Whither Shale Gas? Certainty and Uncertainty Abound!

Commentary by S. Tom Bond, Retired Chemistry Professor & Resident Farmer, Lewis County, WV

What can be said about projections for natural gas from shale? Other than generally over-estimated, a more accurate statement cannot be made – yet. The first item to consider is the reserve. Perhaps the most accurate figures are available from research done for the Post-Carbon Institute by David Hughes. His article in Nature, one of the two top scientific journals of the world, titled Natural Gas: The Fracking Fallacy, published December 3, 2014, is a further development of the theme and is a classic. It compares estimates by the U. S. Energy Information Agency and smaller, more limited but more detailed estimates. The EIA was found wanting, which was verified by their own publication, cited in the Nature article, published the 14th of October in 2014.

The article by Hughes referred to above is titled “Drilling Deeper“, subtitled “A Reality Check on U. S. Government Forecasts for a Lasting Tight Oil and Shale Gas Boom,” is a further development of the theme. It lists EIA reductions in reserve estimates and gives reasons to doubt they have it correct yet. Page 5 shows graphics of reductions of estimates of one of the Marcellus which estimate has been reduced from 410 Trillion cubic feet to 84 tcf, a factor of 80% by 2011. The same graphic shows reduction of Poland’s shale gas by 99%. The estimate of oil availabe from the Monterey Tight Oil was reduced by 96%.

Hughes survey involves seven tight oil plays and seven shale gas plays, involving 89% of current oil production and 88% current gas production from shale. The primary source of data for this analysis is Drillinginfo, a commercial database of well production data widely used by industry and government, including the EIA. Hughes concludes ” Tight oil production from major plays will peak before 2020. (That’s 5 years.) Also “Shale gas production from the top seven plays will likely peak before 2020.

He makes estimates of production for 2040, based on present drilling methods and without regard for price – essentially what can be, rather than what will be (see more below). His average first year field decline rate for Marcellus is 32% and average 3-year well decline rate is given as 74-82%. See page 11, where all seven fields are listed.

Hughes’ implications for the future of gas are hugely important, i.e. the EIA’s rosy forecasts have led policymakers and the American public to believe a number of false promises:

• · That cheap and abundant natural gas supplies can create a domestic manufacturing resurgence and millions of new jobs over the long term.
• · That abundant domestic oil and natural gas resources justify lifting the oil export ban (imposed 40 years ago after the Arab oil embargo)and fast- tracking approval of liquefied natural gas (LNG) export terminals.
• · That the U.S. can use its newfound energy strength to shift geopolitical trends in our long-term favor.
• · That we can easily limit carbon dioxide emissions from power plants as a result of natural gas replacing coal as the primary source of electricity production.

David Hughes report is chosen here because of that author’s expertise and because the analysis is more “fine grained,” it uses data from individual wells.

Hughes deals with the characteristics of individual wells and fields based on them. There are other influences he cannot deal with, however. I shall address some of them here. One is the decline of production as the drilling is forced out of “sweet spots.” These are areas of relatively high production. They were actively sought out at the beginning of production, because they bring the highest return on money and effort invested. That is the way all mineral development is done. It is sometimes expressed as “the easy stuff is taken out first.”

Because of rapid decline of shale wells, new wells must be drilled constantly. How available will the necessary capital be? That depends on the availability and the attitude of potential investors. Availability depends on the general economy. A crash would tighten up investment money. It also depends on the perception of reward (magnitude of profit), which will certainly be declining due to the fact these wells do not last; to increased public opposition and active campaigns of disinvestment from fossil fuels; to the continuing increase in efficiency of solar and wind; and to the inevitability of failures of companies due to low oil prices.

I think fracking will become less popular with the public as time passes by and the devastation it causes becomes better known – that is certainly the trend now, witness the extensive advertising the industry must put out to influence public opinion.

The biggie is how will the price of oil affect the demand for fracked gas. There is a world-wide slowdown in the economy, while the over-production of oil and gas in the U. S. is a factor, but decline in demand, is often forgotten.  Lower growth than expected has occurred in Europe and Asia.

More about this here and here. To paraphrase some college textbooks, “The Author leaves as an exercise for the reader,” the resolution of this video which shows both Senator Shelly Moore Caputo (R – WV) and Martin J. Durban, President of America’s Natural Gas Alliance, saying or implying the reserve estimates are increasing.

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Pam Kasey, writing for the State Journal, has described the recent estimate for the Marcellus technically recovered reserves of natural gas. Here is her description:

West Virginia’s Marcellus shale resource is estimated at 8.9 trillion cubic feet in the June 25 release of the U.S. Energy Information Administration’s Annual Energy Outlook. In July 2011, the EIA published an estimate of the remaining technically recoverable resource, or TRR, in the Marcellus of 410 trillion cubic feet. TRR includes proved reserves — volumes expected to be produced under existing technological and economic conditions — and unproven resource that it is believed existing technology could extract.

That 410 tcf came into question in August, when the United States Geological Survey refreshed its estimate of the Marcellus TRR at a mean value of 84 tcf, with a range of 43 to 144 tcf. Then, in its January early look at the Annual Energy Outlook 2012 reference case, based on the USGS figures but also extrapolating from more recent production data from Pennsylvania and West Virginia, the EIA’s  new estimate of the TRR came in right at the top of the USGS range: 141 tcf.

The EIA provided details of that estimate in the full AEO2012. The EIA uses almost all of the USGS’s assumptions; the difference is that the EIA’s “estimated ultimate recovery” in the core of the Marcellus is higher: 1.95 billion cubic feet per well, compared with the USGS’s 1.15 bcf.

The EIA is specific in its estimates of the TRR for various portions of the Marcellus and for each of the eight states it encompasses. Of the 141 tcf it estimates as technically recoverable, more than 60 percent is in Pennsylvania and almost 30 percent is in New York — totaling more than 90 percent. About 8.9 tcf, or a little over 6 percent, is in West Virginia.

For scale, the state’s total gas production in 2010, not only Marcellus but all gas, was 265 billion cubic feet, according to the EIA. If 8.9 tcf of Marcellus were recoverable, it would represent more than 33 years’ worth of the state’s total 2010 production.

Background information to the estimates shows that the Marcellus region is 99 percent to 100 percent “untested” — that is, there’s no data. So even while being quite specific, the EIA was cautious about its estimates. “The estimation of Marcellus shale gas resources is highly uncertain, given both the short production history of current producing wells and the concentration of most producing wells in two small areas, Northeast Pennsylvania and Southwest Pennsylvania /Northern West Virginia,” the AEO2012 reads.

Exxon-Mobil, the largest U.S. natural-gas producer, paid $1.69 billion for two closely held energy explorers to gain shale-gas reserves in Pennsylvania and neighboring states.  Exxon completed the purchases of Phillips Resources Inc., based in Warrendale and TWP Inc. of Butler on June 2. The 200 employees at the two companies may be retained, it was reported.

Exxon paid $34.9 billion for XTO Energy last year, making it the biggest U.S. gas producer. The acquisition of Phillips Resources and TWP gives Exxon access to 317,000 acres in the Marcellus Shale, a gas-rich geological formation that stretches beneath several eastern states including New York, Pennsylvania and West Virginia.

Shale formations have the potential to more than double the world’s gas reserves, the U.S. Energy Information Agency said in an April 5 assessment. The U.S. has an estimated 827 trillion cubic feet of shale gas and it may account for 47 percent of the nation’s production of the fuel by 2035. Acquisitions in the shale industry are expected to continue, with “vulnerable smaller guys being taken out” as they face higher costs and increased regulation.

U.S. gas futures however have lost 69 percent of their value since peaking at $15.78 per million British thermal units in December 2005, amid a excess of supply primarily from shale formations in Texas, Louisiana and Arkansas. The New York-traded futures closed at $4.85 per million Btu this week.