Pathways to Shale Gas Development in Asia-Pacific Revised version November 2015 APERC Asia Pacific Energy Research Centre Page left intentionally blank Pathways to Shale Gas Development in Asia-Pacific Revised version – November 2015 Asia Pacific Energy Research Centre Published by Asia Pacific Energy Research Centre (APERC) Inui Building Kachidoki 11F, 1-13-1 Kachidoki Chuo-ku, Tokyo 104-0054 Japan Tel: (813) 5144-8551 Fax: (813) 5144-8555 Email: [email protected] This research document is available at: http://aperc.ieej.or.jp Photography credits: APERC. © Asia Pacific Energy Research Centre, 2015. ISBN 978-4-931-482-46-3 Foreword Following the Asia-Pacific Economic Cooperation’s mission of promoting economic prosperity in a sustainable way, this research document proposes a policy framework to understand the major factors involved in the commercial production of shale gas, with the aim of outlining a set of general challenges and opportunities which were applied to six member economies. Many economies are expanding the utilization of natural gas over other fossil fuels in order to reconcile their growing energy needs with lower carbon emissions. This shift presents an opportunity for natural gas to become a bridge fuel as the share of renewable energy continues to grow in the primary energy balance. The Asia-Pacific region is at an energy crossroads, however, for this energy shift depends on overcoming the barriers ahead in trading and producing more gas. The development of shale gas is expected to increase the domestic supplies of some Asia-Pacific economies to help them support a sustained demand for natural gas. It is also expected to enhance their energy security by allowing them to become less reliant on external sources. While the development of shale gas is largely at an early age outside the United States, the region is very fortunate to have among its members some of the economies with the most promising potential and with the most-advanced progress in developing their shale gas resources. This task however, entails higher risks and costs than the production of conventional gas, and in order to provide a net benefit to member economies and the region alike, it will need to be carried out in a cost-effective, environmentally sustainable and socially responsible way. The exploration of these issues serves as the backbone for this research document. The contents of this document have been arranged as a series of papers which can be read in sequence to acquire a comprehensive understanding of shale gas development in the Asia-Pacific region; or separately in order to look for specific information or particular economy analyses. To accommodate users of different measurement systems, natural gas figures are displayed in metric and imperial units, and some textboxes with additional information and photographs are also included. While the research was developed from a public policy angle oriented toward leaders and decision-makers, it is expected to provide valuable insights for other disciplines and stakeholders. I would like to thank the experts who have provided their knowledge to this document. The feedback gained in workshops, mission trips, and academic and professional events where this policy framework has been presented have greatly enriched the outcomes presented. This report is the work of the Asia Pacific Energy Research Centre, and as an independent study, it does not necessarily reflect the view of or the policies of the APEC Energy Working Group or of individual member economies. The contents herein reflect only the views of the Asia Pacific Energy Research Centre, which might change in the meantime depending on drastic external events or changes in the energy and policy agendas of particular economies. Hopefully, this research document will become a cornerstone of the establishment of information exchange and international collaborative activities designed to accelerate shale gas development, leveraging APEC’s economic and cooperative strengths. Takato OJIMI President Asia Pacific Energy Research Centre iii Acknowledgements The present report, Pathways to Shale Gas Development in Asia Pacific, was made possible through the initiative and efforts of the following people. Project Leader and Author Juan Roberto Lozano-Maya Contributors to Economy Analyses Parminder Raeewal—Australia, Canada Tran Thi Lien Phuong—Indonesia Yeong Chuan Lin—China Edition EDITAGE and Juan Roberto Lozano-Maya Document Design Juan Roberto Lozano-Maya The project’s structure was largely based on a kick-off expert workshop held on 25 March 2014 in Tokyo Japan. The Asia Pacific Energy Research Centre (APERC) would like to thank the following experts for their participation in the workshop and their insightful contributions. Dr George Baker Director, Mexico Energy Intelligence. United States. Mr Wayne Calder Deputy Executive Director, Bureau of Resources and Energy Economics. Australia. Mr Mustafid Gunawan Head of Division, Directorate General of Oil and Gas, Ministry of Energy and Mineral Resources. Indonesia. Mr Kensuke Kanekiyo Advisor, APERC. Mr Thomas B. Murphy Director, Penn State University Marcellus Center for Outreach and Research. United States. Mr Francois Nguyen Director, International Energy Policy, Alberta Department of Energy. Canada. Dr Ralph Samuelson Former Vice President, APERC. Mr Sang Fengyun Vice Director for China Coalbed Methane Clearinghouse, China Coal Information Institute. China. Dr Nan Zhou Deputy Leader, China Energy Group, Lawrence Berkeley National Laboratory. United States. iv Acknowledgements To enrich the project with first-hand insights from environments with undergoing or expected shale gas production, APERC’s research team undertook a two-week mission trip in June 2014 to Alberta, Canada; Pennsylvania, United States; and Mexico City, Mexico. APERC would like to express its gratitude to the International Energy Policy Branch of the Alberta Department of Energy, the Penn State Marcellus Center of Outreach and Research, and Mexico’s Ministry of Energy for their support in arranging several meetings with a diversity of stakeholders in their respective economies. In particular, the time and insights from the people in the organizations and areas outlined below are deeply appreciated: Canada Alberta Department of Energy Mr Francois Nguyen, Mr Richard Hillier, Ms Kara Sherwin, Mr Michael Fabiyi, Mr David Wheeler, Ms Tracey Mason, Ms Yihong Wang, Mr Andy Ridge, and Mr Glen Tjostheim Alberta Energy Regulator Mr Tim Church, Mr Zeeshan Syed, Mr Bob Willard, and Mr Ray Kuntz Canadian Association of Petroleum Producers Mr Mark Pinney Canadian Society for Unconventional Resources Mr Kevin Heffernan Talisman Energy Ms Dima Lazarova and Ms Phuong Hoang Thi NCS Oilfield Services Mr Eric Schmelzl United States Penn State Marcellus Center for Outreach and Research Mr Thomas B. Murphy and Ms Carol Loveland Pennsylvania Department of Environmental Protection Ms Jennifer Means Pennsylvania College of Technology Mr David C. Pistner ShaleNET Mr John Strittmatter and Mr Daniel Mendell Eureka Resources Mr Brian Hinkal Halliburton Mr Clay Dupree Seneca Resources Mr Robert Boulware v Acknowledgements Mexico Ministry of Energy Undersecretary for Planning and Energy Transition Mr Leonardo Beltrán Rodríguez and Ms Leydi Barceló Córdova Undersecretary for Hydrocarbons Mr Ramón Olivas Gastelum General Direction for International Affairs Mr Javier Flores Durón Lizaola and Ms Giselle Pérez Zazueta National Hydrocarbons Commission Dr Néstor Martínez Romero and Mr Pablo Enríquez Rodríguez Mexico’s Petroleum Institute Dr Gustavo Murillo Muñetón and Dr Rafael Ávila Carrera Energy Regulatory Commission Ms Susana Ivana Cazorla Espinosa, Mr Francisco de la Isla Corry, and Ms Noemí Vázquez Martínez APERC appreciates the thoughtful comments, observations and suggestions from several reviewers to improve the quality of this research project. A preliminary version of the document was greatly enhanced by valuable feedback from Dr Philip Andrews-Speed, Dr Ralph Samuelson, Ms Cecilia Tam and Mr Thomas B. Murphy. Likewise, the factual consistency of the economy chapter drafts benefitted from revisions by Dr Ross Lambie (Australia); Mr Tim Church and Mr Bob Willard (Canada); Mr Francisco Javier Peralta Uribe (Chile); Mr Liu Wenge (China); and Dr Néstor Martínez Romero (Mexico). vi Contents List of figures ix List of tables xi List of textboxes xi List of abbreviations xii APEC member economies xii Organizations xiii Miscellaneous xiii Energy units and conversions xiv Executive summary 1 Introduction 5 APEC in the global natural gas landscape 5 APEC’s natural gas agenda 11 Shale gas enters the energy scene 13 Purpose and scope of the document 19 References 22 What led to the shale gas boom in the United States? 24 Natural resources 25 Technology 27 Market and economics 29 Institutions 33 Timing 35 Revolution or evolution? 37 References 38 Building a policy framework for shale gas development 40 Pathways to shale gas development 41 Policy framework pillars 43 References 57 Analysis by economy 59 Australia 63 Canada 73 Chile 86 China 95 Indonesia 108 Mexico 119 Conclusions 134 Policy implications 137 vii List of figures Figure 1 APEC’s primary production and demand of natural gas by share of largest economies, 2012 6 Figure 2 APEC primary and final demands of natural gas by use, 2012 6 Figure 3 APEC’s growth in primary demand of natural gas by economy, 2000–2012 7 Figure 4 APEC primary gas demand by origin, largest gas-producing economies,