Natural Gas Production Surges: A Free Market at Work
By Vladimir Posted in Energy | Energy Security — Comments (15) / Email this page » / Leave a comment »
Natural gas currently accounts for about 23% of the nation's total energy use, about the same amount as coal. Unlike oil, we must be (mostly) self-sufficient in natural gas. It can be difficult and expensive to import in tankers; failing that, our only external sources are Canada and Mexico. Canada is finding more internal use for gas in the tar sand extraction process, and we actually export a minor amount of gas to Mexico.
[M]ore than half of the increase in natural gas production between the first quarter of 2007 and the first quarter of 2008 came from Texas, where supplies grew by an exceptionally high 15%. Other contributing regions included Wyoming with growth of 9%, Oklahoma with 6% growth, and Louisiana with 4% growth.
Natural gas production had been flat, around 52 billion cubic feet per day (BCFD), for many years through 2006. However, the last couple of years have seen an impressive surge in natural gas production, driven by several factors: strong gas prices, aggressive operators, and new technologies that enable gas production from rocks that have never before been considered commercially productive, the dense sedimentary rock known as shale.
The conventional view was that shales were the "source rocks", the incubators if you will, of the hydrocarbons that eventually find their way into conventional reservoirs in sandstones and limestones. Shales have poor "permeability", the measure of a porous medium's ability to sustain fluid flow.
Why Is Natural Gas Production Increasing Now?
Improved technology, developed over many years, now allows economic production of resources in deep water and large "unconventional" resources, which are difficult to produce. High and increasing natural gas prices have spurred more natural gas drilling and the trend to move from drilling simpler vertical wells to horizontal wells.One indicator of the transition from conventional to unconventional production is the number of rigs drilling "horizontal wells." In the late 1990s, about 40 drilling rigs, or 6%, were drilling horizontally. As of May 2008, the number of rigs drilling horizontal wells has grown to 519 rigs, or 28% of the total. Horizontal wells don’t simply go straight down, but also have one or more horizontal sections. In the Barnett Shale, the wells goes down about a mile and a half, make a turn and go horizontally about a mile, running through the rocks that hold natural gas.
Horizontal drilling is fast becoming the primary method used to produce gas from geologic formations like shale. Drilling and completing a horizontal well through shale has required improved technology, but these wells have become essential to the rapid economic development of unconventional resources in the United States.
An article in today's Baton Rouge Advocate tells of a new/old play in Northwest Louisiana: the Haynesville Shale. Wells have been drilled through the Haynesville Shale for 50 or 60 years; gas in the shale was considered (rightly) an incidental nuisance. With the advent of horizontal drilling and hydraulic fracturing technology (which induces cracks - pathways - in the otherwise impermeable rock), it is possible to produce gas at commercial rates from the shale.
Who are the players? Not "Big Oil":
Chesapeake, by comparison, owns 150 rigs and, despite heavy drilling in the Barnett Shale natural gas formation in and around Fort Worth, Texas, expects to have 30 rigs running in the Shreveport area by the end of 2009.
It now has five there.
No one truly knows where the Haynesville Shale trend will lead, not even Chesapeake. But the company is incredibly bullish on the region. It already has locked up 500,000 acres in lease commitments.
Other companies negotiating leases in the area include Petrohawk Energy Corp., Goodrich Petroleum Corp., EnCana Corp., Devon Energy Corp. and Anadarko Petroleum Corp. Chesapeake, though, began working the natural gas play more than two years ago and got a head start.
Big Oil may eventually buy their way in, but the frontier is being pushed by the smaller, more innovative, non-integrated "independents".
The Independent Petroleum Association of America:
"Independent producers develop 90 percent of domestic oil and gas wells, produce 68 percent of domestic oil and produce 82 percent of domestic natural gas."
If anything, I'd bet that's low (I know it's out of date). Most of these "resource plays" (shales, coals, tight sandstones) are the bailiwick of the medium & large sized independents like the ones named in the OP.
Without deviation from the norm, progress is not possible. - Frank Zappa
are selling gas leases like crazy! We sit near the northern edge of the Devonian/Ohio track, and companies are paying about 2,500 per acre for the mineral rights and then a percentage down the road. There are huge local meetings about it in almost every town!
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The eXfuze Storm is Coming!
http://www.exfuze.com/gtaylor
Barnett shale on north Texas TV for Chesapeake. Gotta love that!
You can see the rigs at DFW airport (the airport is making a killing from Barnett shale) and many other places in Tarrant county. Many suburban households are getting or will soon be getting a nice boost to their monthly income from royalties. This is a very middle class boom!
In Texas, drilling is not a dirty word.
"Many suburban households are getting or will soon be getting a nice boost to their monthly income from royalties."
Don't you think they should cap the price they are willing to receive for their gas?
Without deviation from the norm, progress is not possible. - Frank Zappa
Obviously the unearned income is ill gotten gain.
"Those who expect to reap the blessings of freedom must, like men, undergo the fatigue of supporting it."
-Thomas Paine: The American Crisis, No. 4, 1777
from where I live, I plan on using the hoped-for royalties to feed my cats - aka the fat cats. (Although only one is a little hefty). Leftover funds will go into their diamond collar fund and my electric bill. Donations accepted!
"Those who expect to reap the blessings of freedom must, like men, undergo the fatigue of supporting it."
-Thomas Paine: The American Crisis, No. 4, 1777
this filthy but modest lucre into a substantial pile. And thus I will gain the entree to the parties of the beautiful people, sip champagne with the trust fund babes, discourse on the evils of the abominable W and of course cheer on Obama :>)
like Money, looks, a lack of morals and principle, and a frontal lobotomy.
Then you will fit right in with the smart set.
"Nothing works like freedom, Nothing succeeds like liberty"
Kyle
What are our gas reserves like? Is it a confused morass like asking how much oil is left in the Earth? I hope not. This is all good, and coal will certainly be the next big thing to fill in the gap if oil continues to increase in price.
I'm still concerned about long term energy, by which I mean, what will America be consuming for energy in 40 or 50 years. I'm worried that liberals will create a panic and push an unsound policy or (the nuttiest of them) will just hope that industrial capitalism will fail. But I also worry that some conservatives are taking a Pollyanna attitude about energy, that we have centuries of oil left and don't need to make any other plans.
...if those numbers in the graphic above mean anything, there will be plenty of gas for a while yet.
BTW, those are wide ranges because they're not "reserves" yet, but potential resources. The difference is one of certainty. Note the wide range of estimates for the Barnett Shale, which is far & away the most mature of these plays.
Without deviation from the norm, progress is not possible. - Frank Zappa
that oil is actually a by-product of the earth's core. I personally think that this theory is reasonable because it would explain the randomness of where all of the big oil reserves are located, but it is just a theory. To ensure that we can become and stay energy independent, we need to build more fast breeder reactors and solar plants.
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In an insane society, reality is outside of the mainstream.
Vladimir, do you know what percent of overall domestic production is done by independents?