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According to International Energy Agency, the world may have a lot more natural gas than previously thought. The rise of “unconventional gas” production has recently taken center stage, transforming not only the outlook for the gas industry, but of the world energy market and international energy politics.

The popular belief was that US natural gas production was on the decline due to depleted resources. In reality, according to the IEA, the production of unconventional gas in the US has in fact risen in recent years. A few years ago, the United States was a net importer. But in 2009, it transformed itself into the world’s biggest gas producer, and by 2015 aims to become an LNG exporter. Unconventional gas production has been increasing at the same time that conventional production has been declining.

In fact, the IEA predicts that in 2020, US unconventional gas production will almost double the conventional onshore.

What are unconventional gases? Unconventional gases are gases that were created in formations of things such as shale, coal, and sandstone. Unlike in the case of conventional gas, the gas is trapped within layers of rocks with low permeability so the gas cannot flow naturally, making it hard to exploit; thus, extracting unconventional gas requires specialized technology. Examples of unconventional gas are shale gas, coal-bed methane and tight sand gas .

At present, with the long-term natural gas price north of $7 per million British thermal units (mmbtu) compared to the historic level of $3 per mmbtu, exploitation of unconventional gas has become economically feasible with the newest kind of horizontal and fracturing technology. In fact, some unconventional gas projects might be cheaper than conventional ones.

For example, shale gas is ubiquitous. This means that gas companies can decide where to drill based on proximity to pipelines and final users, rather than speculating on a jackpot strike in a remote location.

Based on a recent preliminary survey, Indonesian shale gas reserves are quite abundant and can be found in four regions: Sumatra, Java, Kalimantan and Papua. The counterargument is that our cost of drilling per well is $8 million, which is well-above the average cost per well of $2 million to $3 million in the US due to the requirement for deeper drilling depth than is the case elsewhere. However, gas remains very attractive and economical.

The consideration for gas or coal should be calculated based on the final comprehensive cost, which takes into account the greater environmental cost of coal compared to gas. Given the higher efficiency of gas turbines and the lower carbon content of gas, burning gas can be more effective than burning coal.

According to Matt Ridley in his research “The Shale Gas Shock,” loss of US export markets and competition from Canada in supplying Asian markets will reduce the ability of Qatar, Algeria, Venezuela, and Russia to sustain export prices. Indonesia-based gas producers will soon find themselves competing for the very same customers, including Japan, South Korea and Taiwan.

Furthermore, adding to increasing competition between suppliers, the giant gas project in Australia’s Gorgon is scheduled to start exporting by 2015.

Therefore, soon state-controlled gas company Perusahaan Gas Negara will have few problems getting long-term domestic supply for an affordable price. Nevertheless, PGN has to be successful in raising its selling prices to industry clients above $8 per mmbtu so that it can afford to purchase supply at north of $5 per mmbtu, a minimum required price by domestic producers.

This revolution will also trigger the advance of Liquefied natural gas technology which makes the worldwide gas trade possible through ocean transportation.

Jeffrosenberg Tan is the head of research at Sinarmas Sekuritas