Maybe both, studies indicate. Energy prices are volatile, given how speculators play nations like spins of the dice in a “Monopoly” game. Organizations determine whether rules do truly rule or if they need to be recreated in an ever evolving marketplace. The big question: What does this mean for the North American economy and its companies?

On the heels of record-low natural gas prices, RBC Capital Markets and the Economist Intelligence Unit published a 2/26 report focusing on the US shale gas boom and its implications for North American economies and businesses. The report examines how the surge in unconventional gas production is transforming sectors (e.g., energy and transportation).
Essentially a survey, the report indicates:

  • 73 percent of respondents expect an increase in natural gas prices (10-percent or more in the medium term); and
  • Lower costs may positively impact manufacturing (but the any positive effect on overall US economy could be insubstantial).

Still, US and Canadian companies could witness a competitive advantage.

This relates to what Marc Harris (RBC Capital Markets Co-head of Global Research) terms a “paradigm shift” in how businesses and governments perceive energy. Look at all of the crucial elements – the underlying market drivers, business models, risks, and economic impact – that stem from the shale gas boom.

Richard Talbot, co-head of Global Research, RBC Capital Markets, observes: “The coming years will be transformative.”

Those that best adapt, he indicates, will be those that can create opportunities for both investors and corporations. The companies reside in the energy, infrastructure, manufacturing, and transportation sectors.

Take-home Points
Key findings from this latest research indicates:

  • Most E&P (exploration and production) market participants believe shale gas prices have bottomed out;
  • US companies think twice before committing to the shale gas boom;
  • E&P entities adhere closely to liquid-rich plays (i.e., wet gas, shale oil); they’re skeptical about dry gas; and
  • Majority of survey respondents anticipate natural gas prices to stay the same or increase over the next two years (even as much as 10 percent in the next five years).

Not a Panacea
Survey respondents (52 percent in the US and 48 percent in Canada) expect that shale gas will improve national competitiveness. But you need to observe this very closely – for instance, compare manufacturing with transportation, and realize that different industries will be impacted in different ways.

Consider specifics: Low-cost shale gas will be especially beneficial to companies that rely on feedstock or direct energy usage to compete on a global level. In industries like petrochemicals and fertilizers, where feedstock or energy inputs can account for up to 90 per cent of total production costs, low priced shale gas will be a game changer. But now look at the transportation industry. Impact will be far more subtle. Rather than complete transformation to gas-based usage, diversification will likely take place across the industry.

Big Question Remains
And guess what that is? – the impact on the US economy.

Here’s what respondents think: More than half (54 percent) believe shale gas could lead to natural gas becoming a significant US export in the medium term. But they add that revenues generated from natural gas exports will not necessarily have a significant positive impact on the overall US economy. While job creation could be positive, energy security and environmental concerns could limit scale of natural gas exports in the United States.

Other Problems to Address
Two other issues need to be resolved before the world gets comfortable with all of this:

  • Lack of transparency (obstacle to investment) – Lack of transparency regarding chemical usage from producers is a deterrent to gas-related investments, according to 25 percent of institutional investors respondants. While the industry does engage in some reporting on the topic, some of it remains incomplete or inaccurate and presents an issue for potential and existing investors. Improved transparency, increased environmental risk management and implementation of best practices will help the industry maintain its license to operate while at the same time capturing the benefit of production currently lost to fugitive emissions.
  • Infrastructure Challenge (how to keep up with demand dynamics) – While sourcing infrastructure investment capital is unlikely to be a major bottleneck to gas industry growth, regulatory risks remain prevalent. Regional pipeline supply dynamics are rapidly changing in response to changing demand conditions. Notably, an increase in NGL demand production has created an infrastructure bottleneck in some regions, for example in northeastern region of the United States.

About the Survey
Implemented by the Economist Intelligence Unit and sponsored by RBC Capital Markets, the report draws insight from a survey of 357 North American C-suite executives across a variety of industries; in-depth interviews with key experts and leading companies involved in the shale gas boom; and desk research based on the latest data, documents and reports from within the industry.


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