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How Will the Shale Gas Boom Impact North American Companies and the Economy?

RBC Capital Markets and Economist Intelligence Unit release special report

  • 73 per cent of respondents expect an increase in the price of natural gas of 10 per cent or more in the medium term
  • 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 companies

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 demand dynamics:
    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 the industry.

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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