capabilities
as a natural gas exporter. Greater competition, high production
costs and low margins are curbing the appetite for investment in
shale gas production start-ups.
France banned hydraulic fracturing,
as of July 1, 2011, including its use for
research purposes.
Compared to the United States and Australia (discussed in
the next section), the regulatory regime in Europe is relatively
undeveloped. Companies are forced to work without a
predictable regulatory framework, and, even within the EU,
there is no universal approach. Access to exploration permits
and development licenses is uncertain, creating signi?cant
regulatory risks.
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member ?rms of the KPMG network of independent ?rms are af?liated with KPMG International. KPMG International provides no client services. All rights reserved.
12 | Shale gas – A global perspective
As reserves in France, Scandinavia and elsewhere in Western
Europe tend to be close to populated areas and as European
environmental laws tend to be quite strict, the potential for
signi?cant shale gas development there in the near future
seems unlikely. Even though shale gas production is largely
undeveloped, the US environmental debate has crossed over
to Europe, and environmental groups have been publicizing
concerns over the chemicals used in fracking techniques.
France banned hydraulic fracturing, as of July 1, 2011,
including its use for research purposes.
Environmental concerns aside, European countries also lack
skilled resources and the infrastructure, creating questions
over the long-term economic viability of shale gas ventures.
While there is a hope that technological innovations could
bring down the costs of shale gas production, this is not likely
to happen in the short term.
In the United Kingdom, shale gas production has commenced
at the Blackpool aquifer in Lancashire, and new shale gas
deposits have been recently found in the Mendips. Production
at the Blackpool aquifer was voluntarily suspended due to
concerns that the operation was causing seismic activity, but
this claims has not been proven.
In May 2011, a UK parliamentary
committee has said it found no evidence
that fracking poses a direct risk to
underground water aquifers, provided the
drilling well is constructed properly.
Source: World Shale Gas Resources: An Initial Assessment of 14 Regions Outside the United States, EIA April 5, 2011
0–100 trillion cubic feet
100–200 trillion cubic feet
200–300 trillion cubic feet
300–400 trillion cubic feet
Greater than 400 cubic feet
Norway
Sweden
Lithuania
UK
Netherlands
Germany
France
Ukraine
Russia
Turkey
Poland
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member ?rms of the KPMG network of independent ?rms are af?liated with KPMG International. KPMG International provides no client services. All rights reserved.
Shale gas – A global perspective | 13
In May 2011, a UK parliamentary committee looking into the
risks and bene?ts of shale gas said it found no evidence that
fracking poses a direct risk to underground water aquifers,
provided the drilling well is constructed properly. The
committee concluded that, on balance, a moratorium in
the UK is not justi?ed or necessary at present.
The committee also concluded that, based on estimates
of the UK’s onshore shale gas resources, there will not
be a “shale gas revolution” in the UK based on domestic
resources alone – nevertheless, developing shale gas
reserves could make the country more self-suf?cient by
reducing its reliance on imported natural gas.
Eastern Europe – Hedging bets
In eastern Europe, Poland’s shale gas development potential
is high on radar screens, while Turkey and the Ukraine have
some potential. Russia’s dominance of the conventional gas
production could present obstacles for companies seeking
to develop shale gas production capacity in the region.
Ultimately, the future of shale gas production in Europe rests
on whether US producers decide to develop their potential to
export lique?ed natural gas to European markets.
Perhaps more than any other European
country, Poland has sizable shale gas
reserves that it is actively seeking to
exploit.
Shale gas poses a signi?cant threat to Russian interests in
conventional gas production, and Russian politicians have
become quite vocal in European debates over shale gas
production’s environmental safety. Further, nearly
25 percent of the natural gas ?owing into Europe via
Ukraine is transported by Gazprom, the Russian national
gas transmission company. In the past, Europe has
often been held hostage to decreased gas supplies due to
contract disputes between Russia and Ukraine.
Perhaps more than any other European country, Poland
has sizable shale gas reserves that it is actively seeking to
exploit. Seeking to diminish the country’s reliance on Russian
imports, private companies in Poland are working to develop
the industry in cooperation with scientists, private research
and development, state labs and geological services and
regulators. If Poland, Hungary, and other countries are able
to develop commercial shale gas production capabilities,
Russia’s in?uence on Europe could diminish.
In Russia itself, investors in the oil and gas industry are divided
about shale gas’ long-term potential. Some Russian players
do not think the opportunity for shale gas is signi?cant,
especially given the current price of natural gas. Other players
are hedging their bets. Russia’s national oil and gas company,
for example, has entered a strategic partnership agreement
with Exxon that refers to the transfer of shale gas-related
technological know-how and experience, an indication that
Russia’s state oil producer is at least aware of shale gas’s
future potential.
Potential eastern European investors in
shale gas production are holding their
cards in anticipation of US shale gas
industry developments.
Potential eastern European investors in shale gas production
are holding their cards in anticipation of US shale gas industry
developments. If US companies decide to produce shale
gas for domestic use only, then the boom in US shale gas
production will have little effect in Europe. But in the more likely
scenario that US players decide to invest in the conversion and
transportation facilities they need to enter the European natural
gas market, Europe’s current reliance on supplies from Canada
and Russia will diminish. In that event, Russia will likely turn its
attention to serving the growing Asian markets.
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member ?rms of the KPMG network of independent ?rms are af?liated with KPMG International. KPMG International provides no client services. All rights reserved.
For further information, please contact:
Hilda Mulock Houwer
KPMG in Russia
T: +7 495 937 4444 ext:14099
E: [email protected]
Marcin Rudnicki
KPMG in Poland
T: +48225281177
E: [email protected]
Tim Tillson
KPMG in United Kingdom
T: +44 20 76943878
E: [email protected]
14 | Shale gas – A global perspective
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member ?rms of the KPMG network of independent ?rms are af?liated with KPMG International. KPMG International provides no client services. All rights reserved.
Shale gas –
The Asia-Paci?c
perspective
Australia – The price of extraction
Australia is one of the world’s richest countries when it
comes to conventional gas supplies, and companies in the
country have also made signi?cant investments in coal seam
gas production. The primary driver of growth in the gas
markets is the opportunity to sell gas on the international
market through LNG facilities.
Due to Australia’s relatively small population, domestic
demand for natural gas is limited, and the country produces
natural gas for export in lique?ed natural gas form. With
limited pipelines, natural gas liquefaction plants or other
infrastructure, shale gas development is in an early, immature
state and its economic viability is uncertain. Further,
Australia’s shale gas is often located in remote locations,
making it even more expensive to commercialize. While a
combination of foreign and local companies are exploring
for shale gas plays in various locations, there is currently no
commercial production of shale gas.
Shale gas – A global perspective | 15
Source: World Shale Gas Resources: An Initial Assessment of 14 Regions Outside the United States, EIA April 5, 2011
Pakistan
India
China
Australia
0–100 trillion cubic feet
100–200 trillion cubic feet
200–300 trillion cubic feet
300–400 trillion cubic feet
Greater than 400 cubic feet
Forecasts for delivered energy consumption by sources in Australia, Quadrillion British Thermal Units (Btu)
Year Natural gas Oil Coal Nuclear Renewable
2015 1.4 2.3 2.5 – 1.2
2020 1.6 2.3 2.5 – 1.4
2025 1.9 2.4 2.5 – 1.4
2030 2.1 2.5 2.5 – 1.5
2035 2.3 2.5 2.5 – 1.6
Sources: International Energy Outlook 2011, EIA
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member ?rms of the KPMG network of independent ?rms are af?liated with KPMG International. KPMG International provides no client services. All rights reserved.
16 | Shale gas – A global perspective
Many experts feel that signi?cant production of shale gas in
Australia is at least a decade away and will face challenges
due to the following factors:
• Shale gas drilling costs are about three times those of
the United States due to the lack of infrastructure, tight
skilled labor and contractor supplies, and a lack of drilling
technology and expertise.
• Concerns over fracking are already being raised in the
context of coal seam gas, and so it is likely there would be
similar concerns with shale gas.
• Shale gas may not be able to compete with coal seam gas
because coal seam gas is located close to large east cost
population centres while the shale deposits are far away
and require transportation.
Since most of Australia’s conventional shale gas is remotely
located, its production may face less environmental
opposition than operations in the more populated areas
where coal seam gas is currently being developed.
For the Australian producers, the biggest
issue involved with shale gas is the cost
of extraction.
For the Australian producers, the biggest issue involved with
shale gas is the cost of extraction. Currently, there is not
enough incentive for companies to invest signi?cantly in shale
gas. If conditions improve, the country is well positioned
to develop export markets in countries such as Malaysia,
Taiwan, Japan, Korea and China, especially as some of these
countries seek to diversify their energy sources. Additionally,
Australia’s has proposed to introduce a carbon pricing
mechanism in 2012, which could ultimately create more
demand for shale gas.
In short, if an Australian company were to ?nd a big enough
reserve in the right place to extract it and distribute it to
market, then economies of scale could make shale gas
production viable.
China – Five-year strategic plan
In 2010, the Chinese government began to explore shale gas
production. While there are no of?cial statistics, it is estimated
that China has over 1,275 trillion cubic feet of shale gas
deposits. Shale gas could be China’s largest onshore source
of energy, and the country is looking to develop this resource
in order to decrease dependence on Russian and other
foreign natural gas sources.
China’s target is to fulfill most of its
energy needs from alternative sources
by 2020.
China’s latest ?ve-year plan places great emphasis on the
exploration of non-traditional/alternative energy sources,
such as coal seam, petroleum gas and oil sands. China’s
target is to ful?ll most of its energy needs from alternative
sources by 2020. (However see International Energy Outlook
on facing page) As part of this strategy, China will enter into
strategic partnerships with foreign companies in order to
help China acquire the skills and technologies needed to
develop and exploit its shale gas reserves.
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member ?rms of the KPMG network of independent ?rms are af?liated with KPMG International. KPMG International provides no client services. All rights reserved.
Shale gas – A global perspective | 17
Forecasts for delivered energy consumption by sources in China, Quadrillion British Thermal Units (Btu)
Year Natural gas Oil Coal Nuclear Renewable
2015 5.6 24.5 80.7 2.3 11.2
2020 7.1 27.7 85.5 4.3 15.8
2025 9.0 31.6 96.4 6.1 17.8
2030 10.6 33.3 106.5 7.8 19.7
2035 12.1 34.4 113.6 9.5 21.6
Sources: International Energy Outlook 2011, EIA
5
“China Begins to Tap Its Shale Gas, Despite Daunting Technological, Environmental Hurdles”, New York Times, October 14, 2011.
Currently, under a joint venture between PetroChina and Shell
Oil, 10-15 wells are in operation, producing about 2000 cubic
meters daily. The venture started in the last quarter of 2010
and is situated in western China. In October 2011, production
commenced in the Sichuan Basin.
China’s shale gas deposits are geographically different than
those in the United States, and so it is uncertain if U.S.
methods of retrieving the gas can be duplicated. While water
is relatively abundant in the Sichuan province, it is also needed
to support agriculture in the region, which supplies 7 percent
of China’s rice, wheat and grains.
5
China’s Ministry of Resources has invited some major oil
and gas companies to pitch for shale gas exploration work,
offering four licenses for exploration in western China. As
shale gas production is in its infancy, there is no regulatory
framework in place in China. China is pursuing joint ventures
with foreign companies to help build up know-how in shale
gas exploration and extraction, and it appears likely that the
Chinese government will continue to promote and support
shale gas development.
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member ?rms of the KPMG network of independent ?rms are af?liated with KPMG International. KPMG International provides no client services. All rights reserved.
For further information please contact:
Eric Cheung
KPMG in China
T: +861085085304
E: [email protected]
Brent Steedman
KPMG in Australia
T: +61 8 9263 7184
E: [email protected]
Chi Woo
KPMG in Australia
T: +61 2 9295 3916
E: [email protected]
18 | Shale gas – A global perspective
Burning bright? – Risks that could
dim the future of shale gas
With so many large shale gas deposits already discovered and
more being found in new locations, greatly expanded natural
gas use around the world seems likely, especially in electricity
generation. In the short term, because natural gas burns
cleaner than coal and oil, the proportion of natural gas in the
energy mix could rise in response to carbon emission targets.
Over time, however, these targets will lessen dependence
on all fossil fuels, including natural gas, unless technological
advances make carbon capture and sequestration techniques
more effective.
So how bright is the future for global shale gas production?
Despite its abundance and advantages of less clean-burning
fuels, a number of risks could impact its future viability. Below
we highlight ?ve of the biggest.
1. If and when natural gas prices will rise
is the big unknown.
Given the amount of time it may take to explore, develop and
exploit a new shale gas source, it can take many years before
these investments start to produce returns. Whether natural
gas prices move up or down during that extended period
creates huge potential for pro?ts, but also signi?cant
?nancial risks.
Despite the current slump in natural gas prices in some
markets, some traditional oil and gas companies and newer
players are continuing to invest in developing shale gas
supplies in the belief that the current oversupply will not last
and that prices will ultimately climb higher. As a result, smaller
producers run the risk of becoming acquisition targets in a
low-price market.
In the United States, natural gas prices are projected to fall to
US$4.63 per thousand cubic feet by 2015. By one estimate,
however, the spot gas price of shale gas should amount to
US$7.50–8 per thousand cubic feet to recover the full cost
extraction (Ben Dell, Bernstein Research).
6
Extraction projects
require huge amounts of capital. The limited availability of
infrastructure is expected to push costs even higher.
Further, shale gas reserves tend to decline faster than
conventional gas wells. As a result, producers may have to
resort to making pro?t in a shorter period, leading to more
price risks concentrated in the early months of production
than for conventional gas.
6
Ben Dell, Bernstein Research, quoted in “The True Cost of Shale Gas Extraction”, Financial Times, March 7, 2010.
Japan (LNG)
Average Natural Gas Prices – 2005–2010
U
S
D
o
l
l
a
r
s
p
e
r
m
i
l
l
i
o
n
B
T
U
European Union (LNG)
United Kingdom (NG)
United States (NG)
Canada (NG)
14.00
12.00
10.00
8.00
6.00
4.00
2.00
0.00
2005 2006 2007 2008 2009 2010
* Source: 1984-1990 German Federal Statistical Of?ce 1991-2010 German Federal Of?ce of Economics and Export Control (BAFA).
† Source: Heren Energy Ltd.
‡ Source: Energy Intelligence Group, Natural Gas Week.
Note: Btu = British thermal units; cif = cost+insurance+freight (average prices).
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member ?rms of the KPMG network of independent ?rms are af?liated with KPMG International. KPMG International provides no client services. All rights reserved.
Shale gas – A global perspective | 19
Private companies cannot develop a
full-scale shale gas industry on their own.
Realizing the potential for shale gas as a pro?table
alternative energy source requires signi?cant investments
in technologies, equipment and infrastructure. Private
companies cannot develop a full-scale shale gas industry on
their own. They need their local governments to support them
with a combination of direct ?nancial subsidies, investments
in transportation infrastructures, and favorable regulatory
environments. Given the current economic environment,
whether governments will be willing to commit to these
investments is uncertain.
2. Shale gas could slow investment in
renewables and attract costly regulation.
In an informal KPMG poll of oil and gas industry clients,
7
88 percent of respondents agree that climate change and
sustainability issues will continue to have a strong impact on
how corporations invest in the energy sector. However, some
critics suggest that the industry’s focus on developing shale
gas and other unconventional sources is taking attention and
resources away from the development of renewables. Low-
cost power generated with abundant natural gas supplies
could disrupt the economic viability of wind, solar and
geothermal projects. As a result, some worry that increased
shale and other unconventional gas production could delay
the shift to renewables by many years.
As you can see from the energy consumption forecasts for
individual countries throughout this publication, fossil fuels
are expected to make up a signi?cant portion of overall energy
supplies into the foreseeable future. As long as natural gas
prices remain low, there will be less incentive to invest in
greener sources. To meet their carbon reduction targets,
there is a risk that governments could compel the industry
to make these investments through regulation. Such moves
could dramatically increase costs across the entire oil and
gas industry, with particularly impact on highly cost-sensitive
shale gas development operations.
3. Due to price uncertainty, managing
costs and ?nancing risks are
top priorities.
The two risks above lead to the third: companies getting
into shale gas production now will need to survive for an
extended time period before they can turn a pro?t. At the
same time, costs for shale gas producers continue to spiral.
As they ramp up production, these companies need to
streamline their procurement costs and invest in productivity,
technological and capital improvements. Tax costs across their
supply chains also need to be managed, including complex
indirect tax and transfer pricing obligations and rising fuel and
resource extraction taxes. More costs will arise from the need
to comply with new greenhouse gas reporting and veri?cation
requirements and participation in energy trading systems in
some locations.
To maintain their ?nancial viability, these companies need to
keep a close eye on cash ?ow, carefully forecast and identify
future ?nancing needs and funding options, and assess
their liquidity risk. They will also need to conduct complex
economic modeling and forecasting to analyze risks related
to future changes in demand, pricing, costs, return on capital
and other key performance indicators.
4. The industry needs to control
reputational risk and turn public
opinion around.
Negative public opinion about the environmental safety
of the hydraulic fracturing process could undermine the
development of this industry, particularly where the process
is used in – or directly under – populated areas. In fact, the
process has already been banned in France and parts of the
United States. As noted, a UK parliamentary committee
cautiously endorsed this method of shale gas extraction
after ?nding no evidence that the process endangered water
supplies, provided the operations were conducted with
proper safety procedures.
According to the KPMG poll of oil and gas industry executives
noted above, environmental and sustainability concerns
are perceived as the biggest challenge facing shale gas
development (41 percent), with regulatory concerns voted as
the second (27 percent).
7
This informal poll of oil and gas industry executives was conducted in the course of the KPMG Global Energy Institute webcast “Shale Gas – A Game-Changer
for World Energy Markets” (November 10, 2011). To replay the webcast, visit the Institute’s website at www.kpmginstitutes.com/global-energy-institute/
events/2011-11-shale-gas.aspx.
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member ?rms of the KPMG network of independent ?rms are af?liated with KPMG International. KPMG International provides no client services. All rights reserved.
20 | Shale gas – A global perspective
Clearly, many industry members realize that more needs to be
done to change public opinion and promote public con?dence.
Producers need to show that they fully understand the
geology of shale gas formations and know how to model
the impact of hydraulic fracturing with accuracy. As the
reputational impact of the recent Gulf of Mexico oil spill
and Japan’s nuclear disaster on offshore drilling and nuclear
energy production show, any environmental or safety lapses
could tarnish the entire industry and attract more regulation.
All industry players will need to consider adopting leading
practices to mitigate environmental impact, preserve
reputation, and avoid more stringent regulation which could
preclude growth of the industry.
For example, Shell Oil has attempted to instill better industry
practices and improve public perception by releasing its set of
“Global Onshore Tight/Shale Oil and Gas Operating Principles”.
These principles comprise a framework for how Shell and
other oil and gas producers should protect the environment
and the communities in which they drill for and produce
natural gas and oil. These principles include:
1. Safe well design and operation
2. Protection of groundwater and reduction of water use
3. Emissions reduction and fugitive emissions control
4. Reduction of surface impact
5. Transparency and community engagement
By developing and demonstrating a commitment to such a
framework, shale gas producers can forestall future protests
and negative regulatory repercussions for the entire industry.
5. As shale gas transforms supply and
demand of the world’s energy mix,
geopolitical factors will continue to
create risk.
Shale gas will undoubtedly have important – and
unpredictable – strategic implications on geopolitics and the
energy industry. For example, the development of shale gas
production in Europe and potential imports from the United
States could help ease European reliance on Russian gas.
In turn, Russia will need to develop its capacity to deliver its
natural gas to new markets. Before doing so, however, Russia
could try to exert political or economic pressure to preserve
its access to existing markets. Russian politicians are already
quite vocal in European debates over shale gas production’s
environmental safety. With nearly 25% of the natural gas
?owing into Europe via Ukraine is transported by Gazprom,
Russia’s natural gas transmission company, the country could
go so far as to thwart future shale gas production in countries
like Poland by threatening to cut off current natural gas
supplies.
Elsewhere, countries like the United States and China
have traditionally depended on fuel imports from politically
sensitive regions, constraining their foreign policy options.
Abundant natural gas can help these countries gain security
of supply, which could dramatically change their relationships
with other nations. On the other hand, exporting countries
like Canada – which could soon see its biggest natural gas
customer transform into a competing supplier – will need
to make huge investments in infrastructure to create new
outlets for their excess supplies.
Finally, exploiting shale gas deposits in new less developed,
politically sensitive frontiers, such as Libya and Mongolia,
could open up a whole new set of geopolitical challenges
and risks.
Economic and population growth will
continue to put pressure on the world’s
energy supplies, and so all fuel sources
will be needed.
Production of various energy sources in the World, Figures in Quadrillion British Thermal Units (Btu)
Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Oil 135.43 133.91 131.66 136.51 143.90 145.91 145.86 143.26 145.80 137.46
Natural Gas 90.96 92.84 95.87 97.68 99.92 102.87 106.62 108.87 113.24 109.77
Coal 89.09 93.85 97.56 105.28 116.58 123.24 127.64 134.03 142.02 145.25
Nuclear 25.65 26.38 26.67 26.37 27.32 27.54 27.76 27.15 27.16 26.82
Hydro Electricity 26.72 26.51 26.46 26.75 27.86 28.94 29.75 29.56 30.73 24.25
Wind 0.31 0.38 0.51 0.63 0.81 1.00 1.25 1.62 2.07 NA
Sources: International Energy Statistics, EIA, accessed on September 28, 2011
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member ?rms of the KPMG network of independent ?rms are af?liated with KPMG International. KPMG International provides no client services. All rights reserved.
Shale gas – A global perspective | 21
Whether or not shale gas turns out to be a game-
changer, it seems certain that it will soon comprise a larger
share of the world’s energy markets. In our informal poll of
industry executives, 77 percent of respondents agreed that
the term “game-changer” applies, and 93 percent expect
that companies will shift toward more investment in shale
gas development in the future. This is clearly evident by the
recent announcement that BHP Billiton will spend about
US$4.5 billion to develop shale gas in 2012.
What’s more, by 2030, the world primary energy demand
will be 40% higher than in 2007 (according to the
International Energy Agency). Couple this with world
population expected to reach 9.2 billion people by 2050 and
it’s clear that all energy sources (traditional fossil fuels and
alternative energies) will be required to keep pace with this
demand.
In addition, as countries seek to follow through on their
commitments to move away from coal-?red gas plants and
reduce greenhouse gas emissions, shale gas may provide
an important alternative energy source.
The extent to which shale gas comprises a larger or smaller
piece of the energy-mix pie will depend on its economic
viability and environmental impact and the trade-offs
countries are willing to make to secure their energy supplies
and sustain long-term growth.
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member ?rms of the KPMG network of independent ?rms are af?liated with KPMG International. KPMG International provides no client services. All rights reserved.
22 | Shale gas – A global perspective
North
America
500
Natural gas trade
LNG exports
LNG imports
Pipeline exports
Pipeline imports
LNG exports and imports Pipeline exports and imports
450
400
350
300
250
200
150
100
50
0
500
450
400
350
300
250
200
150
100
50
0
Latin
America
Europe &
Eurasia
Africa Middle
East
Asia
Paci?c
North
America
Latin
America
Europe &
Eurasia
Africa Middle
East
Asia
Paci?c
Source: BP Statistical Review of World Energy (June 2011).
92.4
9.4
20.9
5.4
9.8
Pipeline Gas
LNG
16.0
36.5
20.1
6.2
44.1
5.5
12.1
113.9
55.9
16.6
32.0
21.0
6.5
4.1
18.8
17.3
10.9
14.9
8.8
6.5
5.2
8.2
17.7
7.0
5.8
43.3
US
Canada
Mexico
S. & Cent. America
Europe & Eurasia
Middle East
Africa
Asia Pacific
Source: BP Statistical Review of World Energy (June 2011).
Major trade movements
Trade ?ows worldwide (billion cubic metres)
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member ?rms of the KPMG network of independent ?rms are af?liated with KPMG International. KPMG International provides no client services. All rights reserved.
Shale gas – A global perspective | 23
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member ?rms of the KPMG network of independent ?rms are af?liated with KPMG International. KPMG International provides no client services. All rights reserved.
24 | Shale gas – A global perspective
Further insight
Recent KPMG Oil & Gas Thought Leadership
1. After the Gulf of Mexico Oil Spill: recent developments in the
oil and gas industry. This paper reviews some of the many impacts
of the spill, including changes to operating models, contractor
relationships, business risks and a number of new and proposed
regulations.
2. Procurement in Oil & Gas, published by KPMG’s Global Energy
Institute, focuses on procurement in the oil and gas industry and
highlights trends and tools as well as issues and challenges in both
up-stream and down-stream sectors of the industry.
3. Accounting for Carbon discusses the impact of carbon trading
on ?nancial statements. It provides insights and strategies to help
organizations understand and manage the business implications of
climate change.
4. Impact of IFRS – Oil and Gas (September 2011) This publication
provides assistance to companies in the oil and gas sector who
are considering converting to IFRS. It gives an overview of the
IFRS conversion process and looks at impact of conversion on
IT systems, people and business processes.
Recent Global Energy Institute Webcasts
1. Oil & Gas Trends and M&A Landscape
2. Transfer Pricing Issues in the Oil & Gas Supply Chain
3. Key Tax Developments and Issues Affecting the Oil and Gas
Industry
4. Shale Gas – A global perspective
For more information please visit:
www.kpmg.com/energy
www.kpmgglobalenergyinstitute.com
www.kpmgglobalenergyconference.com
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member ?rms of the KPMG network of independent ?rms are af?liated with KPMG International. KPMG International provides no client services. All rights reserved.
Shale gas – A global perspective | 25
The KPMG Global Energy Institute (GEI): launched in
2007, the GEI is a worldwide knowledge-sharing forum
on current and emerging industry issues. This vehicle
for accessing thought leadership, events, webcasts, and
podcasts about key industry topics and trends provides a
way for you to share your perspectives on the challenges
and opportunities facing the energy industry – arming
you with new tools to better navigate the changes in this
dynamic arena. www.kpmgglobalenergyinstitute.com
The KPMG Global Energy Conference: The KPMG
Global Energy Conference (GEC) is KPMG’s premier
event for ?nancial executives in the energy industry.
Presented by the KPMG Global Energy Institute, the
GEC attracts more than 600 professionals each year
and brings together energy ?nancial executives
from around the world in a series of interactive
discussions with industry luminaries. The goal of
the conference is to provide participants with
new insights, tools, and strategies to help them
manage industry-related issues and challenges.
www.kpmgglobalenergyconference.com
Save the Date – 2012 KPMG Global Energy
Conference | May 16-17
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member ?rms of the KPMG network of independent ?rms are af?liated with KPMG International. KPMG International provides no client services. All rights reserved.
Contact us
Michiel Soeting
Global Chairman
Energy & Natural Resources
KPMG in the UK
T: +44 20 7694 3052
E: [email protected]
Wayne Chodzicki
Global Head of Oil & Gas
KPMG in Canada
T: +403 691 8004
E: [email protected]
Steve Estes
Dallas Energy & Chemical
Industry Lead
KPMG in the United States
T: 214 840 2448
E: [email protected]
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Partner in Charge of Energy &
Natural Resources
KPMG in Argentina
T: 54 11 4316 5870
E: [email protected]
Marcin Rudnicki
Partner, Tax
KPMG in Poland
T: +48225281177
E: [email protected]
Brent Steedman
National Head of Oil & Gas
KPMG in Australia
T: +61 8 9263 7184
E: [email protected]
Katherine Blue
Managing Director, US Climate
Change and Sustainability
KPMG in the United States
T: +404 222 7606
E: [email protected]
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independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any
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Publication name: Shale gas – A global perspective
Publication number: 111223
Publication date: December 2011
doc_158616390.pdf
Shale gas has the potential to turn the world’s energy industry on its head. It’s abundant. It’s cheap. It burns cleaner than fossil fuels. And it’s being found almost everywhere.
KPMG GLOBAL ENERGY INSTITUTE
Shale Gas –
A Global Perspective
kpmg.com
KPMG INTERNATIONAL
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member ?rms of the KPMG network of independent ?rms are af?liated with KPMG International. KPMG International provides no client services. All rights reserved.
Contents
Shale gas shakes up the world energy markets 2
Shale gas – The Americas perspective 6
United States – Transforming from importer to exporter? 6
Canada – Slower off the mark 9
Argentina – Looking for a rise 10
Shale gas – The European perspective 11
Western Europe – Uncertain future 11
Eastern Europe – Hedging bets 13
Shale gas – The Asia-Paci?c perspective 15
Australia – The price of extraction 15
China – Five-year strategic plan 16
Burning bright? – 5 risks that could dim
the future of shale gas 18
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2 | Shale gas – A global perspective
Shale gas shakes up the
world energy markets
Shale gas has the potential to turn the world’s energy industry
on its head. It’s abundant. It’s cheap. It burns cleaner than
fossil fuels. And it’s being found almost everywhere.
But for shale gas to become the game-changer that some
analysts predict, the industry has to surmount tremendous
reputational and regulatory hurdles. And there are no
guarantees that natural gas prices will ever rise high enough to
make the high costs, ?nancial risk, and extended development
periods worth the returns. Even still, with the prospects of
substantial pro?ts and stable, secure supplies, players at the
national and industry levels are placing their bets.
By offering countries a cheap, carbon-friendly way to help
meet their energy needs, shale gas has the potential to
displace fossil fuels in selected locations and potentially
slow the development of renewable sources. With shale
gas deposits being found in areas that previously had no
exploitable gas reserves, shale gas production could turn
countries that traditionally import natural gas into producers,
making them more self-suf?cient with domestic supplies.
And shale gas deposits are being found in both mature and
underdeveloped energy markets, opening the potential to
level the playing ?eld when it comes to supply and demand.
For shale gas to become the game-
changer that some analysts predict, the
industry has to surmount tremendous
reputational and regulatory hurdles.
Shale gas has become a viable energy source due to the use
of hydraulic fracturing, or “fracking”, technology to extract it.
Fracking technology, has been used in oil reservoirs and tight
formations for many years without raising any signi?cant
concerns compared to the more traditional methods
of extraction. Increased scrutiny on the environmental
impact of the technology and its potential to cause greater
environmental harm in the shale gas context – with its
shallower deposits, greater permeability and more super?cial
formations – is a result of the greater role this energy source
could play in a country’s overall energy mix as discussions
about energy security and resource scarcity continue to gain
momentum on the world stage.
All energy production creates safety and environmental risks.
The extent to which shale gas will be a larger component
of the energy mix will depend, to a certain extent, on the
environmental protection versus economic growth trade-off.
In some countries, such as France, environmental concerns
have caused regulators to suspend or ban hydraulic fracturing
in some areas completely. Other countries, such as Argentina
and China, may be willing to take on greater environmental
risks to advance shale gas production in order to become
more self-suf?cient and to meet rising energy demands. An
attractive side bene?t of full-scale production is the substantial
number of new jobs that full-scale production would open for
low-skilled workers in these countries.
For companies subject to greenhouse
gas emission reduction targets, natural
gas usage may offer more “tick-the-box”
benefits than traditional fossil fuel sources.
Once captured and processed, natural gas is one of the cleanest
burning and lowest carbon content fossil fuels. In addition to
the economic bene?ts, developing new natural gas supplies
may provide a means to help countries meet their greenhouse
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member ?rms of the KPMG network of independent ?rms are af?liated with KPMG International. KPMG International provides no client services. All rights reserved.
Shale gas – A global perspective | 3
gas emission targets. For companies subject to greenhouse
gas emission reduction targets, natural gas usage may offer
more “tick-the-box” bene?ts than traditional fossil fuel sources.
At the consumer level, regions that rely on oil-based heating,
such as parts of the United States, could bring their emissions
down by encouraging homeowners to convert to natural gas
heating. Additional incentives could be granted to encourage the
development and sale of natural gas-powered vehicles.
In the following pages, we examine the current state of shale
gas development in selected countries of the world. We
also offer our views on the prospects of shale gas as part of
the world’s energy mix – and whether this source of energy
really is the game-changer that some have claimed. In the
?nal section, we highlight ?ve key risks that could impact the
future viability of shale gas production:
1. If and when natural gas prices will rise in North America is
the big unknown – currently supply outstrips demand.
2. How shale gas development will impact investment in
renewable energy sources and how much environmental
regulation shale gas-related activities will attract are also
uncertain.
3. With price uncertainty, managing costs and ?nancing risks
are top priorities for the industry.
4. The level of future shale gas development will hinge
on the industry’s ability to control reputational risk and
manage public opinion by minimizing environmental and
community impact.
5. As shale gas transforms supply and demand of the world’s
energy mix, geopolitical factors will continue to create risk.
Shale gas production – Key success factors
In this publication, we examine the current conditions and outlook for the shale gas production in the Americas, Europe, and the
Asia-Paci?c regions. In evaluating the environment and prospects for the shale gas industry in various parts of the world, the
following factors are critical.
Supply Shale gas plays must be big enough to warrant the tremendous investment in time and money required to
extract and fully exploit it. The play should be suf?ciently close to markets to facilitate distribution.
Demand Natural gas prices are currently depressed in some regions (e.g. the Americas), and the wealth of newly viable
shale gas plays could drop prices even farther. But as oil and gas production from conventional sources continues
to decline, the local price of natural gas relative to other energy sources will dictate whether the long-term
investments required to develop and exploit a play will produce suf?cient returns.
Infrastructure Shale gas production and distribution requires more than wells. Production sites must be adequately serviced
by roads and pipelines, for example, and special processing and transportation facilities are required to liquefy
natural gas for marine transport.
Regulatory support Private companies need their country’s support to develop large-scale shale gas production capacity.
A well-developed, stable regulatory regime, predictable access to permits and licenses, and government
subsidies for exploration and development are crucial.
Reputational risk While the environmental safety of shale gas production is still under study, many shale gas developers are
meeting strong opposition from environmental groups on the basis of health and safety concerns related to
hydraulic fracturing technology and water usage.
Geopolitical context For many countries that rely on natural gas imports, energy security is a concern. Shale gas could help them
become more self-suf?cient. On the other hand, countries that are traditional oil and gas exporters will need to
react to their changing markets. The resulting political issues could radically alter relations between countries.
For further information, please contact:
Wayne Chodzicki
KPMG in Canada
T: +403 691 8004
E: [email protected]
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member ?rms of the KPMG network of independent ?rms are af?liated with KPMG International. KPMG International provides no client services. All rights reserved.
4 | Shale gas – A global perspective
Distribution of global shale gas resources
Canada
Netherlands
Germany
Morocco
France
Algeria
Tunisia
Libya
Norway
Sweden
Ukraine
Poland Lithuania
Turkey
UK
South Africa
Pakistan
Qatar
Russia
India
China
Australia
Venezuela
US
Colombia
Bolivia
Chile
Note: 1 Russian has the largest proven natural gas reserve of nearly 1570 tcf.
However, data on Shale gas reserve is not available.
2 Data on Russia and Middle East was not provided by EIA, due to
reasons such as lack of information availability.
Source: World Shale Gas Resources: An Initial Assessment of 14 Regions Outside the
United States, EIA April 5, 2011
Paraguay
Uruguay
Argentina
Mexico
Brazil
0–100 trillion cubic feet
100–200 trillion cubic feet
200–300 trillion cubic feet
300–400 trillion cubic feet
Greater than 400 cubic feet
Technologically recoverable global shale gas reserve estimates
Country Shale Gas Reserves, Trillion cubic feet
France 180
Poland 187
Brazil 226
Algeria 231
Libya 290
Canada 388
Australia 396
South Africa 485
Mexico 681
Argentina 774
US 862
China 1,275
Others 647
Source: World Shale Gas Resources: An Initial Assessment of 14 Regions Outside the United States,
EIA, April 5, 2011
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member ?rms of the KPMG network of independent ?rms are af?liated with KPMG International. KPMG International provides no client services. All rights reserved.
Shale gas – A global perspective | 5
Canada
Netherlands
Germany
Morocco
France
Algeria
Tunisia
Libya
Norway
Sweden
Ukraine
Poland Lithuania
Turkey
UK
South Africa
Pakistan
Qatar
Russia
India
China
Australia
Venezuela
US
Colombia
Bolivia
Chile
Note: 1 Russian has the largest proven natural gas reserve of nearly 1570 tcf.
However, data on Shale gas reserve is not available.
2 Data on Russia and Middle East was not provided by EIA, due to
reasons such as lack of information availability.
Source: World Shale Gas Resources: An Initial Assessment of 14 Regions Outside the
United States, EIA April 5, 2011
Paraguay
Uruguay
Argentina
Mexico
Brazil
0–100 trillion cubic feet
100–200 trillion cubic feet
200–300 trillion cubic feet
300–400 trillion cubic feet
Greater than 400 cubic feet
Hydraulic fracturing – What are the environmental risks?
Natural gas is in many respects a clear and ef?cient
burning fuel and has the potential to lower carbon
emissions with fuel switching plays. However, risks
remain since shale gas development around the world
has met with ?erce opposition from local residents and
environmental groups due to environmental concerns
over the hydraulic fracturing, or “fracking”, process.
Fracking involves drilling a well bore into the reservoir
rock formation and then forcing water, sand and
chemicals into the well at high pressure to create
fractures or ?ssures in the rock. Once the fracture is
open, the released gas ?ows out of the fractures and
into the well bore. In addition to shale gas, the process
has recently been applied to extract gas from coal
seam and tight sand deposits.
With the impact of fracking operations still under study,
the jury is out on the extent to which the process
may be harmful to the environment. Some speci?c
concerns being raised by environmental groups, media,
and regulated companies are as follows:
Groundwater Contamination
Some have asserted that fracking chemicals used in
the process could leak into underground rivers and
reservoirs and ultimately into drinking water supplies.
The health effects of long-term exposure to chemicals
commonly used in fracking are being evaluated by
regulatory agencies.
Gasi?cation
When gas migrates into groundwater, the build-up
of pressure due to gasi?cation may lead to tremors
or explosions. Aquifer gasi?cation due to shale gas
development has been cited as a potential cause for
recent minor seismic activity in the United Kingdom,
though these claims are largely uncertain at this point
and being investigated.
Water Usage Risks
Fracking can be water intensive depending on the
water management methods used. This may pose
risks in water restricted areas.
Surface Water and Soil Risks
Risks may also arise from the volume of chemicals
that need to be stored at the drilling site and from
the liquid and solid waste produced during drilling
and fracking.
Spills and Blow-outs
Well blow-outs can cause spills that could spread into
the surrounding soil and into wetlands, streams and
waterways. There are also concerns that wastewater
kept in storage ponds could over?ow in high rains.
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member ?rms of the KPMG network of independent ?rms are af?liated with KPMG International. KPMG International provides no client services. All rights reserved.
6 | Shale gas – A global perspective
Shale gas –
The Americas perspective
United States – Transforming from importer to exporter?
In the United States, companies have unlocked access to rich
shale gas reserves and there is tremendous activity as the
country ramps up for full-scale production. Shale gas is in the
midst of a boom across the country, with existing reserves
being put into full production in Pennsylvania, Louisiana and
Texas, and with new reserves being discovered, recently, for
the Marcellus, Eagle Ford, and Utica reserves.
The United States mostly relies on oil, gas and coal—which
are less expensive and more abundant. Renewable energy
technologies, such as solar, wind, geothermal and biomass
power generation, are gaining traction, but are not yet viable
at a utility scale level to play a signi?cant role in the country’s
energy mix in the near future.
There are signs that the United States is
poised to become significant player in
the global natural gas market.
Therefore, shale gas production has the potential to transform
the energy market in the United States and beyond. The
United States has traditionally relied on imports, primarily from
Canada, for its natural gas needs. The size of US shale plays
and the recent investments in developing them could make
the United States self-suf?cient. In 2008, the country imported
13 percent of its natural gas supply. That ?gure is expected
to drop to nearly 1 percent by 2035. There are signs that the
United States is poised to become signi?cant player in the
global natural gas market. The United States has been working
to repurpose some natural gas processing and conversion
facilities, originally designed for imports, to handle exports of
shale gas in the form of LNG.
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member ?rms of the KPMG network of independent ?rms are af?liated with KPMG International. KPMG International provides no client services. All rights reserved.
Shale gas – A global perspective | 7
Canada
Venezuela
US
Colombia
Bolivia
Chile
Source: World Shale Gas Resources: An Initial Assessment of 14 Regions Outside the United States, EIA April 5, 2011
Paraguay
Brazil
Uruguay
Argentina
Mexico
0–100 trillion cubic feet
100–200 trillion cubic feet
200–300 trillion cubic feet
300–400 trillion cubic feet
Greater than 400 cubic feet
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member ?rms of the KPMG network of independent ?rms are af?liated with KPMG International. KPMG International provides no client services. All rights reserved.
8 | Shale gas – A global perspective
Forecasts for Consumption of Various Energy Sources in the US, Figures in Quadrillion British Thermal Units (Btu)
Year Natural gas Oil Coal Nuclear Wind Hydro
2015 25.77 39.10 19.73 8.77 1.40 2.92
2020 26.00 39.38 20.85 9.17 1.41 3.00
2025 25.73 39.84 22.61 9.17 1.49 3.04
2030 26.58 40.55 23.39 9.17 1.54 3.07
2035 27.24 41.70 24.30 9.14 1.59 3.09
Note: Oil includes petroleum-derived fuels and non-petroleum derived fuels, such as ethanol and biodiesel, and coal-based synthetic liquids and Petroleum coke.
Also included are natural gas plant liquids and crude oil consumed as a fuel.
Sources: Annual Energy Outlook 2011, EIA.
Projected US net imports of natural gas
1990
Sources: Annual Energy Outlook 2011, Reference Case Presentation, EIA, Decemeber 26, 2010, Technically Recoverable Shale Gas Resources Jump 134 Percent.
Canadapress, May 16, 2011
T
r
i
l
l
i
o
n
c
u
b
i
c
t
e
e
t
30
25
20
15
10
5
0
1995 2000
Net Imports
2005 2010 2015 2020 2025 2030 2035
Natural Gas Supply Natural Gas Consumption
The speed and scale of US shale gas development is straining
the resources of potential producers, requiring them to
quickly boost their manpower and technological capabilities.
The average age of US oil patch workers is rising, and the
pool of workers with the right middle management skills
is shrinking. Specialized equipment for drilling, processing
and transporting shale gas is in short supply. Companies are
wrestling with growth and struggling to continue to meet
internal business needs. Keeping up with the volume of
activity is straining their internal systems and processes.
Other issues include procurement and strategic sourcing
issues, reorganizing capital spending, and tax planning.
More regulation is expected that will
require more disclosure related to
environmental impacts in general and
water issues in particular.
As with all energy sources, shale gas in the United States
is receiving strong focus from NGOs (non-governmental
organizations) and government agencies, and such
opposition can delay the permitting and production schedule.
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Shale gas – A global perspective | 9
For example, many states such as New York, Texas and
Pennsylvania, which have sizable plays near populated
centers, are poised to potentially impose additional state-level
regulation regarding water and air emissions on existing and
new operations. In addition, the US EPA has been petitioned
by environmental groups to regulate disclosure of chemicals
used in the fracking process and is also in the process of
drafting regulations for additional regulation of air emissions.
It is expected that the trend of new regulations and disclosure
requirements will continue with respect to water usage and
fracking chemicals, in addition to air emissions (speci?cally
Volatile organic compounds (VOC) emissions).
The risk remains that an issue in one company within a shale
play quickly becomes the issue of the entire shale play due to
the degree of NGO attention in these shale play geographies.
However, US producers can take steps to manage public
perceptions and potential reputational harm by proactively
educating local of?cials and working with community groups
to understand and mitigate concerns where possible.
These companies can also help maintain a positive image
by adopting transparent corporate sustainability reporting
processes, proactive operational practices, and strong
stakeholder engagement processes.
Despite these concerns, US energy companies are moving
full steam ahead to develop domestic shale gas capabilities.
Some of these companies are also looking beyond their
borders to invest in countries like China and Argentina, which
have sizable shale gas reserves but largely undeveloped
production capabilities.
Canada – Slower off the mark
Canada is the world’s third largest producer of natural gas,
with an average annual production of 6.4 trillion cubic feet.
1
Canada has traditionally been known to possess signi?cant
conventional gas reserves, and the country was a key supplier
of natural gas to the United States for decades until the recent
shale boom in the country. Canada now trails the United
States in developing its nascent shale gas resources. But with
conventional natural gas sources in decline, Canada’s industry
is turning to unconventional sources, including shale gas.
While large-scale commercial production of shale gas in Canada
has not yet started, many companies are now exploring for and
developing shale gas resources in Alberta, British Columbia,
Quebec, and New Brunswick. According to Canada’s National
Energy Board (NEB), development of shale gas, and other
unconventional resources, will help ensure supplies of natural
gas are available to the growing North American natural gas
market for many decades. The NEB predicts that shale gas
will likely help the country meet its domestic requirements for
natural gas “far into the 21st century.”
2
Forecasts for delivered energy consumption by sources in Canada, Quadrillion British Thermal Units (Btu)
Year Natural gas Oil Coal Nuclear Renewable
2015 3.6 4.5 1.0 1.3 4.3
2020 3.8 4.4 1.0 1.4 4.9
2025 4.3 4.4 1.0 1.5 5.2
2030 4.7 4.5 1.0 1.7 5.7
2035 5.2 4.7 1.1 1.8 6.0
Sources: International Energy Outlook 2011, EIA.
Early drilling at Quebec’s Utica shale reserve shows promise.
Preliminary estimates suggest the reserve could hold more
than 20 trillion cubic feet of recoverable gas. Producers are
proceeding with caution, but if estimates are correct, shale
gas development in eastern Canada could tilt the balance of
production away from the western provinces. Quebec now has
next to no infrastructure to support extensive production, but
the province’s proximity to the Ontario and northeastern US
markets make it well situated to exploit its shale gas deposits.
1
Canadian Association of Petroleum Producers, athttp://www.capp.ca/canadaIndustry/naturalGas/Pages/default.aspx#6eM9ROT7pZEr
2
National Energy Board, A Primer for Understanding Canadian Shale Gas (Government of Canada, November 2009).
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member ?rms of the KPMG network of independent ?rms are af?liated with KPMG International. KPMG International provides no client services. All rights reserved.
10 | Shale gas – A global perspective
With US production rising, Canada will
need to develop other markets for its
excess natural gas supplies.
Canada currently exports about 50 percent of the natural gas
it produces, but it lacks the processing facilities to liquefy
and ship lique?ed natural gas (LNG) beyond North America.
With US production rising, Canada will need to develop other
markets for its excess natural gas supplies, and there are
signs that the industry is preparing to invest in the necessary
infrastructure. In October 2011, the NEB issued the ?rst
long-term license to export LNG, clearing the way for a
proposed $5 billion project to develop an LNG export terminal
in northeastern British Columbia. This terminal would allow
Canada to export LNG to Japan, South Korea and China,
allowing Canadian producers to enter markets beyond the
United States for the ?rst time.
This terminal would allow Canada to
export LNG to Japan, South Korea and
China, allowing Canadian producers to
enter markets beyond the United States
for the first time.
With their rising energy demands and higher natural gas
prices, the rapidly developing countries of Asia could
present strong prospective markets for Canadian LNG.
In 2010, for example, Japan’s LNG prices averaged
USD$10.91 per million British thermal units (MMBtu),
compared to Canada’s natural gas price average of
USD$3.69/MMBTU.
3
However, Canada can expect to face
?erce competition in the region if Australia and China also
boost production to serve the Asian market.
Argentina – Looking for a rise
Deposits in Argentina are projected to
be so big that development will be very
important to the country’s economy.
Preliminary exploration in South America suggests that sizable
shale gas deposits lie beneath several countries including
Argentina, Brazil, Colombia and others. In fact, shale reserves
in Brazil are estimated to be the second biggest in the region
after the United States, but there has been little interest or
investment in exploring this resource. Argentina is the only
South American country that seems set to embark on full-scale
shale gas production, primarily in the Neuquén Basin.
Deposits in Argentina are projected to be so big that development
will be very important to the country’s economy. Although
some shale gas wells have already been developed, Argentine
producers will need to conduct more drilling and hydraulic
fracturing to develop its shale gas reserves. In a 2011 survey of
oil and gas executives conducted by KPMG in Argentina, most
respondents said they expect shale gas production to occur
within three to ?ve years.
4
As in other parts of the world, most
shale gas projects in Argentina are being undertaken as joint
ventures, including large global energy entities.
Argentine politicians appear to support shale gas development.
Given Argentina’s current reliance on expensive natural gas
imports from Bolivia and Qatar, Argentina is putting a priority
on developing its own sources. In fact, all shale gas projects
that come on line will be included in Argentina’s Gas Plus
framework – a government initiative that allows better selling
prices for new offers of this ?uid.
While some opposition to fracking technology has been
expressed in the media, most reports echo concerns being
raised in the United States and local opposition on the ground
seems to be minimal.
In our view, the development of shale gas in Argentina will be
valuable to the country and occur at reasonable prices. Further,
given the Argentine government’s willingness to support
these projects, we expect that shale gas ?eld development will
continue to be allowed.
3
German Federal Of?ce of Economics and Export Control (BAFA); Energy Intelligence Group, Natural Gas Week.
4
KPMG in Argentina, Energy and Natural Resources Survey 2011, available online at: www.enr-kpmg.com.ar
For further information, please contact:
Katherine Blue
KPMG in the United States
T: +404 222 7606
E: [email protected]
Steven Estes
KPMG in the United States
T: 214-840-2448
E: [email protected]
Néstor García
KPMG in Argentina
T: 54-11 4316-5870
E: [email protected]
Wayne Chodzicki
KPMG in Canada
T: + 403 691 8004
E: [email protected]
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member ?rms of the KPMG network of independent ?rms are af?liated with KPMG International. KPMG International provides no client services. All rights reserved.
Shale gas – A global perspective | 11
Shale gas –
The European perspective
Western Europe – Uncertain future
Greater competition, high production
costs and low margins are curbing
the appetite for investment shale gas
production start-ups.
In Western Europe, sizable quantities of shale gas and other
unconventional fuel supplies have been reported in the United
Kingdom, the Netherlands, Germany, France, Scandinavia and
Norway. Exploration activity is occurring, primarily through joint
ventures to share risk and know-how. But due to a wide range
of economic, environmental and regulatory obstacles, the
prospect of large-scale shale gas production remains doubtful.
Additionally, European investors are watching the United States
to see if US players decide to develop the country’s capabilities
as a natural gas exporter. Greater competition, high production
costs and low margins are curbing the appetite for investment in
shale gas production start-ups.
France banned hydraulic fracturing,
as of July 1, 2011, including its use for
research purposes.
Compared to the United States and Australia (discussed in
the next section), the regulatory regime in Europe is relatively
undeveloped. Companies are forced to work without a
predictable regulatory framework, and, even within the EU,
there is no universal approach. Access to exploration permits
and development licenses is uncertain, creating signi?cant
regulatory risks.
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member ?rms of the KPMG network of independent ?rms are af?liated with KPMG International. KPMG International provides no client services. All rights reserved.
12 | Shale gas – A global perspective
As reserves in France, Scandinavia and elsewhere in Western
Europe tend to be close to populated areas and as European
environmental laws tend to be quite strict, the potential for
signi?cant shale gas development there in the near future
seems unlikely. Even though shale gas production is largely
undeveloped, the US environmental debate has crossed over
to Europe, and environmental groups have been publicizing
concerns over the chemicals used in fracking techniques.
France banned hydraulic fracturing, as of July 1, 2011,
including its use for research purposes.
Environmental concerns aside, European countries also lack
skilled resources and the infrastructure, creating questions
over the long-term economic viability of shale gas ventures.
While there is a hope that technological innovations could
bring down the costs of shale gas production, this is not likely
to happen in the short term.
In the United Kingdom, shale gas production has commenced
at the Blackpool aquifer in Lancashire, and new shale gas
deposits have been recently found in the Mendips. Production
at the Blackpool aquifer was voluntarily suspended due to
concerns that the operation was causing seismic activity, but
this claims has not been proven.
In May 2011, a UK parliamentary
committee has said it found no evidence
that fracking poses a direct risk to
underground water aquifers, provided the
drilling well is constructed properly.
Source: World Shale Gas Resources: An Initial Assessment of 14 Regions Outside the United States, EIA April 5, 2011
0–100 trillion cubic feet
100–200 trillion cubic feet
200–300 trillion cubic feet
300–400 trillion cubic feet
Greater than 400 cubic feet
Norway
Sweden
Lithuania
UK
Netherlands
Germany
France
Ukraine
Russia
Turkey
Poland
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member ?rms of the KPMG network of independent ?rms are af?liated with KPMG International. KPMG International provides no client services. All rights reserved.
Shale gas – A global perspective | 13
In May 2011, a UK parliamentary committee looking into the
risks and bene?ts of shale gas said it found no evidence that
fracking poses a direct risk to underground water aquifers,
provided the drilling well is constructed properly. The
committee concluded that, on balance, a moratorium in
the UK is not justi?ed or necessary at present.
The committee also concluded that, based on estimates
of the UK’s onshore shale gas resources, there will not
be a “shale gas revolution” in the UK based on domestic
resources alone – nevertheless, developing shale gas
reserves could make the country more self-suf?cient by
reducing its reliance on imported natural gas.
Eastern Europe – Hedging bets
In eastern Europe, Poland’s shale gas development potential
is high on radar screens, while Turkey and the Ukraine have
some potential. Russia’s dominance of the conventional gas
production could present obstacles for companies seeking
to develop shale gas production capacity in the region.
Ultimately, the future of shale gas production in Europe rests
on whether US producers decide to develop their potential to
export lique?ed natural gas to European markets.
Perhaps more than any other European
country, Poland has sizable shale gas
reserves that it is actively seeking to
exploit.
Shale gas poses a signi?cant threat to Russian interests in
conventional gas production, and Russian politicians have
become quite vocal in European debates over shale gas
production’s environmental safety. Further, nearly
25 percent of the natural gas ?owing into Europe via
Ukraine is transported by Gazprom, the Russian national
gas transmission company. In the past, Europe has
often been held hostage to decreased gas supplies due to
contract disputes between Russia and Ukraine.
Perhaps more than any other European country, Poland
has sizable shale gas reserves that it is actively seeking to
exploit. Seeking to diminish the country’s reliance on Russian
imports, private companies in Poland are working to develop
the industry in cooperation with scientists, private research
and development, state labs and geological services and
regulators. If Poland, Hungary, and other countries are able
to develop commercial shale gas production capabilities,
Russia’s in?uence on Europe could diminish.
In Russia itself, investors in the oil and gas industry are divided
about shale gas’ long-term potential. Some Russian players
do not think the opportunity for shale gas is signi?cant,
especially given the current price of natural gas. Other players
are hedging their bets. Russia’s national oil and gas company,
for example, has entered a strategic partnership agreement
with Exxon that refers to the transfer of shale gas-related
technological know-how and experience, an indication that
Russia’s state oil producer is at least aware of shale gas’s
future potential.
Potential eastern European investors in
shale gas production are holding their
cards in anticipation of US shale gas
industry developments.
Potential eastern European investors in shale gas production
are holding their cards in anticipation of US shale gas industry
developments. If US companies decide to produce shale
gas for domestic use only, then the boom in US shale gas
production will have little effect in Europe. But in the more likely
scenario that US players decide to invest in the conversion and
transportation facilities they need to enter the European natural
gas market, Europe’s current reliance on supplies from Canada
and Russia will diminish. In that event, Russia will likely turn its
attention to serving the growing Asian markets.
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member ?rms of the KPMG network of independent ?rms are af?liated with KPMG International. KPMG International provides no client services. All rights reserved.
For further information, please contact:
Hilda Mulock Houwer
KPMG in Russia
T: +7 495 937 4444 ext:14099
E: [email protected]
Marcin Rudnicki
KPMG in Poland
T: +48225281177
E: [email protected]
Tim Tillson
KPMG in United Kingdom
T: +44 20 76943878
E: [email protected]
14 | Shale gas – A global perspective
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member ?rms of the KPMG network of independent ?rms are af?liated with KPMG International. KPMG International provides no client services. All rights reserved.
Shale gas –
The Asia-Paci?c
perspective
Australia – The price of extraction
Australia is one of the world’s richest countries when it
comes to conventional gas supplies, and companies in the
country have also made signi?cant investments in coal seam
gas production. The primary driver of growth in the gas
markets is the opportunity to sell gas on the international
market through LNG facilities.
Due to Australia’s relatively small population, domestic
demand for natural gas is limited, and the country produces
natural gas for export in lique?ed natural gas form. With
limited pipelines, natural gas liquefaction plants or other
infrastructure, shale gas development is in an early, immature
state and its economic viability is uncertain. Further,
Australia’s shale gas is often located in remote locations,
making it even more expensive to commercialize. While a
combination of foreign and local companies are exploring
for shale gas plays in various locations, there is currently no
commercial production of shale gas.
Shale gas – A global perspective | 15
Source: World Shale Gas Resources: An Initial Assessment of 14 Regions Outside the United States, EIA April 5, 2011
Pakistan
India
China
Australia
0–100 trillion cubic feet
100–200 trillion cubic feet
200–300 trillion cubic feet
300–400 trillion cubic feet
Greater than 400 cubic feet
Forecasts for delivered energy consumption by sources in Australia, Quadrillion British Thermal Units (Btu)
Year Natural gas Oil Coal Nuclear Renewable
2015 1.4 2.3 2.5 – 1.2
2020 1.6 2.3 2.5 – 1.4
2025 1.9 2.4 2.5 – 1.4
2030 2.1 2.5 2.5 – 1.5
2035 2.3 2.5 2.5 – 1.6
Sources: International Energy Outlook 2011, EIA
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member ?rms of the KPMG network of independent ?rms are af?liated with KPMG International. KPMG International provides no client services. All rights reserved.
16 | Shale gas – A global perspective
Many experts feel that signi?cant production of shale gas in
Australia is at least a decade away and will face challenges
due to the following factors:
• Shale gas drilling costs are about three times those of
the United States due to the lack of infrastructure, tight
skilled labor and contractor supplies, and a lack of drilling
technology and expertise.
• Concerns over fracking are already being raised in the
context of coal seam gas, and so it is likely there would be
similar concerns with shale gas.
• Shale gas may not be able to compete with coal seam gas
because coal seam gas is located close to large east cost
population centres while the shale deposits are far away
and require transportation.
Since most of Australia’s conventional shale gas is remotely
located, its production may face less environmental
opposition than operations in the more populated areas
where coal seam gas is currently being developed.
For the Australian producers, the biggest
issue involved with shale gas is the cost
of extraction.
For the Australian producers, the biggest issue involved with
shale gas is the cost of extraction. Currently, there is not
enough incentive for companies to invest signi?cantly in shale
gas. If conditions improve, the country is well positioned
to develop export markets in countries such as Malaysia,
Taiwan, Japan, Korea and China, especially as some of these
countries seek to diversify their energy sources. Additionally,
Australia’s has proposed to introduce a carbon pricing
mechanism in 2012, which could ultimately create more
demand for shale gas.
In short, if an Australian company were to ?nd a big enough
reserve in the right place to extract it and distribute it to
market, then economies of scale could make shale gas
production viable.
China – Five-year strategic plan
In 2010, the Chinese government began to explore shale gas
production. While there are no of?cial statistics, it is estimated
that China has over 1,275 trillion cubic feet of shale gas
deposits. Shale gas could be China’s largest onshore source
of energy, and the country is looking to develop this resource
in order to decrease dependence on Russian and other
foreign natural gas sources.
China’s target is to fulfill most of its
energy needs from alternative sources
by 2020.
China’s latest ?ve-year plan places great emphasis on the
exploration of non-traditional/alternative energy sources,
such as coal seam, petroleum gas and oil sands. China’s
target is to ful?ll most of its energy needs from alternative
sources by 2020. (However see International Energy Outlook
on facing page) As part of this strategy, China will enter into
strategic partnerships with foreign companies in order to
help China acquire the skills and technologies needed to
develop and exploit its shale gas reserves.
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member ?rms of the KPMG network of independent ?rms are af?liated with KPMG International. KPMG International provides no client services. All rights reserved.
Shale gas – A global perspective | 17
Forecasts for delivered energy consumption by sources in China, Quadrillion British Thermal Units (Btu)
Year Natural gas Oil Coal Nuclear Renewable
2015 5.6 24.5 80.7 2.3 11.2
2020 7.1 27.7 85.5 4.3 15.8
2025 9.0 31.6 96.4 6.1 17.8
2030 10.6 33.3 106.5 7.8 19.7
2035 12.1 34.4 113.6 9.5 21.6
Sources: International Energy Outlook 2011, EIA
5
“China Begins to Tap Its Shale Gas, Despite Daunting Technological, Environmental Hurdles”, New York Times, October 14, 2011.
Currently, under a joint venture between PetroChina and Shell
Oil, 10-15 wells are in operation, producing about 2000 cubic
meters daily. The venture started in the last quarter of 2010
and is situated in western China. In October 2011, production
commenced in the Sichuan Basin.
China’s shale gas deposits are geographically different than
those in the United States, and so it is uncertain if U.S.
methods of retrieving the gas can be duplicated. While water
is relatively abundant in the Sichuan province, it is also needed
to support agriculture in the region, which supplies 7 percent
of China’s rice, wheat and grains.
5
China’s Ministry of Resources has invited some major oil
and gas companies to pitch for shale gas exploration work,
offering four licenses for exploration in western China. As
shale gas production is in its infancy, there is no regulatory
framework in place in China. China is pursuing joint ventures
with foreign companies to help build up know-how in shale
gas exploration and extraction, and it appears likely that the
Chinese government will continue to promote and support
shale gas development.
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member ?rms of the KPMG network of independent ?rms are af?liated with KPMG International. KPMG International provides no client services. All rights reserved.
For further information please contact:
Eric Cheung
KPMG in China
T: +861085085304
E: [email protected]
Brent Steedman
KPMG in Australia
T: +61 8 9263 7184
E: [email protected]
Chi Woo
KPMG in Australia
T: +61 2 9295 3916
E: [email protected]
18 | Shale gas – A global perspective
Burning bright? – Risks that could
dim the future of shale gas
With so many large shale gas deposits already discovered and
more being found in new locations, greatly expanded natural
gas use around the world seems likely, especially in electricity
generation. In the short term, because natural gas burns
cleaner than coal and oil, the proportion of natural gas in the
energy mix could rise in response to carbon emission targets.
Over time, however, these targets will lessen dependence
on all fossil fuels, including natural gas, unless technological
advances make carbon capture and sequestration techniques
more effective.
So how bright is the future for global shale gas production?
Despite its abundance and advantages of less clean-burning
fuels, a number of risks could impact its future viability. Below
we highlight ?ve of the biggest.
1. If and when natural gas prices will rise
is the big unknown.
Given the amount of time it may take to explore, develop and
exploit a new shale gas source, it can take many years before
these investments start to produce returns. Whether natural
gas prices move up or down during that extended period
creates huge potential for pro?ts, but also signi?cant
?nancial risks.
Despite the current slump in natural gas prices in some
markets, some traditional oil and gas companies and newer
players are continuing to invest in developing shale gas
supplies in the belief that the current oversupply will not last
and that prices will ultimately climb higher. As a result, smaller
producers run the risk of becoming acquisition targets in a
low-price market.
In the United States, natural gas prices are projected to fall to
US$4.63 per thousand cubic feet by 2015. By one estimate,
however, the spot gas price of shale gas should amount to
US$7.50–8 per thousand cubic feet to recover the full cost
extraction (Ben Dell, Bernstein Research).
6
Extraction projects
require huge amounts of capital. The limited availability of
infrastructure is expected to push costs even higher.
Further, shale gas reserves tend to decline faster than
conventional gas wells. As a result, producers may have to
resort to making pro?t in a shorter period, leading to more
price risks concentrated in the early months of production
than for conventional gas.
6
Ben Dell, Bernstein Research, quoted in “The True Cost of Shale Gas Extraction”, Financial Times, March 7, 2010.
Japan (LNG)
Average Natural Gas Prices – 2005–2010
U
S
D
o
l
l
a
r
s
p
e
r
m
i
l
l
i
o
n
B
T
U
European Union (LNG)
United Kingdom (NG)
United States (NG)
Canada (NG)
14.00
12.00
10.00
8.00
6.00
4.00
2.00
0.00
2005 2006 2007 2008 2009 2010
* Source: 1984-1990 German Federal Statistical Of?ce 1991-2010 German Federal Of?ce of Economics and Export Control (BAFA).
† Source: Heren Energy Ltd.
‡ Source: Energy Intelligence Group, Natural Gas Week.
Note: Btu = British thermal units; cif = cost+insurance+freight (average prices).
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member ?rms of the KPMG network of independent ?rms are af?liated with KPMG International. KPMG International provides no client services. All rights reserved.
Shale gas – A global perspective | 19
Private companies cannot develop a
full-scale shale gas industry on their own.
Realizing the potential for shale gas as a pro?table
alternative energy source requires signi?cant investments
in technologies, equipment and infrastructure. Private
companies cannot develop a full-scale shale gas industry on
their own. They need their local governments to support them
with a combination of direct ?nancial subsidies, investments
in transportation infrastructures, and favorable regulatory
environments. Given the current economic environment,
whether governments will be willing to commit to these
investments is uncertain.
2. Shale gas could slow investment in
renewables and attract costly regulation.
In an informal KPMG poll of oil and gas industry clients,
7
88 percent of respondents agree that climate change and
sustainability issues will continue to have a strong impact on
how corporations invest in the energy sector. However, some
critics suggest that the industry’s focus on developing shale
gas and other unconventional sources is taking attention and
resources away from the development of renewables. Low-
cost power generated with abundant natural gas supplies
could disrupt the economic viability of wind, solar and
geothermal projects. As a result, some worry that increased
shale and other unconventional gas production could delay
the shift to renewables by many years.
As you can see from the energy consumption forecasts for
individual countries throughout this publication, fossil fuels
are expected to make up a signi?cant portion of overall energy
supplies into the foreseeable future. As long as natural gas
prices remain low, there will be less incentive to invest in
greener sources. To meet their carbon reduction targets,
there is a risk that governments could compel the industry
to make these investments through regulation. Such moves
could dramatically increase costs across the entire oil and
gas industry, with particularly impact on highly cost-sensitive
shale gas development operations.
3. Due to price uncertainty, managing
costs and ?nancing risks are
top priorities.
The two risks above lead to the third: companies getting
into shale gas production now will need to survive for an
extended time period before they can turn a pro?t. At the
same time, costs for shale gas producers continue to spiral.
As they ramp up production, these companies need to
streamline their procurement costs and invest in productivity,
technological and capital improvements. Tax costs across their
supply chains also need to be managed, including complex
indirect tax and transfer pricing obligations and rising fuel and
resource extraction taxes. More costs will arise from the need
to comply with new greenhouse gas reporting and veri?cation
requirements and participation in energy trading systems in
some locations.
To maintain their ?nancial viability, these companies need to
keep a close eye on cash ?ow, carefully forecast and identify
future ?nancing needs and funding options, and assess
their liquidity risk. They will also need to conduct complex
economic modeling and forecasting to analyze risks related
to future changes in demand, pricing, costs, return on capital
and other key performance indicators.
4. The industry needs to control
reputational risk and turn public
opinion around.
Negative public opinion about the environmental safety
of the hydraulic fracturing process could undermine the
development of this industry, particularly where the process
is used in – or directly under – populated areas. In fact, the
process has already been banned in France and parts of the
United States. As noted, a UK parliamentary committee
cautiously endorsed this method of shale gas extraction
after ?nding no evidence that the process endangered water
supplies, provided the operations were conducted with
proper safety procedures.
According to the KPMG poll of oil and gas industry executives
noted above, environmental and sustainability concerns
are perceived as the biggest challenge facing shale gas
development (41 percent), with regulatory concerns voted as
the second (27 percent).
7
This informal poll of oil and gas industry executives was conducted in the course of the KPMG Global Energy Institute webcast “Shale Gas – A Game-Changer
for World Energy Markets” (November 10, 2011). To replay the webcast, visit the Institute’s website at www.kpmginstitutes.com/global-energy-institute/
events/2011-11-shale-gas.aspx.
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member ?rms of the KPMG network of independent ?rms are af?liated with KPMG International. KPMG International provides no client services. All rights reserved.
20 | Shale gas – A global perspective
Clearly, many industry members realize that more needs to be
done to change public opinion and promote public con?dence.
Producers need to show that they fully understand the
geology of shale gas formations and know how to model
the impact of hydraulic fracturing with accuracy. As the
reputational impact of the recent Gulf of Mexico oil spill
and Japan’s nuclear disaster on offshore drilling and nuclear
energy production show, any environmental or safety lapses
could tarnish the entire industry and attract more regulation.
All industry players will need to consider adopting leading
practices to mitigate environmental impact, preserve
reputation, and avoid more stringent regulation which could
preclude growth of the industry.
For example, Shell Oil has attempted to instill better industry
practices and improve public perception by releasing its set of
“Global Onshore Tight/Shale Oil and Gas Operating Principles”.
These principles comprise a framework for how Shell and
other oil and gas producers should protect the environment
and the communities in which they drill for and produce
natural gas and oil. These principles include:
1. Safe well design and operation
2. Protection of groundwater and reduction of water use
3. Emissions reduction and fugitive emissions control
4. Reduction of surface impact
5. Transparency and community engagement
By developing and demonstrating a commitment to such a
framework, shale gas producers can forestall future protests
and negative regulatory repercussions for the entire industry.
5. As shale gas transforms supply and
demand of the world’s energy mix,
geopolitical factors will continue to
create risk.
Shale gas will undoubtedly have important – and
unpredictable – strategic implications on geopolitics and the
energy industry. For example, the development of shale gas
production in Europe and potential imports from the United
States could help ease European reliance on Russian gas.
In turn, Russia will need to develop its capacity to deliver its
natural gas to new markets. Before doing so, however, Russia
could try to exert political or economic pressure to preserve
its access to existing markets. Russian politicians are already
quite vocal in European debates over shale gas production’s
environmental safety. With nearly 25% of the natural gas
?owing into Europe via Ukraine is transported by Gazprom,
Russia’s natural gas transmission company, the country could
go so far as to thwart future shale gas production in countries
like Poland by threatening to cut off current natural gas
supplies.
Elsewhere, countries like the United States and China
have traditionally depended on fuel imports from politically
sensitive regions, constraining their foreign policy options.
Abundant natural gas can help these countries gain security
of supply, which could dramatically change their relationships
with other nations. On the other hand, exporting countries
like Canada – which could soon see its biggest natural gas
customer transform into a competing supplier – will need
to make huge investments in infrastructure to create new
outlets for their excess supplies.
Finally, exploiting shale gas deposits in new less developed,
politically sensitive frontiers, such as Libya and Mongolia,
could open up a whole new set of geopolitical challenges
and risks.
Economic and population growth will
continue to put pressure on the world’s
energy supplies, and so all fuel sources
will be needed.
Production of various energy sources in the World, Figures in Quadrillion British Thermal Units (Btu)
Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Oil 135.43 133.91 131.66 136.51 143.90 145.91 145.86 143.26 145.80 137.46
Natural Gas 90.96 92.84 95.87 97.68 99.92 102.87 106.62 108.87 113.24 109.77
Coal 89.09 93.85 97.56 105.28 116.58 123.24 127.64 134.03 142.02 145.25
Nuclear 25.65 26.38 26.67 26.37 27.32 27.54 27.76 27.15 27.16 26.82
Hydro Electricity 26.72 26.51 26.46 26.75 27.86 28.94 29.75 29.56 30.73 24.25
Wind 0.31 0.38 0.51 0.63 0.81 1.00 1.25 1.62 2.07 NA
Sources: International Energy Statistics, EIA, accessed on September 28, 2011
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member ?rms of the KPMG network of independent ?rms are af?liated with KPMG International. KPMG International provides no client services. All rights reserved.
Shale gas – A global perspective | 21
Whether or not shale gas turns out to be a game-
changer, it seems certain that it will soon comprise a larger
share of the world’s energy markets. In our informal poll of
industry executives, 77 percent of respondents agreed that
the term “game-changer” applies, and 93 percent expect
that companies will shift toward more investment in shale
gas development in the future. This is clearly evident by the
recent announcement that BHP Billiton will spend about
US$4.5 billion to develop shale gas in 2012.
What’s more, by 2030, the world primary energy demand
will be 40% higher than in 2007 (according to the
International Energy Agency). Couple this with world
population expected to reach 9.2 billion people by 2050 and
it’s clear that all energy sources (traditional fossil fuels and
alternative energies) will be required to keep pace with this
demand.
In addition, as countries seek to follow through on their
commitments to move away from coal-?red gas plants and
reduce greenhouse gas emissions, shale gas may provide
an important alternative energy source.
The extent to which shale gas comprises a larger or smaller
piece of the energy-mix pie will depend on its economic
viability and environmental impact and the trade-offs
countries are willing to make to secure their energy supplies
and sustain long-term growth.
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member ?rms of the KPMG network of independent ?rms are af?liated with KPMG International. KPMG International provides no client services. All rights reserved.
22 | Shale gas – A global perspective
North
America
500
Natural gas trade
LNG exports
LNG imports
Pipeline exports
Pipeline imports
LNG exports and imports Pipeline exports and imports
450
400
350
300
250
200
150
100
50
0
500
450
400
350
300
250
200
150
100
50
0
Latin
America
Europe &
Eurasia
Africa Middle
East
Asia
Paci?c
North
America
Latin
America
Europe &
Eurasia
Africa Middle
East
Asia
Paci?c
Source: BP Statistical Review of World Energy (June 2011).
92.4
9.4
20.9
5.4
9.8
Pipeline Gas
LNG
16.0
36.5
20.1
6.2
44.1
5.5
12.1
113.9
55.9
16.6
32.0
21.0
6.5
4.1
18.8
17.3
10.9
14.9
8.8
6.5
5.2
8.2
17.7
7.0
5.8
43.3
US
Canada
Mexico
S. & Cent. America
Europe & Eurasia
Middle East
Africa
Asia Pacific
Source: BP Statistical Review of World Energy (June 2011).
Major trade movements
Trade ?ows worldwide (billion cubic metres)
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member ?rms of the KPMG network of independent ?rms are af?liated with KPMG International. KPMG International provides no client services. All rights reserved.
Shale gas – A global perspective | 23
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member ?rms of the KPMG network of independent ?rms are af?liated with KPMG International. KPMG International provides no client services. All rights reserved.
24 | Shale gas – A global perspective
Further insight
Recent KPMG Oil & Gas Thought Leadership
1. After the Gulf of Mexico Oil Spill: recent developments in the
oil and gas industry. This paper reviews some of the many impacts
of the spill, including changes to operating models, contractor
relationships, business risks and a number of new and proposed
regulations.
2. Procurement in Oil & Gas, published by KPMG’s Global Energy
Institute, focuses on procurement in the oil and gas industry and
highlights trends and tools as well as issues and challenges in both
up-stream and down-stream sectors of the industry.
3. Accounting for Carbon discusses the impact of carbon trading
on ?nancial statements. It provides insights and strategies to help
organizations understand and manage the business implications of
climate change.
4. Impact of IFRS – Oil and Gas (September 2011) This publication
provides assistance to companies in the oil and gas sector who
are considering converting to IFRS. It gives an overview of the
IFRS conversion process and looks at impact of conversion on
IT systems, people and business processes.
Recent Global Energy Institute Webcasts
1. Oil & Gas Trends and M&A Landscape
2. Transfer Pricing Issues in the Oil & Gas Supply Chain
3. Key Tax Developments and Issues Affecting the Oil and Gas
Industry
4. Shale Gas – A global perspective
For more information please visit:
www.kpmg.com/energy
www.kpmgglobalenergyinstitute.com
www.kpmgglobalenergyconference.com
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member ?rms of the KPMG network of independent ?rms are af?liated with KPMG International. KPMG International provides no client services. All rights reserved.
Shale gas – A global perspective | 25
The KPMG Global Energy Institute (GEI): launched in
2007, the GEI is a worldwide knowledge-sharing forum
on current and emerging industry issues. This vehicle
for accessing thought leadership, events, webcasts, and
podcasts about key industry topics and trends provides a
way for you to share your perspectives on the challenges
and opportunities facing the energy industry – arming
you with new tools to better navigate the changes in this
dynamic arena. www.kpmgglobalenergyinstitute.com
The KPMG Global Energy Conference: The KPMG
Global Energy Conference (GEC) is KPMG’s premier
event for ?nancial executives in the energy industry.
Presented by the KPMG Global Energy Institute, the
GEC attracts more than 600 professionals each year
and brings together energy ?nancial executives
from around the world in a series of interactive
discussions with industry luminaries. The goal of
the conference is to provide participants with
new insights, tools, and strategies to help them
manage industry-related issues and challenges.
www.kpmgglobalenergyconference.com
Save the Date – 2012 KPMG Global Energy
Conference | May 16-17
© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member ?rms of the KPMG network of independent ?rms are af?liated with KPMG International. KPMG International provides no client services. All rights reserved.
Contact us
Michiel Soeting
Global Chairman
Energy & Natural Resources
KPMG in the UK
T: +44 20 7694 3052
E: [email protected]
Wayne Chodzicki
Global Head of Oil & Gas
KPMG in Canada
T: +403 691 8004
E: [email protected]
Steve Estes
Dallas Energy & Chemical
Industry Lead
KPMG in the United States
T: 214 840 2448
E: [email protected]
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Partner in Charge of Energy &
Natural Resources
KPMG in Argentina
T: 54 11 4316 5870
E: [email protected]
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Partner, Tax
KPMG in Poland
T: +48225281177
E: [email protected]
Brent Steedman
National Head of Oil & Gas
KPMG in Australia
T: +61 8 9263 7184
E: [email protected]
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Managing Director, US Climate
Change and Sustainability
KPMG in the United States
T: +404 222 7606
E: [email protected]
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Publication name: Shale gas – A global perspective
Publication number: 111223
Publication date: December 2011
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