Unconventional natural gas resources — coalbed methane, gas shale and tight sandstone — have buoyed North American production, but on the downside, production per well is lower, thus raising unit costs, which means that continued higher gas prices are needed to maintain output on a flat trajectory, according to a joint study by energy consultants Cambridge Energy Research Associates (CERA) and IHS.
Researchers analyzed 273 individual plays in 50 natural gas supply basins in the United States and Canada, and they found that the trend toward declining well productivity and reserves per well is expected to continue through 2015, with “strong implications for gas production and resultant prices.”
However, researchers cautioned that more drilling is unlikely to completely offset declines from maturing conventional resources, and North American gas production “will soon move into gradual decline.” Liquefied natural gas (LNG) imports will then be needed to supplement domestic production.
“The shift toward unconventional gas production was prompted by the clear inability of conventional gas resources to keep pace with gas consumption,” said study co-author Robert Ineson, who directs North American gas research for CERA. “With LNG imports growing, but not fast enough to serve the appetite of the market, unconventional gas, even resources that are relatively expensive, are good options for gas producers for several more years.
“With unconventional resources dominating production trends in the next decade, the performance of existing and emerging unconventional plays will define the long-run supply curve for indigenous North American natural gas supply. The challenge will be to develop these plays in a cost-effective manner to maximize economic production in the face of eventual competition from imported LNG.”
Researchers also projected how much gas production could be cost-effective at successively higher market price levels, and they looked at the interplay among the future cost of gas production, the geological potential of gas in North America and how supply would build at higher market prices.
“Higher market prices, along with advances in technology, unlocked the resource potential of unconventional gas,” said Ineson. “The study, however, suggests that there is a limit to the unconventional resource potential at market prices within the $4-10/Mcf price range analyzed.
“While successive layers of gas resource are unlocked at successively higher price levels, domestic natural gas then becomes uneconomic relative to imported LNG, coal in the power sector, and other technologies. This price/cost/geologic potential relationship defines the trajectory of gas production in the years ahead.”
CERA’s “Diminishing Returns” analysis identified plays in nearly every region of North America that are attracting exploration and development interest, and it found that some of the best opportunities are emerging in the rapidly growing East Texas and Rocky Mountain regions. Others, such as the emerging shale plays in the Appalachian and Black Warrior basins, show growth potential, especially at sustained price levels in excess of $6.00/Mcf, the study noted.
In contrast, the study highlighted significant challenges to increasing production at almost any price level in some more mature regions, which include the Western Canada Sedimentary Basin conventional shallow plays and the shelf region of the Gulf of Mexico.
By analyzing historical production and calculating costs for 2005 for the more than 48,000 wells completed that year in more than 273 natural gas plays, and projecting production performance across each play’s remaining resources, the analysis generated overall productive capacity on a play-level for North America under price scenarios ranging from $4.00/Mcf to $10.00/Mcf to 2015.
CERA’s analysis produced several key operational and strategic findings, including:
To learn more about the study, visit www.cera.com or www.ihs.com.
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