Like what you've read?

On Line Opinion is the only Australian site where you get all sides of the story. We don't
charge, but we need your support. Here�s how you can help.

  • Advertise

    We have a monthly audience of 70,000 and advertising packages from $200 a month.

  • Volunteer

    We always need commissioning editors and sub-editors.

  • Contribute

    Got something to say? Submit an essay.


 The National Forum   Donate   Your Account   On Line Opinion   Forum   Blogs   Polling   About   
On Line Opinion logo ON LINE OPINION - Australia's e-journal of social and political debate

Subscribe!
Subscribe





On Line Opinion is a not-for-profit publication and relies on the generosity of its sponsors, editors and contributors. If you would like to help, contact us.
___________

Syndicate
RSS/XML


RSS 2.0

Shale: the last oil and gas train

By James Stafford - posted Wednesday, 12 March 2014


The reason that the shale gas boom is not sustainable at current prices is that shale gas is not the whole story. Conventional gas accounts for almost 60% of US gas and it is declining at about 20% per year and no one is drilling more wells in these plays. The unconventional gas plays decline at more than 30% each year. Taken together, the US needs to replace 19 billion cubic feet per day each year to maintain production at flat levels. That's almost four Barnett shale plays at full production each year! So you can see how hard it will be to sustain gas production. Then there are all the efforts to use it up faster--natural gas vehicles, exports to Mexico, LNG exports, closing coal and nuclear plants--so it only gets harder.

This winter, things have begun to unravel. Comparative gas storage inventories are near their 2003 low. Sure, weather is the main factor but that's always the case. The simple truth is that supply has not been able to adequately meet winter demand this year, period. Say what you will about why but it's a fact that is inconsistent with the fairy tales we continue to hear about cheap, abundant gas forever.

I sat across the table from industry experts just a year ago or so who were adamant that natural gas prices would never get above $4 again. Prices have been above $4 for almost three months. Maybe "never" has a different meaning for those people that doesn't include when they are wrong.

Advertisement

JS: Do you foresee any new technology on the shelf in the next 10-20 years that would shape another boom, whether it be fossil fuels or renewables?

AB: I get asked about new technology that could make things different all the time. I'm a technology enthusiast but I see the big breakthroughs in new industries, not old extractive businesses like oil and gas. Technology has made many things possible in my lifetime including shale and deep-water production, but it hasn't made these things cheaper.

That's my whole point about shale plays--they're expensive and need high oil and gas prices to work. We've got the high prices for oil and the oil plays are fine; we don't have high prices for the gas plays and they aren't working. There are some areas of the Marcellus that actually work at $4 gas price and that's great, but it really takes $6 gas prices before things open up even there.

JS: In Europe, where do you see the most potential for shale gas exploitation, with Ukraine engulfed in political chaos, companies withdrawing from Poland, and a flurry of shale activity in the UK?

AB: Shale plays will eventually spread to Europe but it will take a longer time than it did in North America. The biggest reason is the lack of private mineral ownership in most of Europe so there is no incentive for local people to get on board. In fact, there are only the negative factors of industrial development for them to look forward to with no pay check. It's also a lot more expensive to drill and produce gas in Europe.

There are a few promising shale plays on the international horizon: the Bazherov in Russia, the Vaca Muerte in Argentina and the Duvernay in Canada look best to me because they are liquid-prone and in countries where acceptable fiscal terms and necessary infrastructure are feasible. At the same time, we have learned that not all plays work even though they look good on paper, and that the potentially commercial areas are always quite small compared to the total resource. Also, we know that these plays do not last forever and that once the drilling treadmill starts, it never ends. Because of high decline rates, new wells must constantly be drilled to maintain production. Shale plays will last years, not decades.

Advertisement

Recent developments in Poland demonstrate some of the problems with international shale plays. Everyone got excited a few years ago because resource estimates were enormous. Later, these estimates were cut but many companies moved forward and wells have been drilled. Most international companies have abandoned the project including ExxonMobil, ENI, Marathon and Talisman. Some players exited because they don't think that the geology is right but the government has created many regulatory obstacles that have caused a lack of confidence in the fiscal environment in Poland.

The UK could really use the gas from the Bowland Shale and, while it's not a huge play, there is enough there to make a difference. I expect there will be plenty of opposition because people in the UK are very sensitive about the environment and there is just no way to hide the fact that shale development has a big footprint despite pad drilling and industry efforts to make it less invasive.

Let me say a few things about resource estimates while we are on the subject. The public and politicians do not understand the difference between resources and reserves. The only think that they have in common is that they both begin with “res.” Reserves are a tiny subset of resources that can be produced commercially. Both are always wrong but resource estimates can be hugely misleading because they are guesses and have nothing to do with economics.

  1. Pages:
  2. 1
  3. Page 2
  4. 3
  5. 4
  6. All

This article was first published on OilPrice.com.



Discuss in our Forums

See what other readers are saying about this article!

Click here to read & post comments.

4 posts so far.

Share this:
reddit this reddit thisbookmark with del.icio.us Del.icio.usdigg thisseed newsvineSeed NewsvineStumbleUpon StumbleUponsubmit to propellerkwoff it

About the Author

James Stafford is the publisher of OilPrice.com.

Other articles by this Author

All articles by James Stafford

Creative Commons LicenseThis work is licensed under a Creative Commons License.

Article Tools
Comment 4 comments
Print Printable version
Subscribe Subscribe
Email Email a friend
Advertisement

About Us Search Discuss Feedback Legals Privacy