Minimal Shale Gas Impact on GCC in Next 20 Years, Report Says

A report by Asiya Investments says the negative impact of shale gas on the GCC won’t be significant for at least another 20 years, citing the high cost of shale gas and projected growth in Asia’s oil consumption. In fact, the report even says that Asia’s oil consumption growth will outpace natural gas consumption during the same period.

The findings were presented in Asiya Investments’ report “Shale gas impact on the GCC” that was released recently. Asiya Investments is a Kuwait-based company, with offices in Dubai and Hong Kong. The company is focused on investments in domestic demand-driven sectors in Emerging Asia.

Commenting on the report, Asiya Investments’ Economist, Dana Al Fakir said: “There is much hype about shale oil and gas these days, and much of it is true, especially in the US. But on the global scene we see no major changes in the dynamics of Gulf oil in the next two decades. Consumption is projected to continue to grow driven by fossil-fuel hungry Asian economies. And the Gulf is successfully shifting their attention to cater to that demand”.

“Asia will play a more central role in the Gulf‘s exports. However prices will probably be affected, reducing oil revenues in the GCC and making Asia more competitive due to cheaper inputs.” said Asiya Investments’ Senior Economist, Francisco Quintana.

The report outlines three factors that will sustain the GCC’s leading global position as an energy exporter despite advancements made in fracking technologies.

Switching to natural gas doesn’t come cheap

There are high costs for importers to bear when they switch from conventional oil to natural gas, add to that a second factor of time required to establish a more stringent regulatory framework for shale energy to adhere to environmental concerns. Last, and most importantly, Asian demand is rising for conventional oil, which will prevent the world’s energy landscape from rapidly changing. In fact, the EIA expects China to rely massively on coal and oil to cover around 80% of its energy needs in the next two decades.

Asia has to rely on conventional energy sources for the next two decades at least

Even though China has the largest reserve of shale gas in the world (19% of the total, putting it ahead of the US, which holds 13%), and enjoys a regulatory framework that supports the development of shale gas technology, the country has technical issues that make exploitation extremely expensive like the lack of water, depth of the gas deposits, proximity to urban areas and other factors outlined in the report. Altogether, these factors are preventing the development of the industry. Even with all the efforts in place China, will barely match 40% of US shale production by 2020, and that’s according to Chinese energy authorities.

GCC oil exports weight shifted from US to Asia

OPEC projects that China’s imports of crude oil will outpace the US crude oil imports by 2014, as its rising refining capacity is propping up demand. The rest of Asia will also play an important role in keeping oil demand high.

Furthermore, even if the US is able to tap its reserves adequately, and would shift from being the world’s leading importer of oil to a net exporter by 2017, and become energy independent by 2030, the lost demand for oil from the US will be offset by Asia.