The economics of shale gas in the natural gas markets.

• Main Authors: Low, Hui Xian., Tan, Wee Li.
• Other Authors: Chang Youngho
• Format: Final Year Project
• Language: English
• Published: 2013
• Subjects: DRNTU::Social sciences::Economic development::United States; DRNTU::Social sciences::Economic development::Europe; DRNTU::Social sciences::Economic development::East Asia
• Online Access: http://hdl.handle.net/10356/52103
• Institution: Nanyang Technological University

This study analyses the impact of shale gas in the natural gas market using Granger causality, two-part analysis and log-linear models for USA, Europe and Asia respectively. Broadly, the impact of shale gas on natural gas market differs by region. This is due to the difference in market structure and natural gas demand. Shale gas has the biggest impact on the United States market as the production quantity is large and is growing. The cheap and abundance of shale gas lay downwards pressure on the natural gas price and affect the natural gas market of United States. In Europe, natural gas production has been small and largely dependent on gas imports from dominant Russian producers thereby accounting for its oligopolistic market structure. The emergence of shale gas is the key catalyst for the European countries to break dependence on Russian gas imports. For Asia, the emergence of shale gas has attracted major energy firms to pump in monies to extract shale gas in order to increase natural gas supply and improve energy security. The key factors making the impact different across the natural gas market appear to be the liberalized market in USA, role of the Russian exporters in Europe, the ever-increasing natural gas demand in Asia-Pacific. By employing causality test for United States, it was found that shale gas production had contributed to the fall of Henry Hub spot price; however, the shale gas production had no causality with the wellhead and commercial consumer price of natural gas. For Europe, the two-part analysis deploys a complementarity problem in the first half to analyze the impact of shale gas on each of the players in the natural gas model, followed by an analysis of the relationship between population density and shale gas investment. It finds 3 that shale gas plays a positive role in improving the profits of most players in the market, but the overall benefits of shale gas is subject to population density, which differs across European countries. A log-linear model is adopted for Asia to include the impact of shale gas investments in natural gas consumption of three countries namely, Japan, South Korea and China. It finds that shale gas investments play a positive role on raising natural gas consumption, thereby beneficial for growth and energy security in the region.