With the boom in shale gas production, an oversupply of natural gas is likely to outstrip demand for the fuel and keep prices under the $5 level, Colorado-based Bentek CEO Porter Bennett told the gas committee Monday at the summer meeting of the National Association of Regulatory Utility Commissioners (NARUC) in Los Angeles.
Bennett and an analyst with the American Gas Association (AGA), Christopher McGill, responded to some skeptical state regulators on the quality of information states are developing on shale and the concerns about its potential longevity as a major energy source. In both cases, the two experts confirmed that while the information is still problematic in some states, things are getting better and while it is a fact that shale gas wells have steep decline curves, it doesn't mean they won't continuing producing for long periods.
"We're producing gas at a rate much faster than the market can absorb," said Bennett, who reiterated his contention that technology is "radically transforming" both the natural gas and oil industries, bringing growing disparity between what he calls the Haves and the Have-nots. "This probably means it is not good news for prices. That is why our estimate for gas prices is lower than the Nymex forward price curve."
Bennett thinks the "Haves," including companies such as Chesapeake Energy whose CEO spoke earlier at the NARUC meeting, have gobbled up a lot of low-cost acreage in the major shale plays. "They have large acreage positions all over the place, and they have the know-how and capability to develop it," he said. "Those are the Haves. The Have-nots are the smaller independents that don't have acreage positions in the low-cost shale."
In response to a regulator's question about the adequacy of data on the shale gas industry, Bennett conceded that in some areas there is very little data or old information, and a significant lag in data can be as short as six months. "In reality, a lot of the shale play's wells are very new and it is going to take five to 10 years to know really what you have [in terms of longevity], so having more up-to-date data is not really going to give you an answer," Bennett said.
Similarly, AGA's McGill conceded that the decline curves associated with shale and tight sands "are all steep," so to develop the resource a lot of wells must be drilled. "You're talking about a very impermeable rock. But even though the decline curves are steep, it doesn't go to zero. The wells produce gas for a long time. In this case you are talking about thousands of wells producing gas for some time."
McGill reiterated, however, that there "is no denying the shape of the depletion associated with the wells being drilled."
Bennett added the thought that some of the steepness in the declines has been attributed to overpressuring of the wells in their early stages, and since then, producers have been more aware of this and have eased the early pressures and eliminated some of the steepness in the production decline. The way they were doing the hydraulic fracturing was essentially contributing to the steep declines, but this is now changing, he said.
"They are now working to control those pressures, and they have found that it helps protect the integrity of the fracking and also tends to prolong the production," Bennett said. "The producers are applying a lot of science to this issue, and I think you will see technology impact those declines over time."