The discovery of shale oil and gas in North Africa represents a major challenge for the global oil and gas industry, which shale has taken into a new hydrocarbon era that will no doubt leave its mark on prices, competition, and even geostrategic conflicts, depending on the interests of producing or consuming countries. It is expected that shortly before the end of this decade, shale gas will start being exported in the form of liquefied gas (LNG) from new ports in the United States and Canada, in parallel with the closure of coal-fired power plants in both countries, and increased reliance on shale gas as feedstock for U.S. petrochemical plants. These transformations in the oil and gas industry are nearly at hand, and must not be overlooked. However, the non-conventional oil industry will face several challenges, just like any new industry trying to tap into the markets for the first time, and compete with similar goods and commodities. The first challenge for the shale gas industry involves its ability to maintain the competitiveness of its price against conventional gas over time. The second challenge involves its ability to meet growing demand resulting from its discovery. But will non-conventional gas be able to provide necessary supplies at competitive prices for a long time? As is known, there are many global sources that supply LNG to the international markets, led by Qatar. Furthermore, Russian gas has played a key role since the 1980s in supplying massive quantities of gas though a large network of pipelines to Europe. Billions of dollars have been invested in this very costly industry. There is also Australia's growing role, with the establishment of a huge LNG industry there, despite the high cost of labor in Australia. International companies are also in the process of building a broad-based LNG industry in East Africa early in the next decade, in light of mega discoveries made in the waters of Mozambique and Tanzania. There is also a large LNG industry that has been active for years in Algeria and Indonesia. The U.S. Energy Information Administration (EIA) does not expect for shale gas production to pick up until 2016 or 2017. As a result, shale gas spot price will decrease in 2014 and 2015 to $3.12 per million BTU delivered in the Louisiana ports, compared to $3.25 in 2013. The shale oil and gas industry is an important component in the U.S. economy itself. This modern industry creates thousands of much-needed jobs each year in the United States, amid tough economic conditions in the country. This is not to mention the fact that it contributes significantly to improving the trade balance, by increasing exports and reducing energy imports. However, there exist sharp differences between the two main American parties over foreign trade policies, as evident from the debate on the subject in Washington, which has led to the postponement of many foreign trade laws. There are also doubts concerning the willingness and ability of the Obama administration to move forward with the necessary amendments to commercial laws. Although shale gas production led to higher demand for gas in the United States, the world's largest market, shale gas continues to face difficulties in replacing coal-fired power plants, for both local and political reasons, including the need to retire coal-fired power plants and upgrade gas-fired power plants so that a radical shift can take place in the type of U.S. demand for gas. Naturally, the export of shale gas is cause for concern among the countries exporting conventional natural gas. These countries have recently expressed their reservations over the radical change in global gas policies, especially the attempt to decouple oil and natural gas prices, which increases the price of conventional gas to $12-14 per million BTU compared with non-conventional gas price which is in the range of $3-4 per million BTU. The Gas Exporting Countries Forum (i.e. the Gas OPEC), in its last summit meeting in Moscow in early July, rejected the proposed new gas price equations. The Forum expressed the desire of its member states to achieve fair prices for natural gas, reflecting its importance as a source of clean energy. Russian President Vladimir Putin defended the long-term agreements entered into by his country to export a large part of its natural gas output, saying that changing these would undermine global energy security. Putin also rejected foreign pressure to end the pairing of gas and oil prices, and to modify contracts that require the buyer to pay a fine in the event of failing to load supplies as per the contracts in place. Putin stressed that decoupling gas and oil prices, or abolishing minimal contractual terms, would lead to higher costs, not only for producers who need a safe price to justify long-term investments with the banks financing gas projects, but also buyers. The Russian position was backed by several countries, such as Venezuela, Bolivia, and Algeria. Qatar, however, had a different position. Qatari Minister of Energy Mohammad Saleh Al Sada said that every member state in the Forum had its own point of view over how to develop the sector, adding that pricing policy must stem from the interests of the consumers as well, and not just producers. This debate over gas pricing and the nature of the contracts to be concluded, sets the stage for a new phase of disputes in the gas industry, which largely resembles the disputes within OPEC over oil agreements and prices in the 1960s and 1970s. The debate over gas is expected to last many long years, as the necessary investments are to the tune of hundreds of billions of dollars. Furthermore, most of these investments are long term, which means that there will be a need to borrow from banks which need additional guarantees to protect their loans. Finally, there are also differences between the interests of various states, and the possibility of some showing some flexibility and adapting to this ever-changing industry, while others may find difficulty in doing the same. * Mr. Khadduri is a consultant for MEES Oil & Gas (MeesEnergy).
