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Shale gas: Mirage or miracle? Euphoria over NA shale runs gauntlet of doubt; consultant — forecasts excessive Gary Park For Petroleum News
It’s a roll of the dice with few parallels in the lifetime of North America’s petroleum industry.
In British Columbia alone, companies have plunked down billions of dollars to lock up exploration rights in the Montney and Horn River plays and have already spent billions of dollars more on drilling and building infrastructure, such as pipelines and processing plants.
That same pattern is occurring on an even grander scale in the Barnett, Fayetteville, Haynesville, Woodford-Caney and Marcellus plays in the United States.
By some estimates, the continent has more than 2,000 trillion cubic feet of recoverable gas using known technologies, enough to prompt plans to export some of the gas as liquefied natural gas from British Columbia to Asia and trigger debate in the U.S. over possible exports to the higher-priced markets of Asia and Europe.
Doubters surfacing In this over-heated environment it’s probably no surprise that the doubters are starting to surface.
Top among them is Arthur Berman, a geologist who worked two decades for Amoco and is director of geoscience consultant Labyrinth Consulting Services.
Over the past month he has angered Devon Energy and Chesapeake Energy with his suggestions that the projections for shale gas are “overly optimistic.”
Things reached a crescendo when Berman had his monthly column pulled from World Oil magazine after gas companies complained about his shale gas views, leading him to quit the publication.
He has previously argued, after examining data from thousands of wells, that horizontal wells in the Barnett Shale will yield less than 1 billion cubic feet per well, in contrast to claims by Chesapeake, Devon, XTO Energy and Quicksilver Resources that output could range from 2 billion to 3.3 billion cubic feet per day.
Critics firing back Berman’s critics have fired back, saying he doesn’t have the experience in unconventional gas projects to back his claims; that he underestimates Barnett production potential by ignoring natural gas liquids production; and that he overlooks industry estimates that output from a typical shale well will decline sharply in the first two years, then taper off over an extended lifespan.
Berman welcomes the disagreement, believing it will contribute to more accurate answers.
Speaking in Denver in October to the Association for the Study of Peak Oil, he said gas prices of $7-$8 per thousand cubic feet are needed for shale gas to be profitable.
He took issue with a Colorado School of Mines estimate that shale gas reserves exceed 2,000 trillion cubic feet by insisting that only a fraction of the gas can be produced commercially.
He estimated the Barnett formation has only 10 tcf that can be produced (16 tcf below the target set by the U.S. Geological Survey) and that 70 percent will not be commercial, even at gas prices of $7-$8.
More knowledge needed Richard Moorman, the manager of strategic analysis for Southwestern Energy, a fast-growing shale producer (which says it is “ignoring” Berman), added to the chorus of shale skeptics by telling the Canadian Society for Unconventional Gas on Nov. 18 that some investors and industry professionals are wrongly informed about the realistic future impact of shale gas on North America’s production and markets.
He said there is a “long way to go” before shale’s contribution to U.S. supply will be known, given that shale has added only 5 bcf per day since mid-2006 to total North American consumption of 75 bcf per day.
TransCanada calculates it will take another decade to raise U.S. production to 15-18 bcf per day, while British Columbia shale will grow over the same period from about 200 million cubic feet per day to 2.8 bcf per day.
Moorman said “we have a long way to go before we can say what shale’s contribution to U.S. supply will be. New plays don’t turn into 1 billion cubic feet per day overnight. There’s a lot of work to be done, a lot of infrastructure (is needed) and there’s so many obstacles.”
Constraints listed He said shale has to deal with several constraints: steep decline rates which can see a well lose about 75 percent of its output in the first year; wide variations in well results; high capital costs per well; an uncertain and costly learning curve that is showing up in recent emerging plays; and environmental and regulatory challenges.
In making his case that shale gas will not immediately offset U.S. production declines, Moorman said continued drilling of vertical wells in conventional and unconventional plays in North America and higher prices (of $8-$9) are vital to sustain U.S. production.
He said shale gas will not save the U.S. from its dependence on other sources and will not be able to replace the 15-bcf-per-day decline in U.S. production.
“I believe that the United States has tremendous shale reserves, but they’re being given way too much credit,” Moorman said.
TransCanada Chief Executive Officer Hal Kvisle — whose company is spending C$1.5 billion on shale-related pipelines in northern British Columbia and Alberta — told the conference that new shale resources can offset LNG imports, but will not displace the need for pipelines from Alaska and the Mackenzie Delta.
“We are ecstatic about the development of shale gas, not because it will have an impact on the Mackenzie or even Alaska … but because we probably will only need to import 7 or 8 billion cubic feet per day of liquefied natural gas,” he said.
Because North America must bring 75 bcf per day of new gas production on stream over the next 5 years to offset the current decline rate, that “leaves plenty of room for Arctic gas,” he said.
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