The headline from the Forbes-INSIGHTS report, 2012 US Energy Sector Outlook reads “Majority of Executives See Energy Independence Achievable Within 15 Years, With Nearly Half Citing Natural Gas as the Most Crucial Fuel”.
The Potential Gas Committee, a nonprofit organization consisting of knowledgeable and highly experienced volunteer members who work in the natural gas industry, reported from the Colorado School of Mines in Golden, Colorado that “…the United States possesses a total resource base of 1,898 Tcf as of year-end 2010. This is the highest resource evaluation in the Committee’s 46-year history, exceeding the previous record-high assessment by 61 Tcf. Most of the increase arose from reevaluation of shale-gas play in the Gulf Coast, Mid-Continent and Rocky Mountain areas” (author’s emphasis).
A recent Wall Street Journal headline reads “It’s Official: ‘Age of Shale’ has Arrived” and they say, “Shale is rocking the US energy industry to its core.”
Headlines like these paint a very rosy future for US energy supplies. Two technologies have been key components in new shale oil and gas discoveries and a surge in production of both. Without long-reach horizontal drilling and multistage hydraulic fracturing these resources would remain largely untapped and uneconomic.
Birth of America’s Gas Industry
Early Indian settlers in an area that is now western New York State near Lake Erie referred to flammable bubbles in the area’s streams as ‘burning the creek’ and the village residents noted the smelly rocks beneath the water, whose bubbles ignited when lit. That village was Fredonia and would be the site where America’s first commercial gas would be delivered, derived from the fractured shale rocks in the Marcellus Formation.
The first attempt to drill a gas well is attributed to William Hart, who moved to Fredonia in 1819. An eight meter deep well was drilled on the north-east side of the Main Street Bridge in the late spring of 1825. Gas was initially brought to two shops and a mill through small wooden pump-logs covered with tar laden cloth, which were soon replaced by lead and tin piping. The people were impressed that the gas lights did not emit an odor. Thirty-six gas lights were being lit in the village by November 1825, with usage measured by the world’s first commercial gasometer, prompting Mr. Hart to form a private gas company to market the gas, thus becoming “the father of the natural gas industry”.
Local use of gas from shallow, low pressure wells in fractured shale rocks like the Marcellus continued through the 1920s until pipeline technology made it possible to bring in large volumes of gas from the mid-continent and southeastern oil fields.
Second Era of Shale Gas
Starting in the 1930s, pipelines supplied large volumes of gas to the east coast markets; shale gas was all but forgotten. Numerous technical developments and 50 years later, shale gas became a target once more by the US Department of Energy (DOE), the Gas Research Institute (GRI), and a partnership of private operators. In the mid-1970s, this consortium conducted a study on the shallow Devonian Huron shale in the eastern US to develop technologies for the commercial production of natural gas. The partnership’s research helped promote technologies that are critical today in the production of natural gas from very tight shale rock. These technologies include the use of horizontal wells, multi-stage fracturing, and slickwater fracturing, but large scale shale gas production would still be years off.
Texas’s Barnett Shale would become the first world’s first large scale shale gas producer thanks to the pioneering efforts and perseverance of one company – Mitchell Energy Corporation, which first tested the Barnett Shale in 1981 (see GEO ExPro Vol. 4, No. 2).
This real success of the Barnett play would take many more years of applying different methods to a lot of wells. Mitchell Energy tried the first slick-water frac in 1997. Horizontal drilling started in earnest in 2002 with about 1,500 wells completed that year. Slowly, production increased from 380 Bcf in 2004 to 1,847 Bcf in 2010. In the first six months of 2011, production was up again to 1,092 Bcf or 31% of Texas’s total gas production. There are currently 231 operators that have leased 10,550 km² across this field (Devon purchased Mitchell Energy and is the largest Barnett gas producer). As of September 2011, 15,316 wells have been drilled in the Barnett play.
Astronomical Growth of Shale Gas
The successful production of Barnett shale gas has now spread to other shale reservoirs across the US The Energy Information Administration’s (EIA) Annual Energy Outlook 2012 (AEO2012) Early Release estimates 482 Tcf of unproved gas resources and 60 Tcf of proved reserves that are recoverable using current technology. The US Geological Survey’s (USGS) most recent estimates are slightly lower with a mean of 336 Tcf unproved gas. Both estimates exclude Alaska.
While the Barnett Shale is currently the largest gas producer in the lower 48 states, the Marcellus may have the largest potential covering an area over 246,000 km². The most recent USGS assessment using data for the Marcellus through 2010 put the mean undiscovered gas at 84 Tcf and 3.4 Bb gas liquids. This estimate is huge by any standards and was considerably higher than the 2002 estimated mean of 2 Tcf. The EIA currently estimates 141 Tcf, down from last year’s 410 Tcf of unproved gas resources in the Marcellus Basin but now within the USGS’s 90% confidence range from 43 to 144 Tcf.
Philip Budzik, Operations Research Analyst for the EIA, points out, “What is evident about any of the published resource estimates is that less data translates to more uncertainty. This resource is relatively new and the longterm productivity is yet to be determined. Companies have concentrated on the ‘sweet spots’ with known high production rates in a given play and are gradually moving into new areas. New technical advancements, development of untested shale plays, and more production data will lead to refined resource estimates.”
The Marcellus play provides clear examples of how new data and technology can change resource estimates. The first USGS estimate of 2 Tcf was much lower than their current because it was completed before horizontal drilling and multi-stage fraccing had become commonplace. As in the EIA case, the new estimate was lowered considerably because between 2010 and 2011 drilling in the Marcellus accelerated rapidly and much more data became available. In fact, production doubled in 2011 alone, enabling them to refine their resource estimates.
The Barnett provides an example of a more mature play. Data from over 15,000 wells which average 1.6 Bcf in expected ultimate recovery (EUR) is available to these agencies for resource assessment. When this figure is combined with the well spacing and total area, fairly accurate resource estimates can be made. For example, the EIA uses these averages to calculate the current Barnett actively developed area of 23.81 Tcf gas reserves and 19.56 Tcf gas in the undeveloped portion of this play. The USGS has the mean undiscovered technically recoverable resources for the undeveloped Barnett at 26.23 Tcf. The EIA’s resource estimates are well within the USGS’s probable resources.
Shale and Tight Oil Plays
The success in the Bakken play (see GEO ExPro Vol. 9, No. 1, and Vol. 7, No. 2) and lower gas prices have promoted rapid growth in other tight oil and gas liquids plays. The Texas Eagle Ford play would be the next source rock tapped for its liquid hydrocarbons. Starting out with a shale gas play, operators began drilling into the wet gas window and finally into the oil window to capture the more valuable liquids. Production has increased from an annual oil and condensate production of just over 1 MMb in 2009 to 40 MMb for the first 11 months of 2011. Most of the other shale gas plays have potential oil and wet gas windows that are just beginning to be explored.
It should be noted that this is a very new resource and the USGS is already updating the Bakken resource assessment to be published in 2013 and that the estimates presented on the USGS map will be in a state of flux as more data becomes available and new areas are developed. The current government assessments do not include other major potential shale plays that are just starting to be tested such as the Utica, the Tuscaloosa in Louisiana and Mississippi, and some of the many source rocks along the Rocky Mountains to name a few (See Hotspot, page 98, for more information on these plays).
The success of the Barnett Shale, as Dan Steward, who was there for that first test well in 1981, puts it “redefines our exploration model for shales. We are still learning and just about any area may be productive.”
This article started asking “Will shale gas and shale oil production lead to (US) energy independence?” There is little question that the potential of shale gas and oil is huge and new resources are being discovered across the country and the world. However energy independence may be difficult to achieve relying on just shale resources.
A recent National Petroleum Council (NPC) report titled “Prudent Development: Realizing the Potential of North America’s Abundant Natural Gas and Oil Resources” puts some realistic terms to our energy future. The report highlights that: “Significant technology advances have unlocked abundant natural gas and oil resources.” They conclude that: “The United States needs these resources to reduce oil imports (Author’s note: The most recent EIA projections confirm this.) even after continued efforts to improve energy efficiency, and even as the nation transitions to a lower carbon energy system.” They add that, “Realizing the benefits of these natural gas and oil resources requires environmentally responsible development of them in all circumstances, continually taking advantage of new technologies and evolving effective practices.”
As the shale story began, without the drilling of many horizontal wells and multi-stage fracturing, the benefits from the resources these rocks contain will not be realized. To date, the Obama administration has given some mixed signals regarding shale development. However, in the recent State of the Union address he called for the government to develop a roadmap for responsible shale gas production and said “America will develop this resource without putting the health and safety of our citizens at risk.”