October 22, 2009

What is the Future of Shale Gas ?

A Financial Times blog article covers a debate between Shale Gas will and is boosting US and World Natural Gas supplies and production versus Shale Gas declines too quickly and is not and will not provide that much natural gas

Here is the there will be and there is a lot of Shale Gas side

1. Reality – it takes many years for a very tight (low permeability) gas reservoirs to exhibit exponential decline behavior. Thus, hyperbolic decline can and should be used to approximate/extrapolate EUR’s

2. Type Curves work.

3. High Terminal Decline Rate is wrong. Need 10-20 years of Barnett history (oldest Shale play) to be certain but current results show lower decline than the 15% of skeptics

4. They loaded the skeptics Barnett ~1bcf EUR type curve (which are called optimistic) into our Barnett Shale model. We applied their type curve to the ~3,000 wells drilled in 2008. During 2008, actual Barnett production grew by 1.2bcf.day. The skeptics “optimistic” EUR curve estimated growth of only 0.7bcf.day – which says it underpredicted actual incremental production by 0.5bcf/day or 70%.

5. In the Barnett and Fayetteville, reported well production shows higher y/y rates and higher projected EURs due to improved technology and better understanding of the reservoir (its called a learning curve).

6. Peak rate IS a good indicator of EUR

7. With less gas from shales, the marginal costs of supply will be high – some skeptics say as high as $8/mcf. We agree that if shale disappoints, gas prices will be quite high. Yet some skeptics run economic analysis of shales at $4/mcf gas prices..to prove that the Barnett is uneconomic. Circular logic here. If recovery is low and prices are therefore high..you MUST use the higher price when evaluating shale economics.

Low Shale Gas Case
Part of the low shale gas case

Another part of the low shale Gas case Basically there are big first year declines and those declines must continue for all or most wells and for following years.

New Big Shale Gas Finds Around the World and Possible Future Scenario

Poland and Pennsylvania are finding gigantic new natural gas reserves. The new technology will enable other places to unlock new shale gas. Total US natural gas reserves are now estimated at 75 years. In less than two years, the US has gone from a gas importing nation to a gas surplus nation.

Outside the United States, there has been almost no exploration for shale gas resources, and correspondingly little is known about the reserve potential in other countries. But suffice it to say that a lot of shale gas will be found and developed in the next five years, and when it is the global energy equation is going to change. Places like Poland, Germany, Sweden, France, China and India will suddenly emerge as major natural gas producers. The net effect of these new sources of supply will be the decline in importance of Russia, Canada, Iran, Qatar and Algeria as energy suppliers.

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