Woodrow Wilson Center Talks Shale Gas With Jim Slutz

Jim Slutz, president and managing director of Global Energy Strategies LLC, talks on American shale gas production in this informative interview with Lynann Butkiewcz.

Some highlights:

• America has tons of natural gas. "[America's] natural-gas resource base, which includes proven and unproven reserves, is now estimated at 2203.0 TCF, or almost 90 years of supply."

•  Shale gas will soon be leading source of U.S. natural gas.  "EIA (Energy Information Administration) projects that from 2010 to 2035, natural gas production from shale formations will rise from 23% to 49% of the U.S. gas supply. The term “game-changer” is often used and is very appropriate for this development." 

• FTAs and U.S. regulation of natural gas exports.  The Department of Energy (DOE) authorizes natural gas exporters, using a two-tiered process.  For countries that America has free-trade agreements (FTAs), the export automatically considered in the public interest and, once all regulatory steps are taken,  DOE authorization is granted.  But for those nations with FTAs, a more complicated process follows.  In short, America's trade relations and review process has a direct impact on American natural gas exporters.  Learn more about DOE's natural gas regulation, which is governed by the Natural Gas Act of 1938.  Finally, check out Michael Levi's discussion paper, A Strategy for U.S. Natural Gas Exports, a publication of the Brookings Institute's Hamilton Center.  The paper reviews U.S. gas regulation, and puts forward a trade strategy for the U.S. to push for global market-based pricing and transparency.

• America and Canada's energy relationship--and Canadian pipeline concerns.  "The United States can be a partner to Canada as a market for additional crude oil from the oil sands. The only restriction is the need for added pipeline capacity. The United States has extra capacity in oil refineries, which are specifically designed to process heavy oil, so it makes economic sense to ship more oil to the United States. The regulatory delays by the U.S. government regarding the Keystone XL pipeline are directly responsible for Canada’s increased urgency in seeking oil-export opportunities in Asia. This has also raised concerns by Canadians about whether Canada is overly reliant on the United States as a trading partner."

• Challenges to exporting natural gas to Asia:  Asia's long-term gas lock & oil-pricing pegs. America's short-term contracts put barriers to exporting cheaper U.S. natural gas to Asia. 

"It will be a long time before a global gas market develops. While there may be movement in that direction, challenges exist to the development of a U.S.-style, Henry Hub–type market. Gas markets in Asia and the United States function quite differently. In Asia, much of the gas supply depends on LNG, which requires huge upfront investment and therefore is predicated on long-term contracts, typically twenty years. These contracts use oil prices as a basis for determining gas value. In the United States, gas is traded independently of oil price and on a much shorter-term basis. A typical contract in the United States is measured in months, not years. Long-term contracts will remain a key component of LNG project development because of the financing required to undertake the infrastructure construction. The other important component of pricing is to remember is that there is a significant cost to liquefy and transport LNG, in most cases more than the cost of the gas. Therefore, just because there is a current significant differential between U.S. and Asia prices does not automatically mean that exporting gas to Asia will be economically attractive for the long term."