Industry structure part of the equation

Price Affecting Gas’ Present, Future

American Association of Petroleum Geologists (AAPG)

It might be called the recurring plague of the oil patch.

Hydrocarbon oversupply, followed by shortages, followed by oversupply …

You get the picture ‘cuz you live it.

It wasn’t long ago that domestic gas reserves and production of this clean burning, versatile fuel were thought to be insufficient to continue to meet demand in the United States, and prices hovered around $13/Mcf for a brief time.

Along came a proliferation of shale gas plays pretty much in tandem with a recession and, wham, natural gas supply is over the top, and prices have tanked, languishing in the $4/Mcf range.

“There’s a lot more natural gas resource than we thought there was even 10 years ago,” said past AAPG President Scott Tinker, director of the Bureau of Economic Geology, state geologist of Texas and professor (Allday Endowed Chair of Subsurface Geology) at the Jackson School of Geosciences at University of Texas at Austin. “With the continuing development of unconventional gas, especially shale, it’s a vast resource.

“The U.S. has led this, and the world is now following,” noted Tinker, who will co-chair the forum “Taking Natural Gas Seriously: Opportunities and Challenges,” at the upcoming AAPG annual meeting in Houston April 10-13.

Tinker emphasized the forum will include speakers from government and academia as well as industry.

The upside for natural gas is substantial, according to Tinker, but there are challenges to continued development – particularly in the myriad shale plays.

Long laterals in horizontal wells and multi-stage hydraulic fracturing have opened up the resource, but a lot of water is used and produced in this fracing process. In turn, the public in general has been very vocal about a number of issues, including how this might impact ground water systems.

“There’s a lot of misinformation out there, and I think the industry must be transparent about what is in the hydraulic fracturing fluids,” Tinker said, “and be transparent about the source of any natural gas leak in water.

“Almost without exception, this comes from surface handling of fluids or a bad surface casing job,” he asserted, “and is not related to the hydraulic fracing process.”

Financial Factors

Tinker noted that converting this big resource to reserves will require continuing technology development and working together with government through the regulatory process and industry and academia, which are studying shale gas resources from the basic sense, such as how the fluids and gases move through the reservoir.

Price is a thorny issue in the shale gas milieu.

“Right now, we have a short- to mid-term so-called oversupply, so prices are low and people have slowed down drilling,” Tinker said. “Some of the people who got in when prices were higher and paid a lot for acreage can’t afford to produce that acreage at these prices.”

The industry structure figures in the shale conversation.

The shale play phenomenon originated with the small independents followed by their larger brethren, and now the majors are establishing a significant presence.

“The big boys are following and trying to put together large acreage positions that they can afford to develop over many decades,” Tinker noted. “They can afford to weather lower price gas.”

There’s a tendency for some folks to refer to shale plays as mining or farming, given there’s little risk that the resource actually is there.

“It’s more about whether you can produce enough natural gas in a time frame to make money,” Tinker commented. “That depends on smart technology development, investment for mid- and long term.

“We don’t know yet what secondary or tertiary looks like in shale gas plays,” he said. “I’m certain opportunities are there, such as re-fracturing or targeted drilling between increased well densities, and even CO2 injection and other kinds of things. The major companies can afford to do these kinds of things over a long period of time.”

Good Potential, If …

There’s both pessimism and optimism aplenty about shale gas potential, depending on who’s talking.

“Even when you look at it conservatively, the resource is there; it may not be robust enough to last forever as the most bullish people are saying, but it’s there,” Tinker emphasized. “We could see 20 to 30 years of natural gas production from shale gas systems and, in that sense, it makes a good bridge (to the future) fuel.”

For example, he noted there must be a partnership between intermittent electricity generated by wind turbines and the fossil fuels, such as natural gas and coal, which can backstop the electricity. After all, you don’t turn off the fossil fuel-powered plant and turn on the wind.

Tinker noted that natural gas has an ideal role to play in that partnership.

“There’s a tremendous future for natural gas,” he said, “especially globally now that companies are looking worldwide for other big basins, both conventional and unconventional.”

He emphasized that natural gas is the most versatile of all the fuels.

For example, it can be put into vehicles as CNG, used to make electricity (which includes charging an electric car battery), burned directly for heating, cooling and cooking.

Additionally, it can be used as a feedstock to generate hydrogen, which can be used as a fuel for onboard fuel cells in a vehicle.

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Natural Gas Forum Set at ACE

A special forum called “Taking Natural Gas Seriously: Opportunities and Challenges,” will be held from 1:15-5:05 p.m. Tuesday, April 12, at the AAPG Annual Convention and Exhibition in Houston.

Forum co-chairs are Scott Tinker, William Fisher and Svetlana Ikonnikova.

The forum will feature academic and industry leaders and is designed as a holistic overview of developments in the natural gas industry.

Varying perspectives on “below ground” reserves and production of conventional and unconventional natural gas will be followed by a global outlook of the LNG market and a discussion of energy security issues.

On the demand side, presentations will cover “above ground” economic issues and energy and environmental policy and regulations.

Speakers will include:

♦ William Fisher, professor, Jackson School of Geosciences, Bureau of Economic Geology, University of Texas at Austin.

♦ John B. Curtis, professor, Colorado School of Mines.

♦ Arthur Berman, director and geological consultant, Labyrinth Consulting Services.

♦ Porter Bennett, president and CEO, Bentek Energy.

♦ Ruud Weijermars, director of education, Department of Geotechnology, Delft University of Technology.

♦ Kenneth B. Medlock III, adjunct professor of economics, Rice University.

♦ Gurcan Gulen, research associate, BEG, University of Texas at Austin.

♦ John Browning, consultant, BEG, University of Texas at Austin.

♦ Svetlana Ikonnikova, post-doctoral Fellow, BEG, University of Texas at Austin.

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