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US Shale Gas: Less Abundance, Higher Cost

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August 06, 2011 – Comments (13)

From The Oil Drum - http://www.theoildrum.com/node/8212

 - Arthur E. Berman and Lynn F. Pittinger;

Shale gas has become an important and permanent feature of U.S. energy supply. Daily production has increased from less than 1 billion cubic feet of gas per day (bcfd) in 2003, when the first modern horizontal drilling and fracture stimulation was used, to almost 20 bcfd by mid-2011.

There are, however, two major concerns at the center of the shale gas revolution:

• Despite impressive production growth, it is not yet clear that these plays are commercial at current prices because of the high capital costs of land and drilling and completion.

• Reserves and economics depend on estimated ultimate recoveries based on hyperbolic, or increasingly flattening, decline profiles that predict decades of commercial production. With only a few years of production history in most of these plays, this model has not been shown to be correct, and may be overly optimistic.

These are not purely technical topics for debate among petroleum professionals. The marketing of the shale gas phenomenon has been so effective that important policy and strategic decisions are being made based on as yet unproven assumptions about the abundance and low cost of these plays. The “Pickens Plan” seeks to get congressional approval for natural gas subsidies that might eventually lead to conversion of large parts of our vehicle fleet to run on natural gas. This might commit the U.S. to decades of natural gas exports at fixed prices in the face of scarcity and increasing prices in the domestic market. Similarly, companies have gotten permits from the government to transform liquefied natural gas import terminals into export facilities that would commit the U.S. to decades of large, fixed export volumes. If reserves are less and cost is more than many assume, these could be disastrous decisions.

Executive Summary

Our analysis indicates that industry reserves are over-stated by at least 100 percent based on detailed review of both individual well and group decline profiles for the Barnett, Fayetteville and Haynesville shale plays. The contraction of extensive geographic play regions into relatively small core areas greatly reduces the commercially recoverable reserves of the plays that we have studied.

There is more, http://www.theoildrum.com/node/8212 

I hope the Tea Party candidates do not turn out to be a group that ran on reducing Gov't spending and then continue spending tax money subsidising the wrong choices for America.

Best wishes,

Steven

13 Comments – Post Your Own

#1) On August 06, 2011 at 6:40 AM, dbjella (< 20) wrote:

The price of oil has to be pretty high for the industry in that area to make money.  Places like ND are so far from major shipping hubs, refineries and such.  Time will tell.  I remeber as a kid visiting ND and wondering how on earth would anyone want to live there.  It is booming now.  I guess it is like the gold rush days.  It will come to an end sometime and they will go back to farming.

I do hope they take care of the land and water supply.  Fractional reserve drilling isn't without some concern, but I think the people care about their land enough and will eventually find a balance with regulation. 

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#2) On August 06, 2011 at 11:59 AM, ChrisGraley (30.06) wrote:

I agree with Steven. We don't need to subsidise anything. If shale gas is viable, the industry will support itself unlike the energy fiascos that the green party would like you to subsidise.

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#3) On August 06, 2011 at 12:50 PM, dwot (95.70) wrote:

Steven,

Because I live on top of a massive shale gas reserve and there is so much activity where I live, this topic interests me a great deal.

And teaching in the region, the opportunity to learn more about these businesses simply by taking my students on field trips to them has also been great.

Now, what I know about our region is that there is tons of gas being stored underground.  The wells have been fracked and they just haven't been hooked up to a pipeline and the companies are in no rush to do that.  Additionally, I found it very interesting how the collection of gas was described.  I think the flow from the well is about 10 times higher in the first year then say the last year it is expected to provide gas, which is generally 10-15 years down the road.  So when collection on these wells start they are extremely top heavy in their delivery of gas, which actually should mean a return of capital investment should be expected within say 2 years of drilling and hooking to the pipeline.

My other thoughts on this is how much is this like the oil industry, the shale gas that looks the easiest to extract is fracked first and how much of that is there, and how do the costs of fracking increase as the quality of the shale declines?  How quickly will the quality of the shale decline? 

This is where a lot of the work around me is happening, http://oilshalegas.com/hornrivershalebasin.html.  I am actually north of it, just over the border into the territories.  I don't think there is actually much happening at all in the territories, but people from where I live go to work in the camps all the time.

What we do have happening currently in the territories is the building of a frack sand mine, which is supposed to be operational in two years.  There is a 16km road that needs to be built and they have started work on that this summer.

I spent tons of time learning about the mining industry and how to analyse a mining stock.  I have never put the time in to learn about oil and gas stocks, so I don't really understand them, nor do I understand a report like this one.   I have the capacity to tear it apart and figure out what it is saying, but I know that is a significant undertaking that I just haven't put the time towards.  I don't know how the quality of the gas in the Liard basin compares to the Horn river basin.

I have listed many of the companies operating in my region, but I've not gone to the next step of really learning about them, but it is something I have been thinking about doing for a while now.   

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#4) On August 06, 2011 at 5:29 PM, devoish (99.09) wrote:

Actually Chris, you know we disagree on this subject.

I think the candidates the tea party helped elect to the federal gov will vote to continue to subsidise the oil and gas industrys which drain money from the vast majority of Americans.

I would prefer to see the truly renewable sources of energy subsidised, especially home solar, which saves those who have installed it money.

dwot,

I strongly recommend having your well water tested for the presence of hydrocarbons and fracking chemicals as soon as you can. People who have been drinking from the same well for decades have seen their water sicken them, and heard the gas drillers claim the chemicals were always there.

I think they have a lot in common with tobacco companys.

I have never lived though the beginning of a boom/bust natural resource extraction cycle. Tell those kids to save, though I am curious if prices, cost of living type stuff, are going up.

Best wishes,

Steven

 

 

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#5) On August 06, 2011 at 9:15 PM, ChrisGraley (30.06) wrote:

You are right Steven, subsidies, no matter what they subsidize, drain money from the vast majority of Americans.

It's your thinking that your pet projects are different and that you have the right to rob those same Americans for them that is wrong. If they are viable, they can stand on their own 2 feet.

Everyone give Steven credit for understanding that industries should not be supported by tax dollars.

Now, if we can just get him over the hump enough to understand that his pet projects need to follow the same rules, the world will be a better place.

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#6) On August 07, 2011 at 8:41 AM, devoish (99.09) wrote:

Chrisgraley,

My thinking that my pet projects are different, is because they are. Solar panels on your roof save you money. Oil from Iraq, costs you money. Especially if I voted to take oil company money to fund those subsidies, and not an income tax on earnings below $100,000. Personally, I think BP owes me for my investment in securing their interests Iraq.

It is not the subsidy that is bad, it is the decision of what you choose to subsidise that can be bad. It is not the gun that is bad either, it is the decision of what you choose to shoot that can be bad.

I'll continue to vote for the people who make the correct choices, and certainly not the for the people who wish to surrender choice.

Best wishes,

Steven

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#7) On August 07, 2011 at 12:25 PM, ChrisGraley (30.06) wrote:

Solar panels on your roof save you money.

Not yet they don't.

Why don't you promote geothermal more? That actually does save you money.

It is not the subsidy that is bad, 

Yes it's that the subsidy is bad. It's you thinking that you know how to spend my money better than I do and you thinking that your ideals are better than mine. It's creating a crutch for an industry to be dependent upon rather than allowing an industry to grow on it's own. 

Should we focus on energy independence and sustainability? Yes, but subsidies are absolutely the worst way of going about that. 

I'll continue to vote for the people who make the correct choices, and certainly not the for the people who wish to surrender choice. 

Subsidies force people to surrender choice. It's the same surrender of choice no matter what the industry is.

 

 

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#8) On August 08, 2011 at 8:20 AM, devoish (99.09) wrote:

It's you thinking that you know how to spend my money better than I do and you thinking that your ideals are better than mine - ChrisGraley

Yes, my ideals are better than yours. Yours are not better than mine.

Right now Government has turned from taxing the employer and helping the employee, to the reverse of helping the employer at the expense of the employee.

You have accused the world around you of corruption and favoritism, run by goverment. If you have achieved wealth, than you and I are both the product of that corrupt wealth redistribution even if it is inadvertent.

Best wishes,

Steven

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#9) On August 08, 2011 at 3:18 PM, ChrisGraley (30.06) wrote:

If they really were Steven, you wouldn't need my money to support your ideals.

The difference between you and I is that my ideals don't require theft.

 

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#10) On August 08, 2011 at 3:21 PM, ChrisGraley (30.06) wrote:

If they really were Steven, you wouldn't need my money to support your ideals.

The difference between you and I is that my ideals don't require theft.

 

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#11) On August 08, 2011 at 3:49 PM, devoish (99.09) wrote:

Chris,

To very few does money prove anything. Fools and thieves maybe. Pursuit of money instead of progress causes many inefficiencys.

Best wishes,

Steven

 

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#12) On August 08, 2011 at 7:46 PM, ChrisGraley (30.06) wrote:

Then why do you want it so much?

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#13) On August 09, 2011 at 6:44 PM, devoish (99.09) wrote:

I don't want to prove anything with money.

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