The so-called shale gas revolution in the US is unlikely to have much impact on the energy market in India, says Christopher Allsopp, President of the Oxford Institute for Energy Studies, an independent research centre of the University of Oxford. In an interview with Business Line , Allsopp discusses the challenges shale gas production faces in the US and the possibilities of other countries, including India, repeating the US success in the space. Edited excerpts:
With the shale gas revolution in the US and new natural gas finds in East Africa, can we expect softening of LNG prices, particularly in India?
People expect lot of LNG coming out of the US and the deepwater assets in East Africa (Mozambique and Tanzania). The expectation is high on East Africa as it is nearer India. But when you look at the cost of digging it out, it’s going to be an expensive gas. It’s not going to be a solution for India’s problems.
The US will start exporting gas to the world economy in the next couple of years (by 2016). But how much gas is going to be exported is still uncertain. By the time it reaches India, it will add a number of costs and margins. At the moment, India pays $14 per mBtu (million British thermal unit) for LNG. Imported shale gas may be slightly cheaper, but that depends on price equilibrium in America.
From $2 a unit in 2012, Henry Hub prices moved to $4.4 in December 2013. Where do you think American (shale) gas prices are moving?
That will depend on a number of factors. It’s very clear that they (shale gas producers) wouldn’t make much money at $2 a unit . And the focus moved from shale gas towards shale oil that is sold at international prices. This has affected replacement of gas wells. This is very recent. In shale, production drops quickly so producers need to add on well population. But they have gone after oil (shale) so much that gas wells are not getting replaced. They say a price of $5-7 a unit makes shale gas production profitable.
You mean gas output in America may come down if prices don’t move up?
Yes. Because, pure gas production has become less attractive. There are associated gas (coming out with oil), but parts of it are stranded due to lack of pipeline connectivity. Shale gas developed very quickly in the last decade because Henry Hub prices were high. The focus will be back on gas production, if prices are higher.
Can the shale gas revolution be repeated in the UK, India or elsewhere in the world?
Our politicians say there is shale gas in the UK if brought out it will be cheap energy source. And that’s almost certainly a non-sense. It may not happen in the first place, because of the density of population. Second, it will be more expensive than in America because of the geology. Third, there is massive uncertainty if it’s going to be environmentally sustainable.
India, it is told, has lots of potential. But then cost, population, geology, environment, are issues.
The only place where people expect it to happen quickly is China. But there are areas in China that don’t have much water (shale exploration requires lots of water).
Also China and India have cheaper energy source in coal. It’s only in America where gas has thrown out coal (coal consumption increased in US in 2013 as gas prices increased).