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Analyst Sees Shale Gas 'Learning Curve' Unfolding in California

There is no doubt that shale gas will be a factor in future natural gas supply forecasts, but how big the role that turns out to be is still uncertain as a "huge learning curve" accelerates, a lead gas analyst at the California Energy Commission (CEC) told NGI last Friday.

Ivin Rhyne, head of CEC's electricity analysis office, was asked for his reactions to a report earlier in the week that alleged industry and government forecasts on shale gas have become inflated and unrealistic (see Daily GPI, May 16). Rhyne said the San Francisco-based Post Carbon Institute's report raised reasonable questions about shale, but failed to note there are no clear answers at this point. "The learning curve is being accelerated as shale scales up in production," he said.

"What this really comes down to is that there is a great deal of uncertainty associated with what the future holds as the scale of shale gas production ramps up. What the author is pointing out is that one of those aspects of uncertainty is how effective the production is going to be going forward. It is a reasonable question to raise, but there is no certainty around the answers."

CEC analysts track gas supply developments as part of the state Integrated Energy Policy Report (IEPR), which is being updated this year, and looks at shale developments in the context of California's overall energy policymaking, Rhyne said. CEC staff used a day-long workshop April 19 to explore the latest assessment of the gas industry: supply, demand, infrastructure, pricing and policy issues (see Shale Daily, April 29).

"One of the scenarios in the IEPR has a market assessment to look at nine different natural gas futures, one of which is what if shale gas doesn't pan out," Rhyne said.

Rhyne agrees with the author of the San Francisco institute to the extent that there is "hype" in the current projections for shale gas, but he contends that it is no different than what has happened to other energy research and resource development in the past. The CEC attempts to look at the most optimistic and pessimistic outlooks and everything in between, he said.

"I don't think it is fair to say that shale is any better or worse than any other historical discoveries of reserves," Rhyne said. "There is a lot of hard work and analysis going on in the background of shale right now that is not necessarily being captured in the (Post Carbon Institute) document," he said.

"That learning curve is being accelerated as shale scales up in production. And this means the range of marginal cost values associated with shale is changing rapidly as producers learn more and get better at it," he said.

An often overlooked element in the assessments attacking the hype surrounding shale gas is the role that technology has played in bringing it to the surface as a major production factor today. Rhyne cited the example that in the mid 1990s, about 30% of gas wells drilled were successful in the United States; in the last 10 years, it is now 60-65%. "It doesn't mean all shale gas wells will be successful, but it demonstrates that there is certainly a learning curve going on.

"We think that while there is surely some hype and you will never be able to extract 100% of the gas, shale is an exceptionally active field of resource development, and we're relatively confident that it will continue to be. To what extent it will be [commercially] successful, we're not in the business of rubbing our crystal ball and saying it will or won't."

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