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Shale oil:
the next energy
revolution
February
2013impact of
The long term
shale oil on the global energy
sector and the economy
February 2013
Part A
The long term impact of shale oil on the
Global energy sector and the economy
Part B
Implications for the Asia Pacific region
The long term impact of shale oil on the Global energy sector and the economy
1
Executive summary
2
Shale in the US
The story so far
4
Beyond the United States 6
Global shale oil scenarios 8
The bigger picture Global macroeconomic impacts of lower oil prices
12
Winners and losers by country 14
Opportunites and challenges For governments and companies
16
Implications for the Asia Pacific region
19
Introduction21
Shale Oil – the next energy revolution, comprises:
•
The long term impact of shale oil on the Global energy sector and the economy; main report
prepared by the PwC UK Economics team.
•
Implications for the Asia Pacific region; an addendum to the main report offering an Asia
Pacific perspective, prepared by PwC Australia.
USD is the currency referred to throughout this report.
Implications for key Asian economies
22
Will an Asian Unconventional Oil and Gas Industry emerge?
23
Development challenges
25
The long term impact of
shale oil on the Global
energy sector and the
economy
Shale oil - February 2013 1
Executive
Executive
summary
summary
Executive
Executive
summary
summary
Executive summary
• In turn, we•estimate
In turn,this
wecould
estimate
increase
this could
the increase the
• Shale oil (light
• Shale
tight oil
oil)(light
is rapidly
tight emerging
oil) is rapidly emerging
level
of
global
level
GDP
of
in
global
2035
by
GDP
around
in
2035
2.3%bythe
around 2.3%as
a
significant
as
and
a
significant
relatively
and
low
cost
relatively
new
low
cost
new
In turn,
In turn,
we estimate
we estimate
thisthis
could
could
increase
increase
the
• •
Shale
Shale
oil (light
oil (light
tight
tight
oil)oil)
is rapidly
is rapidly
emerging
emerging • •
3.7%
(which
equates
3.7%
(which
to
around
equates
$1.7-$2.7
to
around
$1.7-$2.7
unconventional
unconventional
resource
in
the
resource
US.
There
in
the
is
US.
There
is
level
level
of global
of global
GDPGDP
in 2035
in 2035
by around
by around
2.3%2.3%as aas
significant
a significant
andand
relatively
relatively
lowlow
costcost
newnew
trillion
at
today’s
trillion
global
at
today’s
GDP
values).
global
GDP
values).
potential
for
shale
potential
oil
production
for
shale
oil
to
production
spread
to
spread
3.7%
3.7%
(which
(which
equates
equates
to around
to around
$1.7-$2.7
$1.7-$2.7
unconventional
unconventional
resource
resource
in the
in the
US.US.
There
There
is is
globally
over
the
globally
next
couple
over
the
next
decades.
couple
If itof decades.•
If it
In
turn,
wetoday’s
estimate
this
could
increase the
•
Shale
oil
tight
oil)
isofrapidly
trillion
trillion
at today’s
at
global
global
GDPGDP
values).
values).
potential
potential
for (light
shale
for
shale
oil
production
oil
production
to spread
toemerging
spread
• However,
•global
benefits
However,
such
benefits
oil
of such
oil price
does,
ita would
does,
revolutionise
itnext
would
global
revolutionise
energy
global
level ofthe
GDPof
inthe
2035
byprice
around
2.3%as
significant
and
relatively
low
costIfnew
globally
globally
overover
the
the
next
couple
couple
of decades.
of
decades.
itIf it energy
reductions
will
reductions
vary
significantly
will
vary
by
significantly
country.
by country.
markets,
providing
markets,
greater
providing
long
term
greater
energy
long
term
energy
3.7%
(which
equates
to
around
$1.7-$2.7
unconventional
resource
in
the
US.
There
is
• •
However,
However,
the the
benefits
benefits
of such
of such
oil price
oil price
does,
does,
it would
it would
revolutionise
revolutionise
global
global
energy
energy
Large
net
oil
importers
Large
net
such
oil
importers
as
India
and
such
Japan
as
India
security
at
lower
security
cost
for
at
many
lower
countries.
cost
for
many
countries.
trillion
at
today’s
global
GDP
values).
potential
for
shale
oil
production
to
spread
reductions
reductions
willwill
varyvary
significantly
significantly
by country.
by country. and Japan
markets,
markets,
providing
providing
greater
greater
longlong
term
term
energy
energy
might
see
their
might
GDP
boosted
see
their
by
GDP
around
boosted
byJapan
around 4%-7%
globally
over
the
next
couple
of
decades.
If
it
Large
Large
net net
oil importers
oil importers
such
such
as India
as India
and4%-7%
and
Japan
security
security
at lower
at lower
costcost
for many
for many
countries.
countries.
by
2035,
while
by
the
2035,
US,
China,
while
the
the
US,
Eurozone
China,
the
Eurozone
• Ourdoes,
analysis
suggests
Ourrevolutionise
analysis
that global
suggests
shale
that
oilglobal shale oil
•
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the
benefits
of
such
oil
price
it•would
global
energy
might
might
see see
their
their
GDPGDP
boosted
boosted
by around
by around
4%-7%
4%-7%
and
the
UK
might
and
gain
the
UK
by
might
2%-5%
gain
of
GDP.
2%-5%
of
production
has
production
the
potential
has
to
the
reach
potential
up
to
to
reach
up
to
reductions
will
vary
significantly
by
country.
markets,
providing
greater
long
term
energy
by 2035,
by 2035,
while
while
the the
US,US,
China,
China,
the the
Eurozone
Eurozone GDP.
• •
OurOur
analysis
analysis
suggests
suggests
thatthat
global
global
shale
shale
oil oil
14
million
barrels
14
million
of
oil
per
barrels
day
by
of
2035;
oil
per
this
day
by
2035;
this
Large
net
oil
importers
such
as
India
and Japan
security
at
lower
cost
for
many
countries.
andand
the the
UK UK
might
might
gaingain
by 2%-5%
by 2%-5%
of GDP.
of GDP.
production
production
hashas
the the
potential
potential
to reach
to reach
up to
up to
•
Conversely,
•
major
Conversely,
oil
exporters
major
such
oil
exporters
as
Russia
such as Russia
amounts
to
12%
amounts
of
the
world’s
to
12%
total
of
the
oil
world’s
supply.
total
oil
supply.
might
see
their
GDP
boosted
by
around
4%-7%
14 million
14 million
barrels
barrels
of oil
of per
oil per
dayday
by 2035;
by 2035;
thisthis
and
the
Middle
and
East
the
could
Middle
see
East
a
significant
could
see
a
significant
by
2035,
while
US,
China,
the
Eurozone
•
Our
analysis
suggests
that
global
shale
oil
Conversely,
Conversely,
major
major
oil exporters
oil exporters
such
such
as Russia
as Russia
amounts
amounts
to 12%
to 12%
of the
of the
world’s
world’s
total
total
oil supply.
oil supply. • •
worsening
of
their
worsening
trade
balances
of
their
trade
by
around
balances
• We production
estimate
• that
We
estimate
thatcould
this
increase
reduce
could reduce
oil
and
the
UK
might
gain
by
2%-5%
of
GDP.
hasthis
theincrease
potential
to reach
up oil
to
andand
the the
Middle
Middle
EastEast
could
could
see see
a significant
a significant by around
4%-10%
of
GDP
4%-10%
in
the
long
of
GDP
run
in
if
the
they
fail
run
to if they fail to
prices
in
2035
prices
by
around
in
2035
25%-40%
by
around
($83-$100/
25%-40%
($83-$100/
14
million
barrels
of
oil
per
day
by
2035;
this
worsening
worsening
of their
of their
trade
trade
balances
balances
by long
around
by
around
• •
We We
estimate
estimate
thatthat
thisthis
increase
increase
could
could
reduce
reduce
oil oil
develop
their
own
develop
shale
their
oil
resources.
own
shale
oil
resources.
barrel
in
real
terms)
barrel
relative
in
real
terms)
to
the
relative
current
to
the
current
•
Conversely,
major
oil
exporters
such
as
Russia
amounts
to
12%
of
the
world’s
total
oil
supply.
4%-10%
of GDP
of GDP
in the
in the
longlong
runrun
if they
if they
fail fail
to
to
prices
prices
in 2035
in 2035
by around
by around
25%-40%
25%-40%
($83-$100/
($83-$100/ 4%-10%
baseline
EIA
projection
baseline
EIA
of
$133/barrel
projection
of
in
$133/barrel
2035,
in
2035,
and
the
Middle
East
could
see
a
significant
develop
develop
their
their
ownown
shale
shale
oil resources.
oil resources.
barrel
barrel
in real
in real
terms)
terms)
relative
relative
to the
to the
current
current
which
assumes
which
low
levels
assumes
of$133/barrel
shale
low
oil
levels
production.
of
shale
oil production.
worsening of their trade balances by around
•
We
estimate
that
thisofincrease
could
reduce
baseline
baseline
EIAEIA
projection
projection
of
$133/barrel
in
2035,
in 2035,
4%-10% of GDP in the long run if they fail to
prices
in
2035
by
around
25%-40%
($83-$100/
which
which
assumes
assumes
lowlow
levels
levels
of shale
of shale
oil production.
oil production.
develop their own shale oil resources.
barrel in real terms) relative to the current
baseline EIA projection of $133/barrel in 2035,
which assumes low levels of shale oil production.
2
Shale oil – February
2 Shale
2013
oil – February 2013
2
2
Shale
oil –oil
February
–- February
20132013
2
Shale
2013
Executive summary
• The potential emergence of shale oil presents
major strategic opportunities and challenges
for the oil and gas industry and for
• The
potentialworldwide.
emergenceItofcould
shalealso
oil presents
governments
influence
major
strategic
opportunities
and
challenges
the dynamics of geopolitics as it increases
for
the oil
and gas industry
and countries
for
energy
independence
for many
governments
worldwide.
It
could
also influence
and reduces the influence of OPEC.
the dynamics of geopolitics as it increases
independence
for manyimplications
countries
• energy
There are
significant strategic
and
reduces
the
influence
of
OPEC.
along the value chain. Oil producers, for
example, will have carefully to assess their
• There
significant
currentare
portfolios
andstrategic
plannedimplications
projects
along
the
value
chain.
Oil
producers, for
against lower oil price scenarios.
example, will have carefully to assess their
and planned
projects will
• current
Nationalportfolios
and international
oil producers
against
lower
oil
price
scenarios.
also need to review their business models and
skills in light of the very different demands
• National
and shale
international
oil producers
will
of producing
oil onshore
rather than
also
need
to
review
their
business
models
developing complex “frontier” projects on and
skills
lightoperations
of the veryand
different
demands
whichinmost
new investment
of
producing
shale
oil
onshore
rather
than
is currently focused.
developing complex “frontier” projects on
which most operations and new investment
is currently focused.
2
• Shale oil (light tight oil) is rapidly emerging
a significant
and relatively
cost new
• as
Lower
than expected
oil priceslow
could
unconventional
resource
in
the
US.
There is
also create long-term benefits for a wide
potential
for
shale
oil
production
to
spread
range of businesses with products that
over
the
next
couple
of
decades.
• globally
Lower
than
expected
oil
prices
could
use oil or oil-related products as inputs If it
does,
it would
revolutionise
global
energy
also
long-term
benefits
for aairlines,
wide
(e.g. create
petrochemicals
and
plastics,
markets,
providing
greater
long
term
energy
range
of
businesses
with
products
that
road hauliers, automotive manufacturers
security
at
lower
cost
for
many
countries.
use
oil
or
oil-related
products
as
inputs
and heavy industry more generally).
(e.g. petrochemicals and plastics, airlines,
•
Our
analysis
that manufacturers
global
shale oil of
hauliers,suggests
automotive
• road
The potential
environmental
consequences
production
has
the
potential
to
reach
to
and
heavy
industry
more
generally).
an increase in shale oil production areup
complex
14
million
barrels
of
oil
per
day
by
2035;
this
and appropriate regulation will be needed
to
to
12%
of
the
world’s
total
oil
supply.
• amounts
The
potential
environmental
consequences
of
meet local and national environmental concerns.
an
increase
in
shale
oil
production
are
complex
Shale oil could have adverse environmental
• We
estimate
thatregulation
this
increase
could
reducetooil
and
appropriate
will
be needed
effects
by making
alternative
lower
carbon
prices
in
2035
by
around
25%-40%
($83-$100/
meet
local
and
national
environmental
concerns.
transport fuels less attractive, but might
also
barrel
in
real
terms)
relative
to
the
current
Shale
oil
could
have
adverse
environmental
displace production from higher cost and more
baseline
projection
of $133/barrel
2035,
effects
byEIA
making
alternative
lower
carbon
environmentally
sensitive
areas
such
asinthe
which
assumes
low
levels
of
shale
oil
production.
transport
fuels
less
attractive,
but
might
also
Arctic and Canadian tar sands.
displace production from higher cost and more
environmentally sensitive areas such as the
Arctic and Canadian tar sands.
• In turn, we estimate this could increase the
level of global GDP in 2035 by around 2.3%3.7% (which equates to around $1.7-$2.7
trillion at today’s global GDP values).
• However, the benefits of such oil price
reductions will vary significantly by country.
Large net oil importers such as India and Japan
might see their GDP boosted by around 4%-7%
by 2035, while the US, China, the Eurozone
and the UK might gain by 2%-5% of GDP.
• Conversely, major oil exporters such as Russia
and the Middle East could see a significant
worsening of their trade balances by around
4%-10% of GDP in the long run if they fail to
develop their own shale oil resources.
Shale oil – February 2013
oil – February
ShaleShale
oil - February
201320133 3
Shale in the US
The story so far
• Shale oil production has been accelerating in US,
growing from 111,000 barrels per day in 2004 to
553,000 barrels per day in 2011 (equivalent to a
growth rate of around 26% per year). As a result,
US oil imports are forecast this year to fall to
their lowest levels for over 25 years.
• Estimates by the US Energy Information
Administration (EIA) suggest that shale oil
production in the US will rise more slowly in
the future to around 1.2 million barrels per day
by 20351 (equivalent to 12% of projected US
production at that date). However, these
projections seem conservative relative to other
market analysts who forecast US shale oil
production of up to 3-4 million barrels per
day by that date.2
• EIA estimates of the scale of total shale oil
resources in the US have been revised upwards
from 4 billion barrels in 2007 to 33 billion barrels
in 2010, providing a significant contribution to
increased US energy independence (as shown
in Chart 1).3
Chart 1. EIA US technically recoverable shale oil assessments by basin made between 2005 and 2010
35
30
25
20
15
10
5
0
Anadarko
Permian
Source: EIA Annual Energy Outlook 2012
4 Shale oil –- February 2013
4
2013
Western Gulf
Rocky Mountain
San Joaquin
Williston
• Rapid production growth in shale oil is having
dramatic local effects on pricing in areas where
shale oil is produced but access to export
infrastructure is limited. The US domestic oil
price has already decoupled from global indices
and imports are forecast to decline (as shown
Chart 2 below). Put simply, increased shale
oil production could lead to oil prices that
are significantly lower than projected in
current forecasts.
600
30
25
500
20
400
15
300
10
5
mbblspd
• In the long term, we estimate that shale oil
could displace around 35-40% of waterborne
crude oil imports to the US. This would create
additional effective supply to other locations
such as China. However, should China start to
exploit its own shale oil resources(as discussed
further below) this would further decrease its
import dependency and increase effective
supply to oil importing countries.
Chart 2. WTI and Brent Oil Price Spread (2004-12)
$
• Shale oil could make the largest single contribution
to total US oil production growth by 2020, with
the proportion of production from conventional
sources remaining relatively stable.
200
0
100
-5
-10
2004
0
2005
2006
2007
WTI Brent Spread (Left scale)
2008
2009
2010
2011
Shale Oil Production (Right scale)
Source: EIA AEO 2009,2010,2011,2012, Baker Hughes
1. EIA Annual Energy Outlook 2012
2. See recent projections from Citi Energy 2020, IEA World Energy Outlook 2012, Credit Suisse US Oil Production Outlook (September 2012),IHS Cera, and BP Statistical Review 2012.
3. EIA Annual Energy Outlook 2012
oil – February
ShaleShale
oil - February
201320135 5
Beyond the United States
• Outside the US, the development of shale
oil is still at an early stage. However, there
are indications that point to large amounts
of technically recoverable resources
distributed globally.
• Global shale oil resources are estimated at
between 330 billion and 1,465 billion barrels4.
Investment is already underway to characterise,
quantify and develop shale oil resources
outside the US, for example, in Argentina,
Russia and China5.
• Since the beginning of 2012, there have been
a number of announcements, from Argentina
to New Zealand, of discoveries of shale oil
resources as well as government initiatives
to encourage the exploration and production
of shale oil (see Map 1).
September 2012
Two firms achieve
positive results from test
wells in Northern Alaska
October 2012
Operators apply for licences
to export shale oil from US
October 2012
Mexico plans to invest in
$242m project to assess
non-conventional energy
potential
October 2012
Exxon acquires rights to
explore two blocks in Columbia
thought to contain shale oil
September 2012
YPF signs agreement with
Chevron to explore and
develop shale oil in Vaca
Muerta, Argentina
4. “A review of uncertainties in estimates of global oil resources”, McGlade, C.E., UCL Energy Institute
5. International Gas Report, Dow Jones, SeeNews, Diamond Gas Report, Platts, Natural Gas Intelligence, EFE, APS Review, Upstream , Oil and Gas news, Oil Daily, Financial Times
6 Shale oil –- February 2013
6
2013
Map 1. Shale oil investment is global
October 2012
Russia plans zero extraction tax
for a greater range of shale oil
reserves
April 2012
China’s CNPC engages in talks
with international firms to
jointly explore shale oil reserves
October 2012
JAPEX recovers small amount of
crude oil in shale oil testing
July 2012
September 2012
Statoil enters race to develop
Australian shale oil plays
New Zealand government
encourages shale oil exploration
January 2013
Australian energy company
announces discovery of 233 bn
bbls of shale oil resources
Source: PwC research
oil – February
ShaleShale
oil - February
201320137 7
Global shale oil scenarios
The potential impact of rising
shale oil production on global
oil prices
• We have developed scenarios that consider the
potential impact of future growth in shale oil
production on oil prices. We have then assessed
how oil price changes of this magnitude could
impact the wider economy up to 2035 at both
global and national levels using a
macroeconomic model.
• These long-term projections are subject to
many uncertainties and are conditioned on a
number of key assumptions as summarised in
Box 1. The specific figures quoted for different
scenarios should therefore be interpreted as
being indicative of broad orders of magnitude
rather than being precise numerical forecasts.
• The remainder of this paper summarises
the key results of this research and outlines
the potential implications for companies
and governments.
8 Shale oil –- February 2013
8
2013
Box 1: Scenario assumptions and considerations
The scenarios presented in this
report rest on a number of key
assumptions:
• The successful development of shale
oil resources is dependent on the
presence of globally distributed, large
scale, good quality resources, with
overall technical and economic
recoverability that is broadly in line
with the produced shale oil resource
in the US. Significant exploration and
appraisal will need to be undertaken
in future years to prove resource
quantity and quality.
• The second key consideration is the
timing of large scale development of
shale oil resources. Development of
shale gas outside the US has arguably
been disappointing to date and the
same issues (including regulatory
obstacles, infrastructure, logistics and
skills challenges) may also influence
the pace at which shale oil opportunities
are pursued outside the US. We assume
that shale oil production outside the US
is phased in several stages, starting
with small scale production from
2015, building up to one million
barrels per day by 2018 and
continuing to grow thereafter.
• The third key requirement for shale
oil to be exploited effectively is a
supportive regulatory framework.
This also needs, however, to take
account of local environmental
concerns and to be consistent with
national government objectives on
decarbonisation and energy security.
Different countries are likely to strike
a different balance here and this is
reflected, for example, in our
assumption that shale oil production
develops more slowly in the EU than
in the US and some other territories.
Recent forecasts from the EIA and the
International Energy Agency (IEA) suggest a
marked rise in both global oil production and real
oil prices over the period to 2035, due in particular
to rising demand from China, India and other
fast-growing emerging economies6. The IEA
forecasts a 19% increase in global oil production
by 2035, as compared to a 28% increase forecast
by the EIA7 (which is not that large a difference
given the uncertainties involved in any such
long-term projections).
The EIA and IEA’s average global oil price predictions
are even more closely aligned, with the IEA
predicting a sharp short-term increase that gradually
flattens off in the longer term to $127 per barrel by
2035 and the EIA predicting a steadier price increase
to reach $133 per barrel by 2035 (both estimates are
expressed in real terms adjusted for general US price
inflation, which is also the case for all other oil price
projections quoted in this report).
In deriving these oil price projections, both
agencies assume relatively modest growth in
shale oil as a proportion of total global production.
Their projections in this respect are arguably
conservative as they are based only on resources
about which there is already a high degree of
certainty. Past experience of shale oil and shale
gas suggests that these resource estimates are
likely to be revised upwards significantly over time
as activity to new plays in the US and globally.
Chart 3. Global liquids production by resource
120
100
80
60
40
20
0
2010
2015
2020
Conventional oil (incl NGLs)
2025
CTLs/GTLs
2030
2035
Extra heavy oil
2040
Shale oil
Source: EIA IEO 2011, PwC Analysis (main scenario)
Extrapolating from the available data (and
drawing parallels with US shale gas experience)
has enabled us to generate a number of scenarios
which see shale oil production ramping up both in
the US and around the globe. As shown in Chart 3,
this analysis suggests that global shale oil
production has the potential to rise to up to 14
million barrels of oil per day by 2035 in our main
scenario, amounting to 12% of total oil supply at
that date (using EIA projections for production
other than shale oil).
6. These global energy and oil demand projections are also broadly consistent with those derived from our own ‘World in 2050’ long-term economic growth model, as described further in this recent PwC publication:
http://www.pwc.com/gx/en/world-2050/the-brics-and-beyond-prospects-challenges-and-opportunities.jhtml
7. Sources: EIA International Energy Outlook (IEO) 2011, EIA American Energy Outlook (AEO) 2012 and IEA World Energy Outlook (WEO) 2012.
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• The second scenario (the ‘PwC low case’) does
not include an OPEC response, so the increased
overall oil supply results in a greater impact on
oil prices, which fall by 2035 to around $83 per
barrel in real terms.
50
100%
45
90%
40
80%
35
70%
30
60%
25
50%
20
40%
15
30%
10
20%
5
10%
0
2012
2015
2020
2025
2030
0%
EIA reference case (Left Scale)
OPEC % EIA (Right scale)
PwC reference case (Left scale)
OPEC % PwC reference case (Right scale)
Source: EIA IEO 2011, OPEC Website, OPEC Annual Report 2009, 2004, PwC Analysis
8. In the full analysis we developed a much larger range of alternative oil price scenarios, but for clarity of exposition we focus on two representative scenarios in this report.
10 Shale oil –- February 2013
10
2013
2035
OPEC % of global production
• The first scenario (the ‘PwC reference case’)
allows for OPEC to respond to increases in
shale oil production and consequent lower
oil prices by limiting its own production to
maintain an average price of around $100
dollars per barrel (in real terms). This supply
scenario results in OPEC losing some market
share, although OPEC member states continue
to increase total production in absolute terms
to meet rising demand (as shown in Chart 4).
Chart 4. Forecast of OPEC production in PwC reference case vs. EIA reference case
OPEC oil production (mmb/d)
We have developed two core oil price scenarios8
based on this shale oil production outlook:
Chart 5. Forecast oil price incorporating impact of shale oil production vs. EIA reference case
140
120
$2010 / bbl
100
80
60
In both these scenarios, our model suggests a
global real oil price that is significantly lower
than the EIA reference case projections of around
$133 per barrel in 2035 - by around 25% in our
reference case, and by around 40% in our low case
(see Chart 5). This corresponds to a real oil price
fall of around $33-50 per barrel by 2035 compared
to the EIA baseline projection. In our scenarios,
the oil price falls by proportionately much more
than the rise in oil supply. This reflects the welldocumented empirical finding that oil demand
is relatively insensitive to price changes, based
on estimates of long-term price elasticities
in our model drawn from past academic studies9.
40
20
0
2005
2010
2015
2020
2025
2030
2035
EIA reference case oil price
PwC reference case (OPEC maintain $100/bbl)
PwC low case (no OPEC response)
Source: EIA AEO 2012, PwC analysis
9. See, for example, the survey of oil price elasticity of demand estimates in J.D. Hamilton, ‘Understanding Crude Oil Prices’, Department of Economics, University of California, San Diego, May 2008 (Table 3, p.34).
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11 11
The bigger picture
Global macroeconomic
impacts of lower oil prices
Lower global oil prices of the magnitude indicated
by our analysis suggest a major impact on the
future evolution of global economy, given the key
role that oil prices still play. These effects are not
as great now as in the 1970s when oil price hikes
had severe negative impacts on major oilimporting economies, helping to push the UK and
many other countries into prolonged periods of
‘stagflation’, but are nevertheless very significant.
We have used the National Institute Global
Econometric Model (NiGEM) to help us understand
the likely scale of these impacts10. We have
explored the consequences of a lower oil price
across the global economy and for selected major
national economies covered by the model (in
particular the US, Japan, Germany, the UK and
the BRICs – Brazil, Russia, India and China).
Oil prices play three key roles within the
NiGEM model:
1. Energy combines with labour and capital
to produce economic output (as measured
by GDP).
2. Import and export prices are modelled as a
weighted average of commodity and noncommodity prices. A decrease in the price of oil
will improve the terms of trade for a net oil
importer, and conversely see them deteriorate
for a net oil exporter.
3. Oil prices are directly and indirectly linked
to consumer prices. Lower oil prices will
generally boost consumer spending power,
especially in net oil importing economies.
10. NiGEM is a global econometric model developed by the National Institute of Economic and Social Research (NIESR), one of the UK’s longest established and most respected economic research institutes. Central banks, finance
ministries and leading companies around the world use the NiGEM model. It enables them to understand the likely impacts of major economic shocks and how a range of macro-economic variables may react and adjust over time.
However, it should be noted that the analysis in this report and the interpretation of the results is the sole responsibility of PwC, which has a licence to use NiGEM, rather than of NIESR.
12 Shale oil –- February 2013
12
2013
We have used NiGEM to model the impact of the
two different scenarios considered above – namely
a decrease of either $33 or $50 in real global oil
prices, phased in over two decades (the maximum
time horizon of the model11). The model indicates
that the level of global GDP could be between 2.3%
and 3.7% higher at the end of the projection period
(see Chart 6). At today’s GDP values, this is
equivalent to an increase in the size of the global
economy of around $1.7-2.7 trillion per annum.
This could imply a rise by 2035 in average global
GDP per person of between $230 and $370 per
annum (at today’s prices) relative to the EIA
baseline case with minimal shale oil production.
Chart 6. Global economic benefits from a lower oil price (% of world GDP)
4
3
2
1
0
2012
2016
$50 real oil price fall
2020
2024
2028
2032
$33 real oil price fall
Source: PwC analysis using NiGEM
11. Strictly speaking the NiGEM model projections therefore end in 2032, but in the text we generally refer to these effects as relating to 2035 for consistency with our global oil price modelling and that of the EIA in their baseline
projection. Looking so far ahead, the difference between potential effects in 2032 and 2035 is, in any event, not likely to be at all material compared to the uncertainties surrounding any such projections.
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13 13
Winners and losers by country
Chart 7. Change in national GDP in oil price scenarios (relative to baseline)
8%
Difference with base case in final year
(% difference)
Clear ‘winners’ emerge when considering the
impact at a national level. India and Japan,
for example, could under these scenarios see
an increase in GDP of between 4% and 7% by
the end of the projection period (see Chart 7).
Other net oil importers such as the US, China,
Germany and the UK could also see GDP gains
of the order of 2-5% of GDP in the long term due
to lower global oil prices relative to a baseline
with minimal shale oil.
6%
4%
2%
0%
-2%
-4%
India
Japan
Germany
$33 real oil price fall
Source: PwC analysis using NiGEM
14 Shale oil –- February 2013
14
2013
US
Eurozone
$50 real oil price fall
UK
China
Brazil
Russia
World
4%
Difference with base case in final year
(% difference)
A lower oil price acts as a boost to consumers’ real
disposable income similar to an indirect tax cut,
with a consequent positive effect on real household
spending levels. In Japan, for example, the model
results suggest a fall of $50 in the real oil price
could increase private consumption per head at the
end of the projection period by the equivalent of
more than $3,000 per year (when compared to the
EIA baseline with minimal shale oil production).
Gains in the US and the Eurozone would also be
significant, although net gains to UK consumers
would be lower in part because there are also
losses on existing North Sea oil and gas revenues
if global energy prices fall (see Chart 9).
Chart 8. Change in current account balance as % of GDP in alternative oil price scenarios
2%
0%
-2%
-4%
-6%
-8%
-10%
-12%
Japan
US
Eurozone
$33 real oil price fall
China
Brazil
UK
India
Germany
Middle
East
Russia
$50 real oil price fall
Source: PwC analysis using NiGEM
Chart 9. Change in real household consumption in alternative oil scenarios
12%
Difference with base case in final year
(% difference)
At the other end of the spectrum, the model shows
that some major net oil producers could see their
current account balances deteriorate significantly
as a result of lower oil prices (see Chart 8 for
Russia and the Middle East). However, the NiGEM
model takes no account of which particular
countries will be producers of shale oil. And Russia
could limit its projected losses were it to exploit its
estimated resources, the largest in the world.
10%
8%
6%
4%
2%
0%
Japan
$33 real oil price fall
US
Eurozone
UK
$50 real oil price fall
Source: PwC Analysis using NiGEM
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Opportunities and challenges
For governments and companies
The possibility of increases in
shale oil production and the
potential macroeconomic
impact raises challenging
questions for all stakeholders
in the energy industry:
16 Shale oil –- February 2013
16
2013
• Governments in current net oil importing
countries with potential shale oil resource
will need to understand the likely economic
payback from creating policies to encourage
exploitation of shale oil (both on its own and
relative to other unconventional resources).
– With a lower oil price, the financial investment
case for renewables becomes relatively less
attractive; governments will have important
choices to make as to how to realise the
benefits from shale oil production in a way
that balances potentially conflicting objectives
of energy affordability and decarbonisation.
For example, if oil prices are lower than
expected due to shale oil, governments
could keep fossil fuel taxes higher than
would otherwise be acceptable and recycle
the proceeds from this into, for example,
funding for R&D for low carbon technologies.
– Shale oil could displace other new oil supply
sources that could be argued to have higher
associated environmental costs, such as the
Arctic and Canadian tar sands. The potential
environmental impact of shale oil is complex
and there will be challenging regulatory,
fiscal and other policy decisions for
governments to make in this area over
the coming years and decades.
• Governments in OPEC nations and other
major net oil exporters need to assess the
likely impact of shale oil on global oil prices
and their own revenues, budgets and economies.
They need to consider how best to respond in
terms of potentially limiting growth in oil
production to counteract the potential price
effects of increased production outside OPEC.
Another priority may be the mitigation of the
long-term impacts on governments’ revenues
more generally of oil prices below current
projections. Where feasible, they also need
to consider pursuing their own shale oil
exploration and production options.
• Oil companies have to assess their current
portfolios and planned projects against lower
oil price scenarios. They need to understand
the likely impacts of lower oil prices on the
investment case for high cost projects.
In addition, they need to review their business
models and skills in the light of shale oil’s
industrialised production process which makes
very different demands of operators than
today’s remote and challenging locations.
• Businesses that support national and
international oil companies with services
and equipment need to consider the
implications for their strategy and operating
model as their clients shift focus from offshore
to onshore operations with very different
implications for the services and capabilities
required. Already many IOCs are staring to
invest in shale oil exploration and production
outside the US, including sites in China,
Argentina, Australia and Russia.
Conclusions
• Major downstream operations, such as
refineries and petrochemical plants, which rely
on oil and oil products, need to consider new
sources of supply and the potential for lower
feedstock prices, both of which may influence
the performance of existing assets and
investment decisions in new ones.
The potential availability and
accessibility of significant reserves of
shale oil around the globe - and the
potential effect of increased shale oil
production in limiting growth in global
oil prices - has implications that stretch
far beyond the oil industry.
• More generally, companies across the
economy which rely on oil and related
products (e.g. plastics, airlines, road haulage,
automotive manufacturers and heavy industry
more generally) could see significant favourable
shifts in their cost structures over the next
couple of decades. These will need to be
factored into longer term business planning
and investment appraisal decisions.
At a global level, shale oil has the
potential to reshape the global economy,
increasing energy security, independence
and affordability in the long term.
However, these benefits need to be
squared with broader environmental
objectives at both the local and global
level. Consequent changes in policy
and regulatory regimes will have
important knock-on effects on oil
producers and consumers.
The effects of a lower oil price resonate
along the entire energy value chain, and
investment choices based on long-term
predictions of a steady increase in real
oil prices may need to be reassessed.
The potential magnitude of the impact
of shale oil makes it a profound force for
change in energy markets and the wider
global economy. It is therefore critical for
companies and policy-makers to consider
the strategic implications of these
changes now.
We would be happy to arrange individual
meetings to discuss the results of our
research in more detail and to help
you consider what it might mean for
your organisation.
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17 17
Contacts
Adam Lyons
Director – PwC
Michael Hurley
Partner – PwC
John Hawksworth
Chief UK economist – PwC
William Zimmern
Senior manager– PwC
Tel: +44 (0)20 7804 3175
Mob: +44 (0)7850 907625
Email: Adam [email protected]
Tel: +44 (0)20 780 44465
Mob: +44 (0)7710 319445
Email: [email protected]
Tel: +44 (0)20 7213 1650
Email: [email protected]
Tel: +44 (0)20 7212 2750
Mob: +44 (0)7730 146 351
Email: [email protected]
Adam has 20 years’ experience in the
oil and gas sector strategy, having
worked with global companies in the
Upstream and Midstream and
Downstream parts of the value chain,
as well as oilfield services.
Michael Hurley is a Partner at PwC
with over 20 years’ experience within
the energy sector. He is the global
leader of the Energy Utilities and
Infrastructure strategy team and
has directed a large number of
assignments globally for major
energy companies and governments.
John Hawksworth specialises in global
macroeconomics and public policy
issues. He is Chief Economist in PwC’s
UK firm, editor of our Economic
Outlook reports and lead author of our
‘World in 2050’ on long-term prospects
for the world economy.
William is a Senior Manager in
PwC’s Economics Consulting practice
in London. He specialises in
macroeconomic modelling and
economic strategy for clients in
the public and private sectors.
Adam leads engagements focusing
on strategy development and
implementation, competitor and
market assessment, technology
strategy, mergers and acquisitions,
due diligence and corporate
integration and separation.
Adam has worked on projects in
Western Europe, Eastern Europe and
the former Soviet Union, Africa and
North America. This has provided
wide industry exposure to the various
perspectives and challenges of major
international oil and gas companies,
independents, infrastructure
developers and oil and gas services
companies, as well as investors.
18 Shale oil –- February 2013
18
2013
Michael is a regular speaker at
industry forums globally, including
recently at CERA-week, at the World
Petroleum Congress in Doha and for
the World Energy Council. Prior to
joining PwC Michael was a UK
government advisor, responsible for
regulatory and commercial advice
covering upstream oil and gas
activities in the North Sea.
He is also the author of many other
reports and articles on macroeconomic
and public policy topics and a regular
media commentator on these issues.
He has carried out economic
consultancy assignments for a wide
range of public and private sector
organisations both in the UK and
overseas over the past 20 years.
He has worked with a range of
multinational and public sector clients
on economics, investment, valuation
and strategic issues. He works cross
sector and his clients have been some
of the biggest companies in European
retail and investment banking, global
transportation and global mining.
In the public sector he has worked for
Beijing Government and Saudi Arabia
Investment Authority among others.
Before PwC, William worked as a
senior UK government economist.
Implications for the
Asia Pacific region
Implications for the Asia Pac region
Shale oil - February 2013 19
Key takeaways
1. By 2035 shale oil is expected to trigger a 24-40 per
cent fall in oil prices from US$133 in real terms,
pushing annual GDP globally 2.3- 3.7 per cent higher,
adding $US1.7-$2.7 trillion or US$230-$USS370 per
capita to the world economy.
2. Cheaper oil prices and the associated impact on oilindexed energy imports are tipped to fuel the growth
and competitiveness of the Asian economies.
3. Despite significant unconventional gas reserves in Asia,
there are some major impediments to the economic
development of these assets in the short term.
4. North America will convert into an LNG exporter,
which is likely to displace some prospective LNG
projects elsewhere in the world at the higher end of
the cost curve.
5. Lower prices from increased new supplies will trigger
increased pricing pressure for future LNG contracts.
20 Shale oil - February 2013
Introduction
The burgeoning unconventional oil and gas industry promises to deliver significant new energy
sources for Asia, whether sourced from local resources or imports. Its potential is being driven by new
technologies and innovative ways of tapping previously inaccessible hydrocarbons from shale and other
source rock. It is profoundly and fundamentally changing the global oil & gas market.
The implications for the Asia Pacific’s energy supply and demand mix are only now beginning to be
understood. The development of major shale plays – both oil and gas – in North America over the past
decade is the single most influential factor affecting global energy balances and security of supply in that
region and across the globe.
We expect Asia to benefit greatly should global shale oil production reach 14 million BOD by 2035. This
production growth is forecast to result in a fall in oil prices to between $80 - $100/barrel in real terms
relative to the EIA baseline projection of $133/barrel in 2035.
Shale oil and gas developments will drive cheaper-than-expected energy, fuelling global growth and
increasing competitiveness. The positive net benefit could see global GDP growth increase between 2.3%
- 3.7% above expectations. Asia should emerge a significant winner under a number of different scenarios.
Implications for the Asia Pac region
Shale oil - February 2013 21
Implications for key Asian economies
North Asia (Japan & Korea)
Japan and Korea’s lack of natural resources and their
energy import dependence means GDP growth is
inherently linked to oil price movements. Under the
scenarios outlined in the main body of the report,
Japan and Korea are likely to be “clear winners”,
potentially seeing an increase in GDP of 4% to 7%.
The greatest single factor affecting Japan’s future
demand for energy is the uncertainty related to the
nuclear industry, Japan’s LNG imports soared 11.2%
(to 87.31 mtpa) in 2012, driven by an increased
need for fuel to generate electricity after the nuclear
sector was hit by the Fukushima crisis in 2011.
Nuclear powered generation provided 30% of the
country’s total electricity production (29% in 2009)
and this had been expected to increase to around
41% by 2017, and 50% by 2030.This scenario is now
a remote possibility and it is expected that combined
cycle gas turbine technology will fill a sizable
portion of that gap, driving continued growth in
LNG imports.
China
China is estimated to have 1,275 trillion cubic feet
(tcf) of technically recoverable shale gas, the highest
reserves of any nation.1 But when looked at on a per
capita basis it is relatively resource poor. However,
the economic growth aspiration in China’s current
five year plan dictates that energy consumption will
grow as net income and GDP rise, placing energy
security top of the government’s agenda.
The Chinese Government plans to double the share
of natural gas in the primary energy consumption
and consume 9,200 billion cubic feet (bcf) by
2015, twice the level of gas consumption in 2011.
This ambitious target relies on sourcing sufficient
supplies from both domestic production and
external sources such as LNG from Australia, and
pipelined natural gas imports from Russia and
Turkmenistan.
On the supply side, India has about 63tcf of
technically recoverable shale resources; however
the remoteness of the shale basins and lack of oil
field services capability indicate significant difficulty
in bringing these resources to development. The
inaugural round of bidding for shale-gas licences
began in India in December 2011, with foreign
companies participating.
India
Australia
India’s shale supply and demand potential is unclear
relative to other parts of Asia. The IEA estimates
India will add between 600 GW to 1200 GW of
additional new power generation capacity before
20502 , equivalent to the installed power generation
capacity of the European Union (EU-27). India will
emerge as another net winner should this demand
be fed by cheaper supply sources.
Australia is well placed to benefit from the growing
demand for energy from Asia, its geography, existing
strong trade links within the region and its status
as one of Asia’s most stable economies all play in its
favour. Crucially, Australia is home to significant
deposits of conventional and coal seam gas, as well
as possessing an estimated 396tcf of shale gas.
Overall, it is the 6th largest holder of natural gas
globally and we estimate more than $136 billion will
be invested in the sector between 2011 and 2015.
The scale of that growth is a confronting issue for
India. With a population approaching 1.2 billion,
1. EIA April 2011 –“World Shale Gas Resources: An Initial Assessment of 14 Regions outside the United States”, PwC analysis.
2. Uwe Remme et al. (February 2011). "Technology development prospects for the Indian power sector". IEA
22 Shale oil - February 2013
India is struggling to provide the necessary services
and infrastructure to support economic growth and
improve living standards for the vast majority of
its population who live in poverty. India’s ability to
build out its energy infrastructure could be the key
variable to driving its growth agenda.
Will an Asian Unconventional
Oil and Gas Industry emerge?
Under any scenario, Asia’s growth profile to 2035
shows an insatiable appetite for energy and other
resources. This appetite must be fed, particularly
demand for oil and natural gas if the region’s
economic potential is to be realised. Asian natural
gas demand will increase threefold by 2035, with
the Chinese and Indian economies accounting for
almost 40% of worldwide demand growth3.
North American shale assets are prime acquisition
targets for Asian companies. In 2012 China’s
CNOOC acquired Nexen in a deal valued at more
than $15 billion. India’s Reliance Industries has
invested in three US shale joint ventures since April
2010 and GAIL, India’s largest gas transmission and
marketing company, has entered into a 20-year off
take agreement with Cheniere Energy for 3.5 mtpa
of LNG, and Malaysia’s Petronas has approval for a
$5.5 billion acquisition of Canada’s Progress Energy.
Asia also has substantial oil and gas reserves.
Estimates of technically recoverable shale gas
resources in the identified shale basins (Australia,
China, Indonesia and India) indicate between
1,800 and 2,000tcf of gas resources exist.
Implications for the Asia Pac region
Recoverable Natural Gas Reserves (tcf)
0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
Russia
United States
China
Iran
Saudi Arabia
Australia
Qatar
Conventional
Tight
Shale
Coal Bed Methane
Argentina
Mexico
Canada
Venezuela
Indonesia
Norway
Nigeria
Algeria
Source: IEA Estimates 2011, PwC Analysis
Shale oil - February 2013 23
Unconventional Reserves
Unconventional / Total Recoverable Natural Gas Reserves (%)
0.0%
20.0%
40.0%
60.0%
80.0%
24.6%
Russia
50.3%
United States
92.3%
China
Iran
Saudi Arabia
9.8%
Interestingly, China has comparatively the highest
share of unconventional resources within its
resource base in comparison to the 15 largest
nations with significant gas reserves.
10.3%
Australia
Qatar
100.0%
These drivers suggest that an Asian shale oil & gas
industry will eventually emerge. The genie is out of
the bottle. The analysis of the total recoverable gas
reserves, from conventional and non-conventional
sources, further reinforces this conclusion.
75.6%
3.6%
Argentina
92.0%
Mexico
87.1%
Canada
78.4%
Venezuela
55.0%
Indonesia
49.3%
Norway
25.4%
Nigeria
50.0%
Algeria
49.3%
Source: IEA Estimates 2011, PwC Analysis
3. IEA Gas Scenario
24 Shale oil - February 2013
In Australia, coal bed methane in Queensland
and shale gas in the Cooper Basin have been
successfully targeted recently and shale oil
resources have been discovered in both the Cooper
Basin and in South Australia’s Arckaringa Basin.
Apart from these developments, some early
exploration in China and a recent release of shale
exploration permits by the Malaysian Government,
little unconventional gas development has occurred
in Asia. The resource and reserve boundaries
are not yet known and it is expected that a large
investment in appraisal and development activity
will be required to bring certainty to the economic
viability of the resource base.
Development challenges
Balanced against the vast potential for recoverable
shale production, the region lacks the technology,
resources and infrastructure for the resource base to
be efficiently developed and brought to market. To
unlock an Asian led shale boom, a number of factors
will need to be addressed. These include:
• Drilling technology and technical experience in
the unconventional sector are a key impediment
to unlocking previously inaccessible resources.
• There are significant logistical and capital
funding challenges posed by the requirement for
natural gas-based transport infrastructure.
• Despite the quantity of gas resources, these
are undeveloped assets that have challenging
economics; and their comparative economic
attractiveness to similar basins in North America
remains uncertain. Also, the distance from
relevant off take markets presents a unique
market setting that did not hinder developments
in North America.
Implications for the Asia Pac region
• The environmental and social issues associated
with unconventional gas development
have created significant policy hurdles. If
governments do not provide greater policy
clarity, sovereign risk increases as the
resources could become stranded through
public policy inaction.
• Further clarity in relation to Asia’s complex fiscal
regimes and taxation policies are essential to
encourage both domestic and foreign investment
in unconventional resource development.
It would be simplistic to think that North America’s
shale success can be easily replicated unless these
constraints, or potentially others not considered
here, are resolved. Whilst the resource base exists,
significant structural issues need to be overcome in
Asia; therefore, the region is expected to maintain
an import dependency for the foreseeable future.
Shale oil - February 2013 25
Natural gas not a traded commodity, so prices and pricing mechanisims vary significantly across regions.
World Gas Prices (Sept 2010)
United Kingdom
$7.02 SAP
Russia
(Exports) $7.79
Europe
H: Yemen $15.08
L: Eq. Guinea $4.49
Avg: $11.39
Korea
H: Qatar $14.23
L: Russia $4.41
Avg: $11.11
Japan
United States
H: Guinea $14.40
L: Russia $8.17
Avg: $11.39
$4.53
Henry Hub
China
H: Qatar $14.22
L: Aust $4.18
Avg: $6.55
Taiwan
H: Egypt $13.75
L: Qatar $5.70
Avg: $10.20
West Australia
$1.52 - $3.80
Dom Gas
Exports - $9.62
North America
• LNG easily diverted
to other markets
• Very minor or variation
between Contracts
Source: EnergyQuest "ESAA Domestic Gass Study Stage 2" (March 2011)
26 Shale oil - February 2013
Atlantic Basin
• Linked to Brent Oil
• NBP Market in UK
• TTF/Zee Index in Europe
Eastern Australia
$2.48 - $4.23
Dom Gas
Asia-Pac Basin
• Rigid long term (15-25yr)
contracts
• TOP/S-curve pricing
• Price review every 5 years
What are the likely supply
scenarios in Asia?
Firstly, LNG is not a globally traded commodity
and three different markets exist for natural gas.
These markets (see opposite) are disconnected
and display significantly different characteristics
and pricing dynamics.
Gas exporting nations targeting supply into the Asia
Pacific region face two significant issues.
• Market share impact due to competition from
new sources of supply (North America, Canada
and East Africa).
• Pricing pressure resulting from a decline in oil
prices and the flow on effects to oil indexed gas
contracts.
Market share
Existing LNG Operations or projects recently
sanctioned and likely to ship first gas by 2016 are
not generally considered to be at risk. They are fully
underwritten by long term off-take agreements
at pre-agreed, oil-linked prices, although contract
price reopener clauses may positively or negatively
impact future returns. Beyond the existing set of
Implications for the Asia Pac region
projects, supply displacement is far more likely
to impact greenfield projects that are yet to be
sanctioned and are not fully committed for their
off-take.
A key issue, for both importing and exporting
nations within Asia is the potential impact of
new sources of LNG supply coming from the US,
Canadian and East African export projects beyond
2016. Should American shale gas production
increase and gas prices remain low in the US, it
is likely that North America will become a net
exporter of natural gas.
The conversion of existing regasification facilities
into LNG liquefaction plants will enable North
American producers to mitigate gas price volatility
and introduce competitive tension through
accessing higher priced Asian gas markets.
Currently, nine North American LNG export
projects are at various stages of the federal approval
process, with a combined export potential in excess
of 112mtpa. Chenaire Energy’s Sabine Pass project
took less than six months to contract its 16mtpa
capacity, highlighting that US LNG exports are
rapidly becoming a reality.
Pricing Pressure
Oil-linked contracts remain the norm in the
Asia Pacific region. Therefore, LNG projects in
production and those under construction are
generally less at risk from a pricing standpoint,
largely due to the long-term contracts in place.
Increasingly, new US LNG projects are likely to have
a price structure linked to the US Henry Hub Gas
price benchmark. How Henry Hub compares with
global crude oil benchmark prices, and how the
latter translates to an oil-linked LNG price through
existing contracts will be interesting to observe in
the Asia Pacific region.
We expect increased competitive pressure to be felt
by incumbents now supplying the Asian LNG spot
market, as new supply sources and supply pathways
emerge. That said, the factors protecting existing
project returns will be new project capital costs
and shipping distances to reach Asia. Whatever the
result, unconventional oil & gas developments will
disrupt existing Asian LNG pricing structures. We
are already seeing it today.
While it has yet to be seen whether Japan’s increased
efforts to pursue shifting its pricing basis for its LNG
imports to other benchmarks will actually reduce
Shale oil - February 2013 27
its import costs, it is still certain that 2012 will be
recorded as a landmark year for the country, which
began to publicly pursue an alternative to the longheld oil index basis for LNG purchases.
Kansai Electric recently reached a “key terms
agreement” to buy 0.5 million tonnes/year of
LNG from BP for 15 years beginning in 2017-18.
The foundation for the deal was a linkage to the
US Henry Hub gas price benchmark and becomes
Kansai and Japan’s first ever long-term LNG import
contract to be fully linked to gas prices5.
The key question is how much more disruption can
be expected? Should lower oil prices eventuate
($80 - $100 real) by 2035, the LNG pricing upside for
exporting nations will be considerably lower.
The viability of new LNG supply projects, specifically
high cost greenfield developments, are at risk and
may not reach a final investment decision in this
environment, unless they lock in long-term contracts
with Asian buyers. If successful, they will need to
focus on productivity and efficiency in order to
match prices emanating from the newer supply
sources and remain competitive.
In summary, unconventional oil & gas developments
provide a positive supply shock that feeds through
to lower prices and overall GDP growth. The
cumulative net benefit to customers and society
remains to be seen but industry’s ability to foster
new, game-changing innovation and technology
that heralds a future where energy is cheaper and
more plentiful is to be applauded.
5. Platts - “Japan starts to break the oil-index tie on its LNG purchases” Takeo Kumagai (Dec 2012)
28 Shale oil - February 2013
Asia Pacific
Author
Key Contacts (Australia)
Adelaide
Brian Cooke
Partner – Consulting
Brisbane
+61 (7) 3257 8630
[email protected]
Brian is a Partner with PwC’s
Australian Consulting practice
based in Brisbane, where he leads
the practice within the CSG/
LNG sector. He has extensive
experience in energy, including
advising leading Australian
and international oil and gas
companies in advance of taking
LNG projects to final investment.
Implications for the Asia Pac region
Jock O’Callaghan
Scott Bryant
National Energy, Utilities
& Mining Leader
+61 (3) 8603 6137
[email protected]
Partner – Tax & Legal
+61 (8) 8218 7450
[email protected]
Sydney
Perth
Brad McBean
Pierre Dreyer
Partner – Consulting
+61 (2) 8266 3610
[email protected]
Joint Oil & Gas Leader
Ph: +61 (8) 9238 3481
[email protected]
Matt Guthridge
Rob Gray
Lead Consulting Partner
Energy & Mining
+61 (3) 8603 3160
[email protected]
Director – Consulting
+61 (8) 9238 3871
[email protected]
Melbourne
Shale oil - February 2013 29
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