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Gas Shales Called Vital to Offset Import Shortfall

Emerging high-volume natural gas shale plays may create a bubble in gas supply and cause pipeline supply bottlenecks in the Midcontinent, but their addition to U.S. supplies is vital to offset constrained Canadian imports and a lag in liquefied natural gas (LNG) supplies, an energy industry veteran said last week.

Speaking at the 17th Annual Pacesetters Energy Conference in Greenwich, CT, IHS industry relations vice president Pete Stark told participants that shale has quickly overtaken other unconventionals in the gas market and now is a vital building block in U.S. energy supplies. The United States, he said, has become "increasingly reliant" on gas shale.

"More gas is coming from shale wells drilled each year," a trend that began in earnest just eight years ago. "In essence, 50% of the gas that was produced and consumed in 2007 came from U.S. wells drilled and completed in the last 40 months. Two years ago it was 48 months." Gas production had peaked "more than a decade ago," but since that time "the industry has worked harder and harder to grow that plateau. And it has."

What's remarkable is the growth in gas production since the devastating hurricanes of 2005, Stark noted. The Gulf of Mexico's gas production then had approached around 10 Bcf/d, but in the three years since, gas production only recently topped 7 Bcf/d. However, the burgeoning production from onshore unconventional gas plays more than made up for the offshore losses -- and production just continues to climb, said Stark.

"For a long time the industry was running just to stay in place, but increasingly the industry has proven it can grow U.S. gas supplies," said Stark.

Shale deposits are spread across the world; "it's not only a U.S. phenomenon but worldwide," he said. However, every shale is different. It may take "100 tests or more" to determine how to efficiently produce the gas within the deposit and then how to optimize completions. Well productivity and reserves per well "tend to decrease" as the plays expand the well density increases -- but technology and innovation could reverse that decline rate.

"Technologies and innovation continue to unlock the production from these unconventional reservoirs," he said. "In essence, we see a peak in well productivity in 1996 to a little over 1.2 MMcf/d, which declined to 600,000 MMcf/d. But an interesting point is that 2007 performance represents what at first looks to be a significant and important uptick in drilling and well quality."

A lot of gas shale still awaits development -- or perhaps even discovery. Three basins, said Stark, hold the keys to the potential of shale in North America: the Woodford Shale in the Arkoma Basin of Oklahoma, the Barnett Shale in North Texas and the Fayetteville Shale in Arkansas.

"These are the key plays," he said. "We have a number of others, but this is where every known source rock became a target..."

Even though the shales hold a potential gas bonanza, not every producer will profit.

For instance, in the granddaddy Barnett Shale, Stark noted that more than 300 gas wells there at one time or another yielded more than 10 MMcf/d. "The maximum production per day has averaged 1.3 MMcf/d, and the core Barnett has yielded a very handsome return...In the noncore Barnett, it's a very different picture."

Adding in other costs, "we see in the noncore Barnett as an average in 2007 was actually higher than the [gas] clearing price...The best wells...were profitable, but there were many operators that were below average."

Based on an analysis by Cambridge Energy Research Associates, an IHS company, the growth in U.S. gas supply will "certainly be driven by unconventional reservoirs," said Stark. "And even more solid is to look at the projected contribution for gas shales through 2017, and there is the potential for huge increases in U.S. gas production coming from these shales."

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