A rise in shale gas supplies and implications from last fall's San Bruno, CA, pipeline rupture and explosion have caused California Energy Commission (CEC) planners to rethink their update of the state's 2011 Integrated Energy Policy Report.

CEC staff used a day-long workshop earlier in April to explore the latest assessment of the gas industry: supply, demand, infrastructure, pricing and policy issues. The CEC is seeking comments on its modeling, assumptions and additional gas scenarios as well as the impact of the ongoing San Bruno investigation.

"Shale gas development has turned the economics of drilling for gas on its head," said Leon Brathwaite, a natural gas expert in the CEC's electricity analysis office. "New technology has pushed well productivity to new heights, and drill time in some markets has plunged to just days from weeks. Reduced drill time has driven down breakeven costs to less than $4/MMBtu."

Brathwaite emphasized that shale development returns are better in the presence of natural gas liquids (propane, ethane and butane). Thus, he thinks gas producers will continue to shift exploration and development investments to liquid-rich properties.

"Joint ventures with foreign entities are increasing," said Brathwaite, who labeled the liquids-rich formations to include Marcellus; Bakken in North Dakota and Montana; Niobrara in Nebraska, Wyoming and Colorado; Eagle Ford, which he estimated has been producing more than 40,000 b/d of oil and gas liquids; and Tuscaloosa Marine in Texas, Louisiana and Mississippi.

The CEC analyst went on to contend that shale potentially will change gas development in other countries. He cited Canada with an estimated technically recoverable resource base of 388 Tcf, and Mexico with its state-owned petroleum unit testing its first shale gas well in the Mexican portion of the Eagle Ford Shale.

Still, Brathwaite acknowledged a list of environmental concerns that are causing uncertainties, ranging from greenhouse gas (GHG) emissions, surface disturbance and fresh water use to groundwater contamination and increased seismic activity.

Another area of fallout from the increased shale production is the relative availability of pipeline capacity, which could cause price differentials to shift. The CEC analyses are assuming that the U.S. oil-gas price link "appears to have gone away," and there are a number of factors that could cause delivered costs to rise.

Cited as examples were gas displacement of coal, stepped-up Environmental Protection Agency rules, lost and unaccounted for gas supplies related to GHG emissions reporting and an increase in pipeline replacements in the post-San Bruno world in California.