Category Archives: Unconventional

How Long Can The Shale Revolution Last?

by Nick Cunningham via OilPrice.com,

A new study has cast serious doubt on whether the much-ballyhooed U.S. shale oil and gas revolution has long-term staying power.

The U.S. produced 8.5 million barrels of oil per day in July of this year — 60 percent more than just three years earlier. That is also the highest rate of production in three decades.

Put another way, since 2011, the U.S. has added 3 million barrels per day in additional capacity to global supplies. Had that volume not come online, oil prices would surely be much higher than they currently are.

That has “revolutionized” the energy industry and geopolitics, as scores of energy analysts have claimed. The Energy Information Administration (EIA) forecasts that U.S. oil production will hit 9.6 million barrels per day (bpd) in 2019, and gradually decline to 7.5 million bpd by 2040.

This would allow the U.S. to be one of the world’s top oil producers for an extended period of time. With such an achievement now at hand, many analysts are predicting an era of American dominance in geopolitics. For example, in an op-ed on Oct. 20, columnist Joe Nocera considered a “world without OPEC,” in which U.S. oil production soon kills off the oil cartel.

Or consider this rather triumphalist piece in Foreign Affairs from earlier this year, where two former National Security Council members who worked under President George W. Bush boasted that the recent surge in oil production “should help put to rest declinist thinking” and “sharpen the instruments of U.S. statecraft.” In the following issue, Ed Morse of Citibank went further. “Despite its doubters and haters, the shale revolution in oil and gas production is here to stay,” he declared.

But a new report throws cold water on the thinking that U.S. shale production will be around for the long haul. The Post Carbon Institute conducted an analysis of the top seven oil and top seven natural gas plays, which together account for 89 percent of current shale oil production and 88 percent of shale gas production.

The report found that both shale oil and shale gas production will peak before 2020. More importantly, the report’s author, David Hughes, says oil production will decline much more quickly than the EIA has predicted.

That’s largely because of high decline rates at shale wells across the country. Unlike conventional wells, which can produce relatively stable rates for a long period of time, shale oil and gas wells experience an initial burst of production in the first few years, followed by a precipitous decline thereafter.

Hughes estimates that the average shale oil well declines at a rate of between 60 and 91 percent over three years. Wells in the Bakken decline by 45 percent per year, which stands in stark contrast to the 5 percent annual decline for an average conventional well.

Or put another way, oil and gas companies will have to keep drilling at a feverish pace just to stand still. This means the industry is on a “drilling treadmill” that will be unsustainable over the long-term.

Predicting what oil production will be in 25 years is difficult, to say the least, but the Post Carbon report projects that oil production from the Bakken and Eagle Ford will be just one-tenth of the level that EIA is forecasting. The EIA predicts that the Bakken and the Eagle Ford will be producing a combined 1 million bpd in 2040. Hughes thinks it will be just a small fraction of that amount – a mere 73,000 bpd.

This is not the first time that David Hughes has taken aim at EIA data. In a December 2013 report, he skewered the high estimates for the potential of the Monterrey Shale in California, calling the EIA’s numbers “simplistic and highly overstated.” Several months later, the EIA was forced to back track on its figures, downgrading the recoverable oil estimates in the Monterrey by 96 percent.

Hughes says the implications of getting it wrong are “profound,” since so many companies are basing very large investments on incorrect projections. He says rosy estimates have cut into investment for renewables, while steering capital towards expensive oil and gas export terminals that should now be called into question.

An article in CleanTechnica points to the possibility of boom towns turning into “ghost towns” if the pace of drilling drops off. If David Hughes and The Post Carbon Institute are correct, there could be quite a few ghost towns popping up in the coming years as the shale revolution begins to fizzle.

Source and Full Report Here

Europe Needs a Roadmap for Unconventional Gas

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As the unconventional gas “revolution” was quietly unfolding in the United States, its potential to transform the U.S. gas market, and the country’s national energy discourse, was not apparent until recently. It has now become clear that shale gas development is perhaps the biggest energy sector innovation for the United States in recent decades. For Europe, however, the role shale gas will play in transforming energy markets is far from certain. The old continent’s unconventional gas reserves are substantial, but the question is how fast and to what extent Europe will develop them.

Europe needs a clear roadmap for the prospects of unconventional gas in its energy future. The current situation calls for an approach that is based on realistic expectations about the pace of shale gas development, as well as a strategy that is well-informed about potential costs and benefits. Continuing uncertainty could not only hamper the flow of investment into potential unconventional gas reserves, but could also impede the development of informed plans about Europe’s energy security and ability to fight climate change.

To begin with, it is worth recognizing Europe’s limitations. The combination of factors that led to the unconventional gas “revolution” in the United States—favorable geology, developed gas markets, and until recently, limited regulatory and public constraints—is not easy to replicate. Geologically, knowledge of unconventional gas in Europe does not go much beyond rough estimates. Where exactly are the shale deposits located? At what depth? And in what type of formations? At what cost could they be extracted? Europe still needs to start mapping out its shale gas reserves—a process that started almost three decades ago in the United States. At this point all that is known is that there are sufficient reserves to transform Europe’s gas market. Estimates vary but they consistently put the European Union’s unconventional reserves well above its conventional ones. Knowing this alone, however, is not enough.

The cost of developing shale gas reserves will be a principal factor in determining the future of unconventional gas in Europe. The sharp growth in shale gas output in the United States owes much to the considerable cost reduction witnessed over the past decades. Europe stands at the beginning of that process. Lack of comprehensive geological knowledge about shale precludes a precise estimate, though costs are expected to be high not least because of the scattered nature of reserves in Europe. The absence of a vibrant services sector for the gas market presents another bottleneck. The European gas sector’s limited capacity to provide cost-effective equipment for shale gas development along with a shortage of qualified labor will undoubtedly lead to higher development costs than in the United States. Costs can certainly go down, just like they did in the United States, as the industry gradually reacts to the needs of the market. But initial costs will pose a challenge.

In its quiet “revolution,” America’s unconventional gas industry outpaced both the regulators and the public. By the time stringent environmental demands became part of the national energy discourse, unconventional gas had already assumed its transformative role in the U.S. gas sector.

In Europe, if this revolution is ever to be repeated, it will not be a quiet one. The rigorous environmental regulations that are already in place—particularly with regard to water use—are prompting investors to think twice about managing costs before they commit. With their high population density, many European governments are less willing to embrace shale gas before its environmental impacts become apparent. In many countries, particularly in Western Europe, governments ignore environmental movements at their own peril. More investment in shale development will almost certainly have to confront calls for even stricter ecological requirements.

The EU’s energy and climate policy needs to recognize these constraints. It would be unrealistic to expect shale gas to be a panacea for the Union’s growing concerns on energy security and climate mitigation. This is true at least in the short and medium term.

And yet, discounting the potential role of unconventional gas in Europe’s future would be a mistake. It is in the EU’s long-term interest to maintain a role for shale gas development. Most industry insiders argue that unconventional gas will not contribute in any significant form to Europe’s energy supply until at least the end of this decade. Its role beyond that point, however, is anyone’s guess. How fast Europe develops these resources depends on today’s policy choices.

European policymakers should give shale gas development a chance. First, as a latecomer compared to the United States, Europe is more likely to find a way to develop its unconventional resources in an environmentally friendly fashion. Stricter regulations and low public tolerance for potential environmental risks may slow the pace of shale gas development. They can, however, also ensure that Europe develops these resources in the right way, avoiding some of the mistakes witnessed in America.

Second, the benefits of shale gas development could be disproportionately large. European gas supplies are in decline, while demand is expected to continue to grow. The EU’s ever growing need for imported gas is compounded by its dependence on a rather small number of external suppliers—Russia, Norway, and Algeria account for nearly three quarters of Europe’s imports. It is not certain that unconventional gas can reverse the decline in domestic gas output. However, it could certainly enhance the position of European importers when bargaining with their limited number of suppliers. Most recently, gas sold at spot markets, which constitutes only a fraction of total gas imports in Europe, effectively served such a role. Even Gazprom, known for its firm bargaining position, felt the need to revise a portion of its contracts. Shale gas could play a similar role for European importers in the future by enhancing competition. Increased liquefied natural gas (LNG) imports could potentially have a similar impact. But, they will be need to be sourced from outside the EU, maintaining Europe’s dependence on global LNG market trends.

Even if unconventional gas is not a “game changer” for Europe as a whole, it could be a “game changer” for a select group of EU members. Ironically, some of the countries with greater prospects for shale gas development—Poland, Hungary, and Bulgaria—are among the most dependent on Russian gas.

At this point, the future of shale gas in Europe is very much in the hands of national governments. Legal competence for hydrocarbon development is mainly within the domain of these governments rather than Brussels. What they need is a well-informed national discourse on unconventional gas that involves all the main stakeholders. In effect, they need to avoid what France recently did—a rushed decision outlawing hydraulic fracturing—and instead attempt to fully assess the potential for developing shale gas while complying with strict environmental standards.

Brussels, on the other hand, does have a role to play. In addition to ensuring higher environmental standards, it could attempt to bring greater clarity about the future of natural gas in Europe’s energy balance. Mixed signals about its expected role have understandably preoccupied investors. Also, it could elaborate investment mechanisms for shale gas development that would serve its long-term decarbonization objectives by displacing more carbon-intensive sources of energy. Ultimately, Brussels should make certain that Europe does not miss this opportunity to seize the strategic potential offered by unconventional gas.

Adnan Vatansever is a senior associate in the Energy and Climate Program at the Carnegie Endowment. This article was originally published on Carnegie Europe’s website

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Let consumers, not bureaucrats decide our country’s energy future

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By Phil Kerpen & Steve Lonegan
Published March 08, 2012
FoxNews.com

While President Obama is trying futilely to convince the American people he supports an “all of the above” energy policy, he has remained stubbornly committed to vast subsidies for unproven, expensive technologies like wind.

Obama has repeatedly described his intention to increase wind subsidies “doubling down,” an appropriate use of gambling terminology.

The U.S. Senate will likely be put on record soon on amendment votes to extend wasteful, expensive subsidies for windmills and to create vast new subsidies for natural gas vehicles. These votes will tell us which senators, like the president, want to double down on a losing hand and which think it might be time to try a free market energy policy.

Sadly, it is hardly a given that Republicans will oppose massive taxpayer-funded giveaways to favored energy players. The clearest evidence of that comes from New Jersey, where Governor Chris Christie has led the way on a disastrous proposed offshore wind scheme.

New Jersey’s offshore wind boondoggle was authorized by the Offshore Wind Economic Development Act, signed into law by Gov. Christie in 2010. A cost analysis of the act conducted by the Beacon Hill Institute at Suffolk University concluded that the wind project would cost the state as much as $4.1 billion, drive up electricity rates up as much as 4.2% and cost up to 4,440 jobs. More recently a consulting firm hired by state officials to analyze the bid from Fishermen’s Atlantic, LLC to construct the project found that it would result in the loss of almost 30,000 jobs, and drive up electricity rates by $286 million.

With hefty federal subsidies for wind in place, such boondoggles will continue to spring up around the country. Fortunately, the principal federal subsidy for wind, the so-called Production Tax Credit (PTC) is scheduled to expire at the end of this year. Unfortunately, the Senate will soon vote on extending this giveaway, despite the fact that wind is second only to solar in subsidies and is highly suspect both economically and environmentally.

While Obama tells us it’s time to end the outrageous subsidies for fossil fuels, the facts are the vast majority of subsidies go to wind and solar. — In 2010, subsidies per megawatt-hour were $0.63 for natural gas, $0.64 for coal, $52 for wind, and $968 for solar.

Instead of looking at those numbers and concluding it’s time to pull the plug on wind subsidies and even more scandalous solar subsidies, some Washington politicians look at them and conclude we need to massively increase subsidies for natural gas.

The Senate is poised to vote on doing just that, on an amendment that would add the provisions of the so-called Nat Gas Act to the surface transportation bill. This amendment, sponsored by New Jersey’s Senator Robert Menendez, would provide hefty subsidies – up to $64,000 per truck – to subsidize the conversion of vehicles to natural gas.

The bill, sadly, has bipartisan support, including from Republicans like Senator Richard Burr of North Carolina, who apparently believes that the only difference between Republicans and Democrats is which industries they prefer to choose to lavish with special giveaways.

The consequences of huge subsidies to shift natural gas into the transportation sector are easy to foresee. If we artificially boost demand at taxpayer expense, prices will go up. That means higher natural gas bills for home heating bills, and it means higher prices for all the industries that use natural gas as a feedstock.

Just as ethanol subsidies rippled through corn prices to higher food prices, natural gas subsidies would have economy-wide effects through higher prices for chemicals, plastics, and fertilizers.

Moreover, with natural gas prices collapsing thanks to the fracking revolution, these subsidies are wholly unnecessary.

As long as the EPA and overzealous state regulators can be kept at bay, natural gas vehicles will come to market without subsidies. In fact, this week Chrysler and General Motors announced duel-fuel pick-up trucks that run on both compressed natural gas and gasoline.

Why not let consumers decide if they want these vehicles, instead of putting a government thumb on the scale at a cost of billions of dollars?

In the aftermath of Solyndra, politicians should recognize that its time to pull the plug on energy subsidies, scale back on onerous regulations, and let consumers, not bureaucrats, decide our country’s energy future. The U.S. Senate should therefore reject both on the PTC and Nat Gas amendments.

Phil Kerpen is vice president for policy at Americans for Prosperity and the author of “Democracy Denied” (BenBella Books, 2011). Steve Lonegan is executive director of Americans for Prosperity – New Jersey.

Read more: Fox News

U.S. Shale Gas Exports Face Hurdles, Former Exxon CEO Says

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By Kari Lundgren – Feb 10, 2012 4:55 AM CT

Political constraints and concern production gains at shale fields aren’t sustainable will hinder the development of liquefied natural gas export plants in the U.S., former Exxon Mobil Corp. (XOM) chief Lee Raymond said.

“There is going to be a big debate in the U.S. as to whether or not they’re going to permit the export of liquefied natural gas,” Raymond said in an interview in Oslo yesterday. “Even if you get past the politics, you have to test whether or not the resource base is sufficient.”

New techniques to access the natural gas trapped in shale rocks, including the use of hydraulic fracturing and horizontal drilling, have transformed the U.S. into the world’s largest gas producer. Estimates suggest fields in Pennsylvania, Ohio and Texas may contain as much as 862 trillion cubic feet of the fuel, enough to supply the U.S. for over thirty years at current consumption.

Politicians including Democrats Senator Ron Wyden of Oregon and Representative Edward Markey of Massachusetts have said exports may raise domestic gas prices. In allowing exports, the U.S. may be “trading away the enormous economic advantage of having large, low-cost domestic natural gas supply,” Wyden said in an e-mailed statement on Jan. 6. “It’s going to be a little while before people are really confident that there is going to be a sufficient amount of gas for 30 years to support the construction of an LNG plant,” said Raymond, who stepped down in 2005. “I’m frankly not sure that we have enough experience with shale gas to make the kind of judgment you’d have to make.”

Global Supply

Some gas-industry players are confident the U.S. will become a major exporter. BG Group Plc (BG/) said yesterday that the U.S. will be able to supply about 9 percent of global liquefied natural-gas output by the end of the decade. The U.K.’s third- largest gas producer said the U.S. will have the capacity to export about 45 metric million tons of LNG a year from 2020.

Rising production of natural gas has driven down prices and is leading owners of import terminals to explore exports. Cheniere Energy Inc. has proposed a liquefaction facility at its Sabine Pass terminal, which would be the first new North American export project since 1969. BG has a preliminary agreement to take gas from Sabine Pass.

The cost of building an LNG (LNG) terminal runs to billions of dollars. Cheniere’s Sabine Pass terminal will have a capacity of 9 million tons a year. Construction costs at projects underway in Australia, have reached $4,000 a ton of capacity, according to analysts at Sanford C. Bernstein & Co.

‘Huge Investments’

“If you build any LNG, from a producer’s point of view, you can only do that from an economic point of view if you’re assured that you have a long-term competitive supply because these are huge investments,” Raymond said.

Exxon, the world’s largest energy company by market value, is pursuing shale exploration in Argentina, Poland and the U.S. The company said earlier this month that two exploratory wells drilled in a Polish shale formation last year weren’t commercially viable. The gas discovered failed to flow in sufficient quantities Texas-based Exxon said Feb. 1.

“There’s lots of shale around the world, but just because it has the name shale on it doesn’t mean it’s something that would be economic to try to develop by the technique being used largely in the U.S.,” Raymond said.

Production of shale gas in China would be a “real game changer,” the former executive added. “China is run by engineers, it’s not run by politicians.”

“They’re technically competent and they approach things in the same way a good engineering group at a major oil company would approach things,” he said.

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Repsol YPF ups Argentine shale potential

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Posted on February 8, 2012 at 6:08 pm by Associated Press

SANTIAGO, ChileRepsol YPF on Wednesday raised the estimate for potentially recoverable oil and gas in its part of Argentina’s “Vaca Muerta” (Dead Cow) basin to the equivalent of nearly 23 billion barrels, indicating a total shale deposit big enough to enable Argentina to challenge the United States in non-conventional petroleum production.

But it cautioned that exploiting the formation would need a huge expansion in Argentina’s oil and gas industry, requiring thousands of wells, hundreds of drilling rigs and a national push to attract the necessary talent, equipment and investment at a time when other countries are competing to increase energy resources.

The company’s shares traded on the Buenos Aires stock exchange jumped 8 percent after the announcement.

Repsol YPF SA, a majority-Spanish-owned company, issued the statement from Madrid shortly after its president, Antonio Brufau, returned from a series of closed-door meetings in Argentina with government officials who have been pressuring the company to increase exploration and development.

The pro-government newspaper Pagina12 in Buenos Aires said Repsol YPF has been paying out more in dividends than it has made in profits in Argentina, and suggested President Cristina Fernandez might consider nationalizing the company’s Argentine operations so the money could instead be used to increase Argentina’s energy capacity.

Juliette Kerr, a Latin America energy analyst at IHS in London, discounted the possibility of nationalization, saying Argentina can’t afford a buyout. The idea was never openly endorsed by Fernandez or her Cabinet ministers.

Company spokesmen and government officials declined to comment on the talks this week.
But Wednesday’s statement, made as a filing to Spain’s securities regulator, provided a stark analysis of Repsol YPF’s commitment to Argentina and how much would have to change for the country to realize its energy dreams.

“If exploration proves successful in the Vaca Muerta formation and immediate intensive development began in the area, in 10 years its capacity could double Argentina’s existing gas and oil production. This would require a vast investing effort that would reach $25 billion per year in order to develop all the existing prospective resources,” it said.

Repsol YPF said in November that it had discovered 927 million barrels of recoverable oil and natural gas in the shale deposit. But even 23 billion barrels ranks below Brazil’s recent deep-sea oil discoveries, which experts estimated at up to 55 billion barrels, or the 296 billion barrels of proven crude reserves that Venezuela claims.

Argentina currently has only 80 drilling rigs and would need at least 100 more, along with upgrades in all sectors of its oil and gas industry, to capitalize on the potential of the deposit in western Neuquen province, the company said.

Repsol YPF currently is the leader in exploring in this area, having invested $300 million in exploration, mapping and initial development, but has claims on less than half of the formation, which stretches over 7.4 million acres. Many other companies would need to make substantial investments for the area to achieve its potential, it said.

So far, only a tiny fraction of the Vaca Muerta foundation has been developed, producing 700,000 barrels as of December, and the statement suggested that Brufau didn’t give in to the pressure for huge new investments right away.

“The company aims to drill 20 wells in 2012, solely and jointly with several partners, to continue investigating prospective resources,” it said.

The statement suggested international investors may be holding back until they have confidence that Argentina will guarantee government policies and labor unrest won’t get in the way of eventual profits. Instead, Argentina has been withdrawing energy exploration subsidies, dealing with a punishing oil workers strike and making it more difficult for multinational companies to move their gains out of the country.

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