Unconventional Gas and Implications for the LNG Market

Executive Summary

This paper examines the recent development of unconventional gas sources and specifically how they will affect gas markets in China, India, and Australia.

MAIN ARGUMENT

Unconventional gas—comprised of coal bed methane (CBM), tight gas, and shale gas—will likely play a more important role in nations’ supplies by 2020. China, India, and Australia are the most likely nations in the Asia-Pacific to follow the United States’ example of changing liquefied natural gas (LNG) supplies by exploiting unconventional reserves. China, already a large producer of tight gas, will likely not see greater production in shale and CBM for several more years. India also has potential for CBM extraction due to plentiful coal reserves, but coal blocks allocated for CBM development a decade ago have not produced tangible supplies. Australia, however, has planned projects in all three categories of unconventional gas, which accounts for 45% of Australia’s announced LNG export capacity. Though technical, logistic, economic, environmental, and commercial challenges will likely prevent all planned Australian projects from being completed by 2020, the potential for greater Australian LNG exports through unconventional gas is evident.

POLICY IMPLICATIONS

• Though extraction efforts are in their nascent stage, India and China could become more self-sufficient in the natural gas market if they pursued unconventional gas sources in as aggressive a manner as Australia.
• U.S. technological advances in shale gas extraction could serve as a model for increased shale gas extraction in Asian nations.
• While Australia is a leading producer and exporter of unconventional gas and stands to greatly increase its exports over the next decade, the country is unlikely to maximize its potential unless high cost and logistical complexities for planned ventures are remedied.
• There is great potential for LNG oversupply in Asia, which could result in lower prices to stimulate greater demand, delays in the start of projects, lower utilization rates in supply projects, or the export of LNG outside traditional consumption centers.

Chris Gascoyne is Managing Director at FACTS Global Energy, Singapore. Alexis Aik is Deputy Managing Director, Singapore Head of Global Gas at FACTS Global Energy.