SHALE REVOLUTION
Energy Department recently cut its estimate for natural gas reserves in the Marcellus shale formation by a whopping 66%, citing improved data on drilling and production. Crude oil produced from tight
sands and oil shales has also been instrumental in reversing the long decline of US crude output. The US imported nearly 9 million
barrels of oil a day in 2011 – the lowest since 1999. Imports as a share of consumption fell to 45% – the lowest since 1995 (and down from a peak of over 60% in 2005). Tight oil formations are helping to drive increases in both production and reserves.
Drilling activity is being redirected
away from gas-rich deposits towards liquid-rich oil and wet gas plays
Optimists are already forecasting
huge increases by 2015 taking US oil production to 8 million bpd. Output from the Bakken area in North Dakota alone could reach 900,000 according to industry consultants Bentek. Today, all over the US, oil majors
and cash-rich independents are combing the countryside for more oil and gas. Indeed, as gas prices have fallen due to North America’s gas glut [with prices expected to hover around $2 – 3/MMBtu for the next 2 years] traditional gas shales are being looked at again as possible oil producers. For example, the famous Barnett shale in Texas is slowly emerging as an oil producer. Falling gas prices are already threatening gas producers and several are now scaling back on production. Drilling activity is being redirected away from gas-rich deposits towards liquid-rich oil and wet gas plays, as energy firms and frackers respond to prices. With gas prices rock-bottom and
expected to remain in the $2 – 6/ MMBtu till around 2020 by many estimates, producers are cutting costs by improving technology and processes.
58 March 2012
Not so long ago, analysts estimated the production cost of
gas from fracked wells at around $6-7 MMBtu from the best run facilities. “The implication was that gas from shale was the marginal source of supply and would set the long-term equilibrium price in the market at $7 or more,” according to Reuters commodity analyst John Kemp. But they underestimated the industry’s ability to adapt. “Frac factories” – to use Henry Ford’s assembly line approach, drilling up to 40 well bores from a single pad, and conducting operations to drill, perforate, complete and frack wells simultaneously – and other operating efficiencies are transforming the economics of supply. “Drilling is probably not economic at $2 but might no longer need $6 to achieve satisfactory returns,” says Kemp. Thus, the upside to prices may be capped lower than previously thought. “Moreover, drilling for (profitable) oil and liquids will produce increasing amounts of associated natural gas and ensure gas supplies continue rising even if prices remain in the doldrums,” says Kemp.
LNG & Transport To the Rescue? The disparity between gas prices in Europe (for example) and
the US are startling. This opens the door to arbitrage via LNG exports of US gas. Trouble is, there are no facilities – yet. Cheniere Energy, Inc.’s announcement of a $5 bn investment in liquefaction at Sabine Pass (next to its existing import facility) would be the first US facility to export gas from shale plays. Dominion and Sempra are also in line to build export terminals next to existing facilities. “This sets the scene for the US to become a gas exporting nation,” according to Bariman. Will this lead to higher US gas prices? Perhaps, but by the time LNG export terminals have been built, exports may well face competition from conventional producers and shale gas deposits in other parts of the world. Time will tell. It’s no secret that natural gas is driving American energy
policy. But could it propel America’s transport network? With gasoline prices nearing $4 a gallon, people are clamouring for relief. More drilling is one answer. But so too is shifting over to natural gas to move cars and trucks. Proponents of the idea say that compressed natural gas used for cars, buses and light trucks is about one-third the cost of gasoline, according to EnergyBiz. “Right now there are about 110,000 natural gas vehicles on the road in the United States, nearly all of which are part of fleets,” says editor Ken Silverstein. “Every day we are sending $1 billion outside the country because of our addiction to oil,” pines Richard Kolodziej, President of Natural Gas Vehicles for America. “We want Americans to know that there is an alternative, namely accelerating the use of domestic natural gas in vehicles instead of gasoline and diesel.” The association is backing a bill before Congress – the Natural
Gas Act – which would provide significant subsidies to heavy truck fleets as well as commercial vehicles if they convert from a traditional combustion engine to one that could also burn natural gas. The measure has bipartisan support in both chambers, says Silverstein. Not surprisingly, the Industrial Energy Consumers of America (IECA) are not happy, citing that the Bill picks winners and jeopardises competitiveness. Even so, gas has a long way to go if it is to actually drive the country’s transportation policy. The lack of fuelling stations and the relative high cost of a natural gas vehicles are obvious obstacles.
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76 |
Page 77 |
Page 78 |
Page 79 |
Page 80 |
Page 81 |
Page 82 |
Page 83 |
Page 84