US Maintains Shale Advantage

The U.S. is not only far ahead of the rest of the world when it comes to the exploration and production of shale oil and gas, but KPMG's national sector leader for energy and natural resources said it will remain the best place in the world for investment for a significant time to come, too.

In a conversation with SNL Energy on KPMG's new report on global shale development, John Kunasek said the U.S. is in the midst of a long-term upward trend for both shale oil and gas. The primary motivator for the time being, he said, is the opportunity to profit on holdings in liquids-heavy plays.

"With the price differential that currently exists between oil and liquids and dry natural gas, the majority of the investment right now is going into oil shale plays," Kunasek explained. "The Eagle Ford and the Bakken are two good examples of that. There's not much interest in dry gas plays for the short term."

While much of the development and a large portion of current M&A activity is targeted at liquids-rich plays such as the Bakken and Eagle Ford shales, the emerging Cline Shale in Texas, and the Permian Basin, Kunasek said, interest in drier gas plays remains from companies that can afford to look several years into the future.

"The big integrated companies, the big majors, they're in it for the long run," he said. "The very large independents and majors, they see things in the long term. … It's a sustained interest. There's plenty of interest in the long run."

KPMG said in its report that it believes the U.S. could be exporting between 6.5 Bcf and 8.5 Bcf of LNG by the end of this decade, which would play a significant role in boosting the prospects of dry gas plays.

"Globally, natural gas has a very strong marketplace," Kunasek said. "If you get LNG terminals built and start exporting, you begin tapping in to higher-priced global markets."

When looking at other potential shale oil and gas producers around the world, KPMG mentioned China, Argentina, Australia, Indonesia and the United Kingdom as countries that could eventually take advantage of the shale revolution. Even for better-prepared nations such as China and Argentina, however, that day is a long way off, as the U.S. has benefited from a number of unique advantages.

"One thing that's very different in the North American marketplace than the rest of the world is the ability to deploy capital quickly," Kunasek said. "You can literally drive up to a rancher's house and ask him if he'd like to sell his mineral rights, and that happens routinely. You don't have that anywhere else in the world."

Along with the ability to deploy capital at a greater speed than anywhere else, Kunasek said, the U.S. benefits from having a "mature" infrastructure system — something other nations lack. One advantage that could evaporate faster than many expect, however, could be the technological edge the U.S. currently enjoys in the shale revolution.

"I do think that gap can be closed very quickly," Kunasek said. "If [Exxon Mobil Corp.] starts doing business in a country that has a good, fair kind of economic governance system that allows them to get a return on their investment, they'll deploy the technology."