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North American Gas: Think in Quadrillions

North American natural gas production is no longer opportunity-constrained, it's market-constrained, as the swift, stunning growth of unconventional plays already has overtaken conventional drilling, according to industry leaders and energy pundits, who shared their expertise and advice last week at Cambridge Energy Research Associates' CERAWeek in Houston.

The week-long gathering, now in its 28th year, set aside Wednesday to focus on gas issues, both at home and abroad. Again and again, there was one constant: North America has plenty of gas. In fact, there's so much gas potential that even the foreign energy giants, who prowl for oil and gas everywhere but the United States, are giving the country another look.

The "promise" of unconventional gas supplies is what drew StatoilHydro ASA to U.S. onshore basins, said Executive Vice President Rune Bjornson. The Norwegian company has several projects ongoing in the Gulf of Mexico and through U.S. liquefied natural gas, but last November it hopped aboard the shale train in a joint venture with Chesapeake Energy Corp. StatoilHydro agreed to pay $3.4 billion for a one-third stake in Chesapeake's leasehold in the Marcellus Shale (see NGI, Nov. 17, 2008).

"Entering the shale gas play in the U.S. was a recognition there are huge reserves outside of Russia and the Middle East," Bjornson told the CERAWeek crowd.

The growth in unconventional supplies is nothing short of remarkable, agreed Schlumberger CEO Andrew Gould. His company provides oil services around the world, and, in the United States the work is increasingly centered around unconventional supplies.

"North American production is...increasingly unconventional," Gould said. "And I would point out that the 'unconventionality' of the North American natural gas reservoirs today will be everybody's 'unconventionality' in a decade or so...We see very little reason to doubt unconventional shale gas and maybe first, overseas tight gases, will become a major part of domestic economies."

Chesapeake Energy Corp. CEO Aubrey McClendon, who has carried his joy of natural gas message to just about anybody willing to listen, thinks there's enough U.S. gas reserves to eventually "move the transportation network" (see related story). "We think we will convince Detroit and Washington, DC, to move aggressively on this front, either directly through compressed natural gas vehicles or indirectly through plug-in hybrids."

And why not? Chesapeake contends that three U.S. unconventional gas plays in which it holds stakes have total estimated reserves approaching 650 Tcf. The Barnett Shale, McClendon said, holds "up to 75 Tcf," the Fayetteville Shale holds "at least" 75 Tcf, and the Marcellus play has "up to 500 Tcf." The Haynesville Shale is another story. It may hold "up to 1.5 quadrillion cubic feet" of gas. "We think, over time, the Haynesville will become the largest gas field in the world."

CERA's Jonathan Parry, who directs the firm's North American natural gas unit, said it's not even necessary for producers to increase their drilling activity to maintain production.

"After many years of developing unconventional gas with its long-lived production, in the aggregate, the average decline rate falls," Parry said. Between now and 2018, he said, dry gas productive capacity in the Lower 48 states is expected to rise to 60.6 Bcf/d from 53.5 Bcf/d. In Canada, CERA estimates output will rise to 19.6 Bcf/d from 15.8 Bcf/d.

Natural gas is a story that's finally getting good reviews from policymakers, too.

"I'm heartened by a rising awareness of the value of natural gas in Washington," said Skip Horvath, who runs the Natural Gas Supply Association. The remarkable growth in gas supplies, mostly on the backs of the new unconventional plays, is now "becoming familiar to lawmakers" looking for relatively clean power sources, he said.

The change in attitude was reflected by none other than Rep. Edward Markey, the Massachusetts Democrat who has never been considered a friend of the energy industry. He told the CERAWeek crowd on opening day that new rules to push the marketplace toward using more natural gas and renewables could unshackle the country from oil imports (see related story).

If the natural gas business can boost its image for lawmakers, there are a lot of ways to increase demand, said Melanie Kenderdine, associate director of the Energy Initiative at the Massachusetts Institute of Technology.

Technology that would allow carbon capture and storage from coal-fired power plants "is a long way off, 10 to 12 years for a large demonstration project," she said. And that means that for now, "we won't have any other choice than using a lot of natural gas." To counter a "perception that gas is in short supply," Kenderdine suggested the industry use studies, including an upcoming report by the Colorado School of Mines, that concludes that the nation's shale reserves surpass 2,000 Tcf, or nearly 100 years of supply at current consumption rates.

McClendon said he was optimistic that the industry will receive a better reception in Washington, DC, than it ever has before. "This [Obama] administration gets the fact that it can address the environmental concerns" with gas and do it "for decades to come" in whatever quantities it needs," he said.

An immediate concern, of course, is that mounting U.S. gas supplies have collided with a drop-off in industrial gas demand. Prices are at their lowest levels in more than two years.

"We've loosened the supply-demand balance" in the favor of consumers, not producers, said CERA's Kenneth Yeasting. The drop in industrial demand, he said, should return "fairly quickly," but it may not be at the previous levels until the economy turns around.

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