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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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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.