It seems like everybody and their brother and sister has begun pushing more drilling capital expenditures into "oilier" shale gas assets, somewhat at the expense of the drier plays. What will it take to return some of the former luster of nearly all-dry plays such as Haynesville?
It's mainly higher gas prices overall, says Michael Zenker, head of gas and power research at Barclays Capital. However, that doesn't appear to be coming any time soon as his company looks for a $4.52 Henry Hub average this year but only $4.10 in 2011. Producers are "more responsive to the forward strip" than to current prices, he said.
Granite Wash in the Texas Panhandle and Eagle Ford in South Texas are the two main "wet" shale plays (that is, heavier in oil and natural gas liquids content), Zenker said, and even Eagle Ford is drier to the south end and oilier to the north.
It seems self-evident that wet shale gas has greater need of processing and other midstream services than dry gas. Are there any areas where lack of such services is backing up production? "Not in any large way," Zenker said, but some sizeable amounts of ethane are being left in Marcellus Shale gas. Even the Eagle Ford play, which can access a many-decade buildup of Texas midstream infrastructure, could be facing some processing constraints in the longer term, he said.
Despite such potential constraints, the "value contents" still favor wet shale gas by far because of the premium associated with the prices of crude oil and natural gas liquids in comparison with dry gas currently, Zenker said.
He acknowledged that shale wells tend to have greater slides in output after a few years but said technology allows for greater overall shale well extraction in comparison with conventional wells. Further technological advances will be "incremental but not revolutionary" but will gradually increase the economic advantage of shale over conventional gas production.
Zenker sees the gas rig count as remaining overweighted toward conventional cutbacks, but he doesn't expect much change in the overall tally during the next year or so.