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North American Oil/Gas Growth to Continue, New Report Says

The shale revolution in North America will keep chugging along in a variety of areas in the years ahead, although some of the very robust recoverable reserve estimates in some basins may be trimmed back to more realistic levels, according to the overall conclusions of a new report from Ziff Energy released Thursday.

Outlining what is dubbed the "North American Ultimate Potential Gas Resource," principal author Simon Mauger, Ziff director of gas supply and economics, told NGI that he and his fellow analysts expect to see "significant growth take place," adding that if you combined Canadian and U.S. resources, there likely will be "zero net imports" for the two nations collectively in the future.

Mauger's report presents Ziff's latest estimates, developed with what they consider a newer, more realistic methodology, for the major oil/gas production regions in the United States and Canada: Appalachia, the Gulf of Mexico (GOM) region, Midcontinent/Permian Basin, the Pacific Coast, Alaska and Canada more generally.

"It features a breakdown on the remaining resource of undiscovered conventional gas, tight gas, shale gas and coalbed methane," a Ziff spokesperson said. The firm is now part of HSB Solomon Associates LLC. The report is only provided to clients that purchase it, but Mauger discussed its contents with NGI. The report also discusses the new methodology the research/consulting firm used in this case.

For natural gas, the future holds abundant supplies that are very economic, exceeding domestic demand, so Mauger sees lots of liquefied natural gas (LNG) exports taking place. While Canada will export a lot of oil to the United States, he is less sure if some of the U.S. and Canadian oil supplies will also be exported (as crude), something the U.S. is now starting to consider (see Daily GPI,Jan. 7).

The report further underscores what other analysts have been saying in recent months and years about North America becoming a global energy provider. "We've seen in the U.S. in particular an increase of about 1.5 million b/d of production over the last five or six years," Mauger said. "That is really quite huge."

He cited the Bakken Shale output approaching 1 million b/d in production, and he thinks the same level will be reached in the Eagle Ford, along with "a huge resurgence" in the Permian Basin.

Mauger said the latest analysis found that overall the amount of gas being identified as potential recoverable reserves "is quite substantial," and he was surprised at the amounts in the Marcellus, while the Eagle Ford was "spot on" with his expectations. Further analyses of the Montney and Duvernay plays in western Canada he expects will produce reserve counts that are increased substantially.

"The most important part [of the report's findings] isn't  how much gas there is, but how much there is at a given price," he said. "Here there is a sea change that has been created by horizontal drilling and more sophisticated use of hydraulic fracturing [fracking], which has created a huge amount of resource that just wasn't accessible in the past in an economic sense."

Mauger remembers working at Amoco nearly 20 years ago and putting together a shale strategy that assumed wells producing 0.5 MMcf/d. Now the wells are generally producing 5-10 MMcf/d based on the technology advances in recent years. He sees the technology spreading around the globe to other major onshore production areas "quite easily."

"So far, we don't see anything happening in the GOM or the North Sea, but in the onshore basins of Europe there are opportunities, just like we have seen in Appalachia, which is a really old basin dating back to 1821 in some areas."

The U.S. shale gas boom has de-positioned Canadian gas to the point that without substantial exports, Canada's vast shale gas resources in the West will not be fully allowed to grow.

"Shale gas in the U.S. has been so successful it has crowded out imports from western Canada," BC-based Mauger said. "Even in the Canadian eastern markets, we see huge volumes of U.S. gas coming. The future [Canadian] supply and production is really dependent on new markets, such as the Asian LNG market. Otherwise, the resource we have up here [in western Canada] is not going to grow significantly."

In terms of methodologies used to come up with potential recoverable reserve numbers, Mauger said the latest report reflects something "a little bit different" than other similar analyses. He said most technical research organizations tend to look at "gas in place" in developing their estimates, while considering the rock value and porosity, pressure, and other geological factors.

"We look at it from a more pragmatic standpoint, determining how much drill spacing is needed," he said. "Are the wells going to be 160 acres apart or 80 acres? So we do our estimates on the basis of wells rather than rock volumes [geologic measurements]." Mauger thinks this provides a more realistic number as to what can actually be produced.

He said they are trying to make the outlooks -- most of which are very bullish -- more realistic. And even with this more conservative approach, the report sees lots of future growth in North America.

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