The current record-low natural gas prices “will be a game changer” for North American companies that rely on feedstock or direct energy usage to compete on a global level, according to analysis by RBC Capital Markets and Economist Intelligence Unit.
The shale gas boom is affecting industries differently, but it will be especially beneficial to those like petrochemicals and fertilizers, where feedstock or energy inputs can account for up to 90 percent of total production costs, the study says.
The impact on the transportation industry will be more subtle. Rather than a complete transformation to gas-based usage, diversification will likely take place across the industry.
The report, drawn from a survey of 357 North American C-suite executives across a variety of industries, examines how the surge in US shale gas production is affecting economies and businesses.
It finds the majority (87 percent) of survey respondents predict natural gas prices will stay the same or increase over the next two years. Seventy-three percent of respondents anticipate a price increase of 10 percent or more in the next five years. Until then, exploration and production companies are moving away from dry gas and are focusing instead on liquid-rich plays, such as wet gas and shale oil.
Other findings include:
- Companies in the energy, manufacturing and transportation industries are reassessing underlying market drivers, business models and risks as a result of the shale gas boom. On an economy-wide level, respondents expect that shale gas will improve country competitiveness in both the US (52 percent) and in Canada (48 percent).
- More than half (54 percent) of companies surveyed say shale gas could lead to natural gas becoming a significant US export in the medium term. However, revenues generated from natural gas exports will not necessarily have a significant positive impact on the state of the overall US economy, it says. The implications on job creation will be positive, but energy security and environmental concerns could limit the scale of natural gas exports in the US.
- A lack of transparency regarding chemical usage from producers is a deterrent to gas-related investments, according to 25 percent of institutional investors responding to the survey. Improved transparency, increased environmental risk management and implementation of best practices will help the industry.
- While sourcing infrastructure investment capital is unlikely to be a major bottleneck to the growth of the gas industry, regulatory risks remain prevalent. Regional pipeline supply dynamics are rapidly changing in response to changing demand conditions. Notably, an increase in natural gas liquids demand production has created an infrastructure bottleneck in some regions, for example in Northeast US.
Additionally, if the shale gas boom continues, the trucking industry may start switching over from diesel in earnest. John Barnes, RBC’s transport and logistics analyst, tells Fleet Owner that there are limitations to natural gas refueling: lack of natural gas distribution at truck stops, no common standard (compressed natural gas versus liquefied natural gas), and fleet owners’ unwillingness to operate fleets comprising both diesel and natural gas trucks.