slides - david hughes debate vs terry engelder

Shale Gas:

A Panacea to Solve America’s

Energy Woes?

Fourth Annual Chesapeake Energy Lecture

National Energy Policy Institute

Tulsa, Oklahoma

February 7, 2012

J. David Hughes

Global Sustainability Research Inc.

Geological Survey of Canada - retired

The Optimism on Gas

- There is so much natural gas that there is enough available to,

according to one researcher, "displace half of the coal burning power

plants [in the United States] by 2020” (Pickens Plan, 2012)

- “We have the domestic natural gas necessary to fuel our trucks and

fleet vehicles…” (Pickens Plan, 2012)

- Studies from prestigious energy research firms and universities have

affirmed that the dream of clean, abundant, home grown energy is now

reality, with the help of shale gas. (ANGA, 2012).

- “I believe U.S. natural gas producers can increase supplies by 5% per

year for at least the next decade and that assumes there is no more

access to public lands and waters than there is today.” (Testimony to

Congress, Aubrey McClendon, July 30, 2008). [63% compounded]

0

20

40

60

80

100

120

1970 1980 1990 2000 2010

Tri

llio

n C

ub

ic F

eet

per

Yea

r

Year

Asia Pacific Africa Middle East Former Soviet Union Europe S. & Cent. America North America

0

20

40

60

80

100

120

1970 1980 1990 2000 2010

Tri

llio

n C

ub

ic F

eet

per

Yea

r

Year

Asia Pacific Africa Middle East Former Soviet Union Europe S. & Cent. America North America

World Gas Production and Consumption 1970-2010

715%

3780%

2038%

230%

31%

3038%

2213%

323%

177% 791%

25%

(data from BP Statistical Review of World Energy, 2011)

221% increase

up 7.4% 2010

over 2009

392%

219% increase

up 7.3% 2010

over 2009

Production Consumption

© Hughes GSR Inc, 2011

0

20

40

60

80

100

120

2009 2013 2017 2021 2025 2029 2033

Qu

ad

rill

ion

Btu

Year

Forecast U.S. Energy Consumption by Fuel

2009-2035 (Reference Case, EIA, 2012)

4.4%

(data from Energy Information Administration Annual Energy Outlook, 2012)

Market

Share

Natural Gas +16%

Coal +10%

8.8%

21%

25%

39%

2.8%

20%

25%

35%

14% Growth 2009-2035

8.7%


8.2%

Oil +4%

Shale Gas – North American Prospects

(from National Energy Board, 2009)

0

5

10

15

20

25

30

2009 2014 2019 2024 2029 2034

Tri

llio

n C

ub

ic F

eet

per

Yea

r

Year

Shale Gas +365%

Lower 48 Conventional

(including Tight Gas) -25%

Lower 48 Offshore +2%

U.S. Natural Gas Supply Forecast by Source 2009-2035

(Reference Case, EIA, 2012)


Lower 48 Production

Grows 37% 2009-2035

20% Total Supply Growth

from 2009-2035

Coalbed Methane -8%

Lower 48 Unconventional

Lower 48 Onshore Associated -24%


US becomes net exporter 2021

0

2

4

6

8

10

12

14

16

2008 2013 2018 2023 2028 2033

Tri

llio

n C

ub

ic F

eet

per

Yea

r

Year

Shale gas forecast 2009




EIA projections of U.S. Shale Gas Production, 2009-2012

(data from Energy Information Administration

Annual Energy Outlook, 2009, 2010, 2011 and 2012 reference case projections)

49% of production


16%

26%

45%

0

5

10

15

20

25

30

0

2

4

6

8

10

12

14

16

18

20

1995 1999 2003 2007 2011 2015 2019 2023 2027 2031 2035

An

nu

al G

as P

rod

uctio

n (T

rillion

cub

ic feet) G

as

Pri

ce (

$U

S/m

cf)

Year

Russian Gas Price Indonesia LNG Gas Price in Japan U.S. Henry Hub Gas Price EIA Forecast U.S. Gas Price ($2010) Actual U.S. Gas Production EIA Forecast U.S. Gas Production

(data from International Monetary Fund 2012; EIA AEO 2012)

EIA projections of Gas Price and Production Compared

to History, 1995-2035


“Shale plays are marginally commercial at best.”

Arthur Berman on Shale Gas

(ASPO meeting in Washington DC, October, 2010)

(from Art Berman’s ASPO-USA presentation in October 2010)

“The plays have consistently contracted to a core area that

represents 10-20% of the resource that was initially claimed.

The manufacturing model has failed.”

“Reserves have been greatly over-stated and 80% of booked

reserves are undeveloped.”

“These are not low-cost plays: the marginal cost of

production for most companies is $7.50/Mcf based on SEC

10-K filings over the past 5 years.”

Shale Plays contract to “Core Areas” as

more information is gathered

(from Art Berman’s ASPO-USA presentation in October 2010)

0

50

100

150

200

250

300

350

400

450

500

Engelder 2009

P50

EIA 2011 Intek USGS 2011

mean

EIA 2012

Tri

llio

n C

ub

ic F

eet

Technically Recoverable Resource Estimates for the

Marcellus Shale, 2009-2012, decline as Information Improves

489 T

cf

410 T

cf

84

Tcf

14

1 T

cf

100

110

120

130

140

150

160

170

180

190

250,000

300,000

350,000

400,000

450,000

500,000

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

Av

erag

e Ga

s Well P

rod

uctiv

ity (M

cf/day

) N

um

ber

of

Pro

du

cin

g G

as

Wel

ls

Year

Number of wells

Average Productivity

(data from EIA, 2011)

Number of Operating Gas Wells in the U.S.

versus Average Productivity


(data copyright IHS Energy, Diagram prepared and copyright by EOG Resources Inc., 2006; Cash flow

and deficits are from Arc Financial http://arcfinancial.com/research/energy-charts/who-is-eating-at-the-petroleum-club/ )

Natural Gas Production in the United States

by Well Vintage at Yearend 2006

60% From

Most

Recent

FOUR

YEARS

2012 update – overall decline is still 32%/year requiring 22 bcfd to be replaced each

year to maintain production – requires $88 billion in investment which is

$50+ billion more than cash flow in the current low price environment

http://arcfinancial.com/research/energy-charts/who-is-eating-at-the-petroleum-club/















0

5

10

15

20

25

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

An

nu

al D

ry G

as P

rod

uctio

n (trillio

n cu

bic feet) A

nn

ua

l N

um

ber

of

Su

cces

sfu

l G

as

Wel

ls D

rill

ed

Year

Number of wells

Dry Gas Production

Drilling triples from 1990’s levels


Natural Gas Production versus Annual

Drilling Rates, 1990-2011

Production up 4.6% from 1973, 15.8% from 2001

(data from EIA, 2012; includes production and drilling up until October, 2011)

0

1

2

3

4

5

6

7

8

0

5,000

10,000

15,000

20,000

25,000

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

Cru

de O

il Pro

du

ction

(Millio

n b

arrels p

er da

y)

An

nu

al

Nu

mb

er o

f S

ucc

essf

ul

Oil

Wel

ls D

rill

ed

Year

Number of wells

Crude Oil Production

Production down 42% from 1971 peak;

up 13% from 2008 low

(data from EIA, 2012; includes production and drilling up until October, 2011) © Hughes GSR Inc, 2012

Crude Oil Production versus Annual

Drilling Rates, 1990-2011

Drilling Doubles from 1990’s levels

0

2

4

6

8

10

12

14

16

18

20

2003 2004 2005 2006 2007 2008 2009 2010 2011

Gas

Pro

du

ctio

n (

bil

lio

n c

ub

ic f

eet

per

da

y)

Year

Niobrara

Mississipian

Permian

Bakken

Eagleford

Granite Wash

Woodford

Marcellus

Fayetteville

Haynesville

Barnett

(data from Art Berman, HPDI, 2012)

Shale Gas Production by Play (2003 - June, 2011)


Barnett

Haynesville

30% of U.S. Production

0

1

2

3

4

5

6

7

2003 2004 2005 2006 2007 2008 2009 2010 2011

Gas

Pro

du

ctio

n (

bil

lio

n c

ub

ic f

eet

per

da

y)

Year

Barnett

Haynesville

Fayetteville

Marcellus

Woodford

Granite Wash

Eagleford

Bakken

Permian

Mississipian

Niobrara

(data from Art Berman, HPDI, 2012)

Shale Gas Production by Play (2003 - September, 2011)


Barnett

Haynesville

Fayetteville

Marcellus

Woodford

0

5

10

15

20

25

30

2009 2013 2017 2021 2025 2029 2033

Qu

ad

rill

ion

Btu

Year

U.S. Natural Gas Consumption by Sector


Electricity +30%


Market

Share

Commercial +14%

Industrial +14%

30%

33%

14%

21%

32%

13%

18%

16% Growth 2009-2035

34%


Residential -3%

CNG

Pipeline Fuel +11%

0

1000

2000

3000

4000

5000

6000

2009 2013 2017 2021 2025 2029 2033

Ter

aw

att

Hou

rs

Year

Forecast U.S. Electricity Generation by Fuel



Market

Share

Natural Gas +49%

Coal +11%

7%

20%

44%

23%

9%

18%

39%

27%

27.9% Growth 2009-2035

6%


0

50

100

150

200

250

300

350

400

450

500

2009 2013 2017 2021 2025 2029 2033

Ter

aw

att

Ho

urs

Year

Solar Geothermal Wind Biomass and other renewables


Market

Share

Biomass and all other renewables +261%

Wind +156%

3.7%

9.4%

226% Growth 2009-2035


U.S. Non-Hydro Renewable Electricity Generation

2009-2035 (EIA Reference Case, 2012)

(3.8%)

(3.9%)

But there is no such thing

as a FREE LUNCH

There has been a great deal of

pushback by many in the

general public and in State and

National governments to

environmental issues surrounding

hydraulic fracturing

- environmental organizations

- community groups

- listserves

- documentary films such as Gasland

- scientific reports, NYTimes “drilling down” series, etc.

Public concern

about hydraulic

fracturing

is very high

The Meme of Natural Gas as a clean “Transition Fuel”

to a low carbon future is being seriously questioned

- Methane contamination of

groundwater

- Disposal of produced fracture fluid

contaminating groundwater and

inducing earthquakes

-Industrial footprint – truck traffic, air

emissions etc.

-Full cycle greenhouse gas emissions

which may be worse than coal

Methane Contamination within 1000 metres of Active

Wells in Pennsylvania, Osburn et al. 2011, Duke University

Surface Casing Vent Flow and Gas Migration are

Chronic Problems

Watson and Bachu, SPE 106817, 2009.

(from Watson and Bachu, SPE 106817, 2009; thanks to Tony Ingraffea)

- Contamination of groundwater from improper disposal

of fracture fluids;

- Induced seismicity from injection of

wastewater in disposal wells.

0

0.5

1

1.5

2

2.5

3

3.5

Per

cen

tag

e of

Lif

etim

e P

rod

uct

ion

Source

Distribution

Transmission and Storage

Processing

Extraction

NETL (Skone, 2011) Methane Emissions by Gas Source

adjusted to match average emissions of the 2009 EPA inventory


0

1

2

3

4

5

6

7

8

9

Per

cen

tag

e o

f T

ota

l P

rod

uct

ion

Estimated Ultimate Recovery (billion cubic feet)

% of total production

vented according to NETL

% of total production

vented adjusted to match

EPA 2009 inventory

Low

est

imate

Hig

h e

stim

ate

Comparison of NETL (Skone, 2011) and Howarth et al. 2011

vented methane as a Percentage of EUR for Barnett Shale

EIA Intek (2011) 1.42 bcf © Hughes GSR Inc, 2012

0

0.5

1

1.5

2

2.5

3

3.5

4

25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 105

Pou

nd

s o

f C

O2 e

qu

iva

len

t p

er k

Wh

Global Warming Potential (GWP) of Methane (times CO2)

Existing U.S. Coal Fleet

Existing U.S. Gas Fleet fuelled by shale gas

Best-in-class Coal Technology

Best-in-class Gas Technology fuelled by shale gas

IPCC 2007 Shindell et al. 2009

100 year GWP

Shindell et al. 2009

20 year GWP

IPCC 2007

20 year GWP

Global Warming Potential of Shale Gas versus Coal

Given various 20- and 100-year estimates of Methane Potency

Compared to CO2 on an Electricity Basis (Mean methane emissions)


• There are significant geological, environmental and economic challenges in continuing to grow shale gas supply. I expect significantly higher prices going forward over the next 24-36 months.

• Almost all eggs are in the shale gas basket as a hope in meeting supply growth projections.

Summary and Implications

• The hope that shale gas can make more than modest inroads on oil for transportation and coal for electricity is unwarranted, even if the EIA’s supply projections can be met.

• Natural gas will continue to be a very important component of U.S. energy supply.

• Shale gas has been a “game-changer” in that it has averted a terminal decline in supplies from conventional sources. A rational energy strategy must emphasis demand side reductions in consumption as opposed to a supply side “drill, baby, drill” mindset – there is no free lunch.

slides - david hughes debate vs terry engelder

Documents