Jul 19, 2010

Shale Gas-is it a Panacea?

Shale based gas has been cited as a possible source of a more US based solution to oil and gas supply for the future. The problem is that it may have too many drawbacks to offer the consistent supply that is promised.

 Here are selections from a great story in the FT.com 7-18-10 about the real story on Shale Gas

So I looked again at shale gas production reports, development costs, technical papers, and, yes, the PowerPoints. I went to Texas to meet producers, geologists, and landmen.

And I’m sticking with my position. Yes, shale gas is there, but it is expensive to produce, and there is much, much less of it available at today’s low prices than policy people, investors, and energy consumers are counting on. It is not a cheap and simple way to replace coal (in America), or Russian gas supplies (in Europe).
 
I am, however, humbled in the presence of the marketing genius of the promoters who have convinced so many people to buy the story.
Because it is a story. The basic truth about shale is that it is much harder to extract the gas from those rocks than it is from the sandstones that are the source of most “conventional” gas.

...“producing” shale wells often doesn’t make economic sense at today’s low gas prices. If shale gas has such wonderful economics, as the PowerPoints and international conference speakers say, why do the operators need to raise so much outside money? Hydrocarbon companies with producing properties should be generators of cash, not users of cash.

American shale gas companies assert that they can profitably produce gas from formations such as the Marcellus in Pennsylvania for $2 or $3 per mcf (thousand cubic feet). But in the fine print you find that represents only the “finding and development” costs, which are only a quarter to a third of the total needed to get a molecule to market.
And when gas promoters say “per mcf”, those mcf’s are projected over 30 or 40 years, or even longer. Not that there are any horizontally drilled, fracked shale wells that old, but accountants exist to make generous assumptions. In fact, wells in one of the first shale fields developed with the new technologies, the Barnett in Texas, have had faster-than-expected productivity declines.
One large German bank’s commodity group is developing its own estimates of the average economic life of shale fields; they think 10 years is a reasonable assumption. That is close to what Arthur Berman, a sceptical Houston geologist, thinks is reasonable. As Mr Berman says: “Unconventional gas has at least twice as fast a decline rate as conventional resources. About 85 per cent of the value of shale wells in the Barnett will be produced in the first 10 years.”

Yes, there is a lot of shale gas in the world. It will take prices perhaps twice as high as today’s to maintain gradual increases in production when capital is no longer provided as freely.


The shale gas fairytale continues

By John Dizard
Published: July 18 2010 08:39 | Last updated: July 18 2010 08:39


johndizard@hotmail.com

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