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125 comments on Charlie Hall: How much oil and gas will increased drilling provide? Geology's Answer: Not Much.
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125 comments on Charlie Hall: How much oil and gas will increased drilling provide? Geology's Answer: Not Much.
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I get that for oil but what about the new Gas production coming online in North America, well, mostly the US.
I don't see this discussed much here if at all.
http://tonto.eia.doe.gov/energy_in_brief/natural_gas_production.cfm
Natural gas production in the Lower 48 States has seen a large upward shift. After 9 years of no net growth through 2006, an upward trend began that generated 3% growth between first-quarter 2006 and first-quarter 2007, followed by an exceptionally large 9% increase between first-quarter 2007 and first-quarter 2008.
You should use "search the oil drum with google" by entering key words. Having done this you had found the following links:
http://www.theoildrum.com/story/2006/3/8/222920/5485
www.theoildrum.com/node/3673
www.theoildrum.com/node/2693
www.theoildrum.com/tag/unconventional_natural_gas
www.theoildrum.com/node/3726
www.theoildrum.com/story/2005/11/12/0150/4833
etc. etc...
Those links are all old, and don't address the recent phenomenon that SeanTOD is talking about. The referenced report from the EIA is dated June 11, 2008.
Euro,
It's funny you should suggest doing a Google search. I read TOD almost every day as well as keep up on the energy markets via the financial news. What I've been hearing from companies in the US nat gas business does not match what I've read here over the years. The North American Nat Gas companies are talking about tremendous expansion in supply due to new drilling techniques.
Here? We get posts titled like this one where nat gas is lumped in with oil.
So I did a Google search on "natural gas statistics" and got the EIA page. A link on that page asked "Is natural gas supply increasing?"
The answer is yes. For North America anyway. You should check with Putin.
I would think this would be big news here.
The problem is the speed of decline of the new well technology. We are going to get a huge boost in production from Haynesville Shale - perhaps 1.5-2 TCF per year by 2012 which is almost 10% of our production. But the horizontal wells expected to be drilled decline 60%+ in the first year. If we keep stacking old wells and new production from unconventional gas plays we still have the same treadmill phenomenon witnessed on conventional gas plays - the shale plays only extend the start of overall decline. At the same time, these new bursts of production give the market false senses of lower long term prices, which make it likely incorrect longer term policy choices are made. Already natural gas use in electricity production is up 33% in past 4 years. I wonder how much of this is due to refinery needs....anyone with that stat please enlighten...
Sean TOD,
You should start a thread "Peak OIl in 2008 does NOT mean Peak Gas in 2008".
Many of the usual suspects on TOD don't grock this.
If we use the analog of the lag between peak U.S. oil and gas production (1971 to 2015?), we won't hit worldwide peak gas production until 2050 or so.
However whats intresting with Natural Gas is that even with this surge in production we are now seeing that NG storage is persistently staying in the middle of the average range even with decent injections.
http://www.eia.doe.gov/oil_gas/natural_gas/ngs/ngs.html
It will be interesting to see how it goes over the next few months.
My opinion is that this extra NG is going three places. First into industries that can switch between NG and fuel oil for steam boilers.
Next into our upgraded heavy/sour oil refining capacity.
And finally into ethanol production.
US net imports of NG are way down, by about 20-30% year-on-year from 2007 levels Source. Total exports from Jan-May 2008 were up by 48% over 2007 Source. No opinion necessary. I looked it up. :-)
I knew LNG imports were down never really paid attention to exports. I assume that they go to eastern canada and maybe some into Mexico ? I don't think thats a permanent condition once prices are right we can attract LNG import again. Internal production should have more than made up for this. Which means demand for NG is up in the US. Given that the economy is slowing and has been for a while then we must have added new demand for NG thats causing problems. NG is not bad but given the strong growth one would think NG storage would have been higher like it was back in 2006-2007. Something seems to have changed this year.
Personally I'm very skeptical of the long term production from both deep water gas and shale. It takes a tremendous amount of drilling in the shale deposits to just stay even and we pretty much have all our rigs deployed drilling for NG and oil right now.
http://www.wtrg.com/rotaryrigs.html
Given the rapid declines of shale NG sources in my opinion we simply can't throw enough rigs at shale to stay even much less expand more production without older source going into steep decline.
If the recent strong pull back in NG prices continues which it may we may even see a slow down in drilling that would be problematic because in my opinion if we back off even a little bit from exploiting the shale reserves we probably won't be able to catch back up. We are going to have to stay drilling pretty much all out for NG and keep expanding the rig fleet just to stay even. In any case given we are pretty much flat out on the drilling side it will be interesting to see how NG production changes over the rest of the year and next. Given that the shale NG well lifetimes are like one-two years then the flow decreases dramatically we should in my opinion start seeing NG production again heading downwards.
http://www.aapg.org/explorer/2002/07jul/barnett_shale.cfm
I'm not saying we won't get a lot of gas out of these fields overtime but I can't see how they can keep overall production from again declining without a major increase in the number of rigs drilling.
In the link below they actually think that LNG should be heading higher.
http://www.bloomberg.com/apps/news?pid=20601080&refer=asia&sid=aqPVo2P33wn8
Ouch. That is 300% more than we paid last winter, on average. The US uses about 3x as much NG as the whole world market for LNG. Imagine the price spike if the US tried to get into that market in a major way.
Its a interesting dynamic even if the shale plays don't result in a overall increase the cheaper prices here keep up out of the LNG markets. Also the drilling costs for shale I've seen set it above 5 at the well head so you have a very strong floor on prices. Drop to low and drilling in the shale plays will practically stop.
Long term what may happen is US NG prices continue at a fairly steep discount vs LNG however they may drift higher or lower the problem is if we assume that NG supplies will eventually turn downward the differential between US NG and LNG might be pretty large.
So you could go along for a while with fairly cheap NG in North America but see a large price increase the moment NG supplies are not adequate and potentially even more to attract LNG supplies.
If LNG prices go high enough you could even see significant exports of LNG from the US.
The dynamics are interesting to say the least since it seems like the shale plays have economic restrictions that are pretty tight. To much NG and they go unprofitable but the decline rates are steep so within a year or so you go from oversupply to a fairly big shortage. If you keep within the price range but LNG gets expensive export possibilities creep in.
The biggest problem that I still don't have a good answer for is whats the long term production from these plays. I've seen reports that the well lifetimes in total are about 5 years so a lot of the early wells put in in 2001-2002 are finally reaching the end of their life. So basically starting this year we are starting to see the effects of decline enter into the picture. So on top of expansion we also have to replace all the wells drilled in 2001-2002 then 2003 etc.
http://www.theoildrum.com/node/3673
The reason why I'm very interested is that assuming we are maxed out on rigs then effectively we are loosing a percentage of our early production each year going forward.
From the graph and assuming all of the 5Tcfa of unconventional developed in 2000 needs to be replaced in addition say 1-2tcfa of conventional decline we actually need 6-7 tcfa this year to stay flat.
This is really rough but the point is that we have reached the point that decline of older unconventional wells is now a major factor. The honeymoon period for unconventional is ending. Only a major expansion of the drilling fleet can keep gas production up.
Just looking at the plot conventional discovery and production give me the impression that it is dangerously close to the point there conventional discovery must go up now or the conventional production will fall.
I found data on conventional reserves on this page http://pubs.usgs.gov/dds/dds-060/index.html "Page Last Modified: Mon Aug 22 18:08 EDT 2005" (this date is probably not important) and the actual document here http://energy.cr.usgs.gov/WEcont/world/woutsum.pdf They put "Remaining reserves" (conventional) at 172 Trillion cubic feets but how old is the document and the data?
The document is marked with "US SURVEY WORLD PETROLEUM ASSESMENT 2000-- ..." in the lower right corner.
Data for undiscovered conventional and reserve growth conventional is marked with stars and are from 1995-1995 but remaining reserves is not marked with anything so they should be from 2000?
I followed the link abore and Jean Laherrere as extrapolated "US conventional natural gas creaming curve" between 1995 and 2005.
? What is the US conventional reserves now?
Doing the calculation with annual production 20 Tcf/a and withdraw discovery 5 Tcf/a 172/(20-5) = 11.5 years. But should it be from 1995-1996? 2000? or now?
BP Statistical Review of World Energy 2007 http://www.bp.com/liveassets/bp_internet/globalbp/globalbp_uk_english/re... put remaining reserves at end of 2006 "Natural Gas: Proved reserves" at 209 trillion cubic feet but are BP using all reserves or just conventional?
I guess it's nothing to worry about after all US has 527 trillion cubic feet undiscovered natural gas they just have to go out and find it or.
The haynesville may add 5bcf/day to the gas supply in the U.S by 2011. Cost is less than $5/MCF ALL IN. There are probably at least a dozen more basins in nam like the haynesville, but more remote. All in cost more than $6.50. I don't think rigs will be a problem (not hard to make more), tho crews could be.
And we havent even talked about unconventional NG reserves overseas.
Our ability to use modern seismic methods is about the only thing keeping the oil and gas industry alive. I remember the first oil crisis back in 1973, and the second in 1980, and reading about how the barrels of oil found per foot of drill tube was in terminal decline in onshore America.
The development of modern computer seismic capability made it possible to continue oil drilling by shifting to offshore and smaller onshore fields.
Now, thirty five years later, we have seismic so good we can detect cracks in the shale a mile deep and figure out which way to drill a horizontal well to actually get some decent production.
If it wasn't for silicon valley, we wouldn't have a domestic drilling industry onshore or offshore. We can't afford to drill without the modern seismic technology.