How Will the Shale Gas Boom Impact North American
Companies and the Economy?
RBC Capital Markets and Economist Intelligence Unit release
- 73 per cent of respondents expect an increase in the
price of natural gas of 10 per cent or more in the medium
- Low cost a positive impact on manufacturing, but not
a significant positive impact on the overall U.S. economy;
competitive advantage anticipated for U.S. and Canadian
NEW YORK, TORONTO, February 26, 2013 - On the heels
of record-low natural gas prices, RBC Capital Markets and
the Economist Intelligence Unit published a report today focusing
on the U.S. 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 such as energy and transportation.
"We are entering a paradigm shift in the way that businesses
and national governments look at energy, particularly as it
relates to underlying market drivers, business models, risks
and economic impact stemming from the shale gas boom,"
said Marc Harris, RBC Capital Markets' Co-Head of Global Research.
"The coming years will be transformative for companies,
particularly those in the energy, infrastructure, manufacturing
and transportation sectors, which will, in turn, create opportunities
for both investors and corporations," added Richard Talbot,
Co-Head of Global Research, RBC Capital Markets.
Key findings from the research include:
- Most Exploration & Production (E&P) market
participants believe shale gas prices have bottomed out:
The vast majority (87 per cent) of survey respondents
predict natural gas prices will stay the same or increase
over the next two years. In fact, 73 per cent of respondents
anticipate a price increase of 10 per cent or more in the
next five years. Until then, E&P companies are moving
away from dry gas and are focusing instead on liquid-rich
plays, such as wet gas and shale oil.
- The shale gas boom is making U.S. companies think
twice: Companies in the energy, manufacturing and transportation
industries are reassessing underlying market drivers, business
models and risks as a result of the shale gas boom. On an
economy-wide level, respondents expect that shale gas will
improve country competitiveness in both the U.S. (52 per
cent) and in Canada (48 per cent).
- The shale gas boom is impacting industries differently
- consider manufacturing and transportation:
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. The impact on the transportation
industry will be more subtle; rather than a complete transformation
to gas-based usage, diversification will likely take place
across the industry.
- Impact on the U.S. economy:
According to more than half (54 per cent) of those surveyed
in the report, shale gas could lead to natural gas becoming
a significant U.S. export in the medium term. However, revenues
generated from natural gas exports will not necessarily
have a significant positive impact on the state of the overall
U.S. economy. The implications on job creation will be positive,
but energy security and environmental concerns could limit
the scale of natural gas exports in the U.S.
- Lack of transparency remains an obstacle to investment:
A lack of transparency regarding chemical usage from producers
is a deterrent to gas-related investments, according to
25 per cent of institutional investors responding to the
survey. 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 will be challenged to keep up with
While sourcing infrastructure investment capital is unlikely
to be a major bottleneck to the growth of the gas industry,
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 North East U.S.
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
About RBC Capital Markets
RBC Capital Markets is the corporate and investment banking
arm of RBC and is consistently ranked among the top global
investment banks. With over 6,300 employees, RBC Capital Markets
is active globally in fixed income, foreign exchange, infrastructure
finance, ECM, metals & mining and oil & gas. Working
with clients through operations in Asia, Australia, the UK,
Europe, and in every major North American city, RBC provides
capital markets products and services from 75 offices in 15
countries. RBC Capital Markets has major hubs in New York,
Toronto, London, Sydney, Hong Kong, and Tokyo. For more information,
please visit www.rbccm.com.
About the Economist Intelligence Unit
The Economist Intelligence Unit (EIU) is the world's leading
resource for economic and business research, forecasting and
analysis. It provides accurate and impartial intelligence
for companies, government agencies, financial institutions
and academic organisations around the globe, inspiring business
leaders to act with confidence since 1946. EIU products include
its flagship Country Reports service, providing political
and economic analysis for 195 countries, and a portfolio of
subscription-based data and forecasting services. The company
also undertakes bespoke research and analysis projects on
individual markets and business sectors.
More information is available at www.eiu.com
or follow us on www.twitter.com/theeiu.
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