NEW YORK and TORONTO—On the heels of record-low natural gas prices, RBC Capital Markets and the Economist Intelligence Unit have published a report that focuses on the US shale gas boom and examines how a surge in unconventional gas production is transforming sectors such as energy and transportation.
“We are entering a paradigm shift in the way that businesses and national governments look at energy, particularly as it relates to underlying market drivers, business models, risks and economic impact stemming from the shale gas boom,” said Marc Harris, RBC Capital Markets’ Co-Head of Global Research.
Key findings from the research include:
- Most Exploration & Production (E&P) market participants believe shale gas prices have bottomed out: The vast majority (87%) of survey respondents predict natural gas prices will stay the same or increase over the next two years. In fact, 73% of respondents anticipate a price increase of 10% or more in the next five years. Until then, E&P companies are moving away from dry gas and are focusing instead on liquid-rich plays, such as wet gas and shale oil.
- The shale gas boom is making US companies think twice: Companies in the energy, manufacturing and transportation industries are reassessing underlying market drivers, business models and risks as a result of the shale gas boom. On an economy-wide level, respondents expect that shale gas will improve country competitiveness in both the US (52%) and in Canada (48%).
- The shale gas boom is impacting industries differently – consider manufacturing and transportation: Low cost shale gas will be especially beneficial to companies that rely on feedstock or direct energy usage to compete on a global level. In industries like petrochemicals and fertilizers, where feedstock or energy inputs can account for up to 90% of total production costs, low priced shale gas will be a game changer. The impact on the transportation industry will be more subtle; rather than a complete transformation to gas-based usage, diversification will likely take place across the industry.
- Lack of transparency remains an obstacle to investment: A lack of transparency regarding chemical usage from producers is a deterrent to gas-related investments, according to 25% of institutional investors responding to the survey. While the industry does engage in some reporting on the topic, some of it remains incomplete or inaccurate and presents an issue for potential and existing investors. Improved transparency, increased environmental risk management and implementation of best practices will help the industry maintain its license to operate while at the same time capturing the benefit of production currently lost to fugitive emissions.
- Infrastructure will be challenged to keep up with demand dynamics: While sourcing infrastructure investment capital is unlikely to be a major bottleneck to the growth of the gas industry, regulatory risks remain prevalent. Regional pipeline supply dynamics are rapidly changing in response to changing demand conditions. Notably, an increase in NGL demand production has created an infrastructure bottleneck in some regions, for example in North East US.