Producer Casts Cold Water on 30 Tcf Market
While U.S. natural gas resources appear virtually unlimited,
that doesn't necessarily mean the industry can ramp up production
to meet the oft-heralded 30 Tcf a year market projected to develop
over the next 15 to 20 years, according to a Chevron U.S.A.
The majors no longer operate in the Lower 48 onshore, Andrew L.
Hardiman told an OCS Policy Committee meeting Thursday, and there's
a reason for that. Chevron was the last major to leave the lower 48
onshore because the returns did not justify the expense of deep
drilling, plus the limited access and the time involved in
permitting. These factors "will have an impact on how fast the
resources will be available," Hardiman said.
While the majors do still operate in the offshore, he questioned
whether production could be ramped up to meet the 30 Tcf timetable.
Better technology did have an impact over the last 12 years, and
drilling and the number of wells have increased production from 45
Bcf/d in 1987 to between 51 and 52 Bcf/d from 1995 on. Despite all
that "over the last four to five years production shows an awfully
Ideally, gains in the deep-water production would add to a
steady, shallow-water production rate, but that has not been the
case. A large percentage of production is from wells drilled in the
last two to three years, which argues for a high rate of production
decline - a 40% decline if nothing is done, Hardiman said. With
workovers or completions in new zones the decline rate can be cut
to 25-30%. Adding in new wells can cut the decline rate to 5-6%.
"The best opportunity we've got is to capitalize performance on the
Gulf of Mexico Shelf," the Chevron representative suggested.
He pointed out, however, that in the last five years the cost of
drilling new wells has nearly doubled from $2.60 per barrel of oil
equivalent to $5.10 . "The quality of the investment has been cut
in half over the last four or five years. The question is how long
is the industry going to continue to invest to get that decline
rate down to 5-6%."
Hardiman also questioned optimistic projections for the deep
water drilling, pointing out that province is driven by oil
production. While the shelf is gas with associated oil, the reverse
is true in deep water where about 70% of the production is oil. He
questioned projections that put gas production at between 4 and 5
Mcf per barrel of oil, saying some of the larger deep water
discoveries are more like 1 Mcf per barrel. And "you've got to get
the oil out first."
The Chevron exploration manager said he believed 1% production
growth per year "is very doable." He was skeptical there could be
the 2-3% annual growth needed to support a 30 Tcf market by 2015 as
projected by a number of analysts because of "the quality of the
investments, the size of the pools, and the deliverability - how
fast we can get it to market."
The producer's testimony came during a two day conference in
Arlington, VA, of the OCS Policy Committee, which is composed of
representatives of the Minerals Management Service and state
officials who oversee resource management, along with industry
In an earlier presentation, the director of the Potential Gas
Agency, which assesses reserves, described a reserve base in the
U.S. that appears virtually limitless. He was careful to note,
however, that his was a geological assessment which did not include
costs or prices or attempt to measure potential deliverability.