10-04-2014, 10:44 AM
Published April 10, 2014
Shale revolution - huge implications for Asia
In particular, Indonesia must unlock the potential of its substantial reserves
By
karen agustiawan
print |email this article
BT 20140410 KASHALE 1028118
Overcoming the obstacles: Indonesia is on the right track in the development of its shale reserves, but it has a long way to go to build the necessary LNG infrastructure and pipeline capacity required to transport gas from the sources. - PHOTO: AFP
THE successful development of shale oil and gas is a game changer that will shake the global energy landscape while creating new political and economic realities.
The United States leads this revolution as it developed the technology needed ahead of others. But Asia is also in the game. Substantial reserves of shale gas exist in China (1,337 trillion cubic feet, or tcf, of technically recoverable shale gas or almost 20 per cent of the global total), India and Indonesia (some 574tcf of shale gas reserves).
Clearly, this shale revolution will have important implications for Asia and Indonesia as well.
The implications of this revolutionary increase in energy availability are only just beginning to reverberate through the world economy:
First, the development of shale gas will greatly expand the world's energy supply, allowing prices to fall. Accounting firm PricewaterhouseCoopers (PwC) forecasts that shale oil production could reach 14 million barrels per day by 2035, or almost 12 per cent of the world's oil supply.
However, these forecasts are based on only a fraction of the estimated 688 shale formations in 142 basins worldwide that have been explored, which means that the actual increase in supply could be much larger. Proven reserves have surged twofold in the past decade.
Consequently, prices are already falling as natural gas originally meant for the American market gets redirected into international markets, keeping a lid on energy prices. This cost reduction will trickle down into other areas. IHS Global Insight estimates that low energy prices resulting from unconventional gas supplies could reduce electricity costs in the US by about 10 per cent.
The direct effects of shale development are also substantial: even as early as 2010, it supported one million jobs and contributed US$52.6 billion of capital expenditure in the US, adding 500,000 more jobs plus a further US$83 billion of capital expenditure by 2015. Furthermore, as oil prices fall, a wide range of products that use oil as inputs (petrochemicals, plastics, airlines and cars, for instance) will benefit. Increased energy efficiency could stimulate industrial production in 2017 by an additional 2.9 per cent and productivity in 2035 by 4.7 per cent. Given the sheer scale of the US, renewed vigour in its economy will spill over significantly into the global economy.
Second, this shale revolution will have uneven effects across the world, altering the structure of competitiveness, with significant implications for trade balances. The US will probably become a net exporter of liquefied natural gas (LNG) by 2016, thereby saving up to US$200 billion in annual imports. In contrast, China by 2030 is likely to become the world's single largest energy importer, relying on imports for almost 80 per cent of its oil and more than 40 per cent of its gas. With oil prices likely to fall, PwC predicts that giant oil exporters such as Russia and the Middle Eastern sheikhdoms could see their trade balances weaken by an extraordinary 4-10 per cent of GDP.
Third, the shale revolution has geopolitical consequences, with the US as the big winner - displacing Saudi Arabia and Russia as the world's largest oil producer in coming years, curtailing their pricing power in world energy markets. With alternative gas sources, Europe will have more bargaining power, relieving itself from Russia's traditional stranglehold. America's expanded energy capacity will also erode the geopolitical clout of Saudi Arabia.
The Middle East may well become a much less important focus of American diplomatic and military strategy as a result, allowing it to shift military assets even more substantially to the Asia-Pacific, so as to better manage the challenge of a rising China.
Shale gas might help overcome the world's environmental problems. It releases up to 50 per cent less carbon dioxide as compared with other fossil fuels. Hence, the replacement of coal energy by cleaner shale gas will help to reduce carbon emissions globally.
Implications for Indonesia
Indonesia cannot sit still while this revolution unfolds. It must unlock the potential of its substantial shale reserves so as to fulfil its growing energy appetite and achieve greater energy diversification. The benefits are large - the capital investment needed to unlock these substantial shale reserves such as gas-related infrastructure will boost economic growth. Furthermore, the environmentally friendly nature of shale gas will relieve Indonesia's pollution woes and lower its carbon emissions levels.
However, Indonesia has its work cut out to remove the significant hurdles that impede the development of Indonesia's shale gas. The country
needs to train the necessary personnel. It also needs to innovate to overcome technical challenges of its shale gas reserves being much deeper underground than in the US, making extraction more expensive.
Moreover, Indonesia has a long way to go to build the necessary LNG infrastructure and pipeline capacity required to transport gas from the sources. It will have to find ways to fund the substantial cost of developing LNG infrastructure, with at least US$30 billion of investments required in the next few years.
Fortunately, Indonesia is on the right track. In May 2013, Pertamina was awarded Indonesia's first shale gas project of the Sumbagut block in North Sumatra. Canada's Talisman Energy is one of the specialist companies whose technical expertise and capability can assist Pertamina with the exploration, appraisal and development process. Pertamina has also committed to spend US$7.8 billion for exploration of the block, aiming to produce around 40-100 million standard cubic feet per day from the project by 2020.
Thus, while its development is still in the early stages, Indonesia is moving in the right direction so that the successful exploitation of shale gas technology can help reduce Indonesia's dependence on costly LNG imports and provide security for its future energy needs. Gas will undoubtedly be taking a more prominent share of Indonesia's future energy mix, and there is every reason to be optimistic about the potential of Indonesia's shale gas industry.
The writer is president and CEO of Indonesian state oil and gas company Pertamina
Shale revolution - huge implications for Asia
In particular, Indonesia must unlock the potential of its substantial reserves
By
karen agustiawan
print |email this article
BT 20140410 KASHALE 1028118
Overcoming the obstacles: Indonesia is on the right track in the development of its shale reserves, but it has a long way to go to build the necessary LNG infrastructure and pipeline capacity required to transport gas from the sources. - PHOTO: AFP
THE successful development of shale oil and gas is a game changer that will shake the global energy landscape while creating new political and economic realities.
The United States leads this revolution as it developed the technology needed ahead of others. But Asia is also in the game. Substantial reserves of shale gas exist in China (1,337 trillion cubic feet, or tcf, of technically recoverable shale gas or almost 20 per cent of the global total), India and Indonesia (some 574tcf of shale gas reserves).
Clearly, this shale revolution will have important implications for Asia and Indonesia as well.
The implications of this revolutionary increase in energy availability are only just beginning to reverberate through the world economy:
First, the development of shale gas will greatly expand the world's energy supply, allowing prices to fall. Accounting firm PricewaterhouseCoopers (PwC) forecasts that shale oil production could reach 14 million barrels per day by 2035, or almost 12 per cent of the world's oil supply.
However, these forecasts are based on only a fraction of the estimated 688 shale formations in 142 basins worldwide that have been explored, which means that the actual increase in supply could be much larger. Proven reserves have surged twofold in the past decade.
Consequently, prices are already falling as natural gas originally meant for the American market gets redirected into international markets, keeping a lid on energy prices. This cost reduction will trickle down into other areas. IHS Global Insight estimates that low energy prices resulting from unconventional gas supplies could reduce electricity costs in the US by about 10 per cent.
The direct effects of shale development are also substantial: even as early as 2010, it supported one million jobs and contributed US$52.6 billion of capital expenditure in the US, adding 500,000 more jobs plus a further US$83 billion of capital expenditure by 2015. Furthermore, as oil prices fall, a wide range of products that use oil as inputs (petrochemicals, plastics, airlines and cars, for instance) will benefit. Increased energy efficiency could stimulate industrial production in 2017 by an additional 2.9 per cent and productivity in 2035 by 4.7 per cent. Given the sheer scale of the US, renewed vigour in its economy will spill over significantly into the global economy.
Second, this shale revolution will have uneven effects across the world, altering the structure of competitiveness, with significant implications for trade balances. The US will probably become a net exporter of liquefied natural gas (LNG) by 2016, thereby saving up to US$200 billion in annual imports. In contrast, China by 2030 is likely to become the world's single largest energy importer, relying on imports for almost 80 per cent of its oil and more than 40 per cent of its gas. With oil prices likely to fall, PwC predicts that giant oil exporters such as Russia and the Middle Eastern sheikhdoms could see their trade balances weaken by an extraordinary 4-10 per cent of GDP.
Third, the shale revolution has geopolitical consequences, with the US as the big winner - displacing Saudi Arabia and Russia as the world's largest oil producer in coming years, curtailing their pricing power in world energy markets. With alternative gas sources, Europe will have more bargaining power, relieving itself from Russia's traditional stranglehold. America's expanded energy capacity will also erode the geopolitical clout of Saudi Arabia.
The Middle East may well become a much less important focus of American diplomatic and military strategy as a result, allowing it to shift military assets even more substantially to the Asia-Pacific, so as to better manage the challenge of a rising China.
Shale gas might help overcome the world's environmental problems. It releases up to 50 per cent less carbon dioxide as compared with other fossil fuels. Hence, the replacement of coal energy by cleaner shale gas will help to reduce carbon emissions globally.
Implications for Indonesia
Indonesia cannot sit still while this revolution unfolds. It must unlock the potential of its substantial shale reserves so as to fulfil its growing energy appetite and achieve greater energy diversification. The benefits are large - the capital investment needed to unlock these substantial shale reserves such as gas-related infrastructure will boost economic growth. Furthermore, the environmentally friendly nature of shale gas will relieve Indonesia's pollution woes and lower its carbon emissions levels.
However, Indonesia has its work cut out to remove the significant hurdles that impede the development of Indonesia's shale gas. The country
needs to train the necessary personnel. It also needs to innovate to overcome technical challenges of its shale gas reserves being much deeper underground than in the US, making extraction more expensive.
Moreover, Indonesia has a long way to go to build the necessary LNG infrastructure and pipeline capacity required to transport gas from the sources. It will have to find ways to fund the substantial cost of developing LNG infrastructure, with at least US$30 billion of investments required in the next few years.
Fortunately, Indonesia is on the right track. In May 2013, Pertamina was awarded Indonesia's first shale gas project of the Sumbagut block in North Sumatra. Canada's Talisman Energy is one of the specialist companies whose technical expertise and capability can assist Pertamina with the exploration, appraisal and development process. Pertamina has also committed to spend US$7.8 billion for exploration of the block, aiming to produce around 40-100 million standard cubic feet per day from the project by 2020.
Thus, while its development is still in the early stages, Indonesia is moving in the right direction so that the successful exploitation of shale gas technology can help reduce Indonesia's dependence on costly LNG imports and provide security for its future energy needs. Gas will undoubtedly be taking a more prominent share of Indonesia's future energy mix, and there is every reason to be optimistic about the potential of Indonesia's shale gas industry.
The writer is president and CEO of Indonesian state oil and gas company Pertamina