1. QNB Economics
economics@qnb.com.qa
December 1, 2013
Weekly Commentary
US Shale Gas Revolution Is No Game Changer For Qatar, According to
QNB Group
The development of US shale gas extraction to
tap previously inaccessible reserves, the socalled US shale gas revolution, is not proving to
be a game changer for Qatar, according to QNB
Group. Fracking techniques — namely the
process of forcing water, chemicals and sand at
high pressure into shale rock deposits to extract
high volumes of gas — have been refined only
over the last decade to make US shale gas
commercially viable. This has virtually
eliminated the need for the US to import
liquefied natural gas (LNG), including from
Qatar. The drop in demand from the US,
however, has been replaced by strong demand
from Asia, particularly from Japan after the
Fukushima nuclear accident in March 2011. As a
result, QNB Group expects global LNG demand
to remain strong over the next decade. Qatar is
therefore unlikely to lose its leading role in the
global energy market for years to come.
US shale gas production is estimated to have
risen almost seven fold during 2007-13, reaching
a forecast 8.7 trillion cubic feet (tcf) in 2013.
This has pushed down US gas prices at the
Henry Hub terminal from a peak of USD13.6 per
million of British thermal units (mBtu) in 2008
to USD3.8 in November 2013 (see chart). The US
Energy Information Agency (EIA) expects shale
gas to account for nearly half of total US gas
production over the next two decades,
compared with just over one third today.
According to Citigroup, this shale gas revolution
is likely to lead the US to energy independence
by 2020, when it will no longer need to import
gas or oil to meet its energy needs.
US Shale Gas Production and Prices (2007-13f)
(USD per mBtu and trillion cubic feet)
Production (tcf/year)
Prices (mbtu)
8.7
13.6
3.8
1.3
2007
2008
2009
2011
2012f
2013f
Sources: EIA, Bloomberg and QNB Group forecasts
While the US is becoming energy independent,
Asia continues to have ever-growing energy
needs. Asian LNG demand has grown rapidly in
recent years from both traditional buyers and
new ones. This trend is likely to continue in the
future.
Reflecting these changes in the global energy
market, Qatar has redirected its LNG exports
over the last three years from the US to Asia.
China has started importing LNG from Qatar in
August 2013 and is now finalizing its first
floating LNG terminal to start receiving gas for
Tianjin city this month. Japan has switched
from nuclear to gas-fueled power stations
following the Fukushima disaster, which has
more than made up for the loss of US LNG
imports. In addition, other economies in Asia are
increasing their imports of LNG gas from Qatar,
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2. Weekly Commentary
including India, Malaysia and Thailand.
Demand from Asia is likely to continue to
remain strong as its economies expand rapidly
over the medium term.
The US shale gas revolution is also unlikely to
spread to other parts of the world. While Asia
has the largest proven reserve of shale gas in
the world (19% of the world’s total), technical
issues such as the depth of gas deposits,
proximity to urban areas and the shortfall of
technological skills, make exploitation costly
and will prevent a development of the industry
similar to that of the US in the near term. As a
result, Asia will likely continue to remain
Qatar’s largest LNG importer over the medium
term. In Australia, early attempts to develop the
shale gas industry have turned out to be very
costly and have not yet produced significant
output.
QNB Economics
economics@qnb.com.qa
December 1, 2013
In Europe, shale gas is for the most part not
commercially viable or allowed for ecological
concerns. In particular, Hungary and Poland are
finding it increasingly difficult to extract shale
gas profitably. In addition, concerns about the
polluting water discharge from fracking
techniques have pushed Bulgaria and France to
ban shale gas extraction outright.
Overall, the US shale gas revolution has resulted
in a redirection of Qatar’s LNG exports to Asia.
Going forward, strong Asian demand and the
limited impact of the US shale gas revolution on
global energy markets are projected to result in
strong demand for Qatar’s LNG exports. Qatar is
therefore likely to maintain its leading role as
the largest LNG exporter in the world for years
to come.