Natgas giants still reeling from U.S. shale shock

BUENOS AIRES (Reuters) - The world's energy titans are only starting to get a grip on the surge in the unconventional production of shale gas that has postponed for years the United States' expected emergence as major natural gas importer.

The prediction that the United States would soon become a big buyer of ship-borne liquefied natural gas was a key theme of the last World Gas Conference in 2006.

This year's event was dominated by the grim realization that many companies were completely wrong-footed by the unconventional gas revolution and that spot gas prices could remain weak for years.

"The United States is now a virtual liquefied natural gas exporter because all the LNG that was supposed to be going there is now going somewhere else," said Ian Cronshaw of the International Energy Agency.

Big players in the LNG market like Repsol YPF (REP.MC), Total (TOTF.PA) and Qatargas, which oversees some of Qatar's huge LNG industry, predicted this week spot gas prices will remain mired near current low levels until well into the next decade.

Gas markets have been battered by a plunge in demand due to the world economic crisis and surging production, that has sent storage levels to record highs.

U.S. energy companies have been increasingly exploiting reservoirs of gas trapped in shale rock formations that cannot be produced using traditional techniques but which are now commercially viable due to new technologies including horizontal drilling and new rock fracturing tools.

Unconventional gas production has added nearly 5 billion cubic feet per day to U.S. supplies in recent years, equivalent to 10 percent increase in output, according to BP (BP.L) chief executive Tony Hayward.

HALF-PRICE LNG

The massive increase in production from places like the Barnett Shale has sent gas prices plunging and has forced LNG producers to scale back production or put cargoes into storage.

Spot cargoes of LNG are trading at half the rate of some long-term supply contracts, experts said, prompting customers to begin to agitate for renegotiated pricing.

Analysts cautioned that the full impact of the shale gas revolution has yet to be felt, especially as the potential outside the United States has been barely tested.

"It will probably take three or four years to get one's arms around the scale of it," said Daniel Yergin, Chairman of

IHS CERA.

A recent study by CERA concluded that unconventional gas reserves could be as much as 16 quadrillion cubic feet, or roughly double current proved reserves.

Nevertheless, energy executives warned that the current low price environment could not be sustained and predicted prices would recover from 2013 onward as the low prices lead to the postponement of new gas projects and growing demand catches up with supply.

The adoption of new global targets for curbing greenhouse gas emissions should also boost the prospects for gas as the world will not be able to make a massive shift to renewables in the short to medium term, BP's Hayward argued.

And big gas exporters noted that shale gas comes with its own problems, including massive water use and other environmental complaints, as well as the need for constant investment that could limit its impact.

"There's a lot of myths about shale production," said Gazprom (GAZP.MM) Deputy Chief Executive Alexander Medvedev.

"We should not forget what the shale gas production profile looks like. If you stop drilling, production will fall by up to 80 percent in the next year."

(Editing by Marguerita Choy)