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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]
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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
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2009 2013 2017 2021 2025 2029 2033
Qu
ad
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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%
© Hughes GSR Inc, 2012
8.2%
Oil +4%
Shale Gas – North American Prospects
(from National Energy Board, 2009)
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30
2009 2014 2019 2024 2029 2034
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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)
(data from Energy Information Administration Annual Energy Outlook, 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%
© Hughes GSR Inc, 2012
US becomes net exporter 2021
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Shale gas forecast 2009
Shale gas forecast 2010
Shale gas forecast 2011
Shale gas forecast 2012
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
© Hughes GSR Inc, 2012
16%
26%
45%
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An
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as P
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n (T
rillion
cub
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as
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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
© Hughes GSR Inc, 2012
“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)
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Engelder 2009
P50
EIA 2011 Intek USGS 2011
mean
EIA 2012
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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
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250,000
300,000
350,000
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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
© Hughes GSR Inc, 2011
(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
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ua
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of
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sfu
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ed
Year
Number of wells
Dry Gas Production
Drilling triples from 1990’s levels
© Hughes GSR Inc, 2012
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)
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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
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Gas
Pro
du
ctio
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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)
© Hughes GSR Inc, 2012
Barnett
Haynesville
30% of U.S. Production
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Gas
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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)
© Hughes GSR Inc, 2012
Barnett
Haynesville
Fayetteville
Marcellus
Woodford
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Btu
Year
U.S. Natural Gas Consumption by Sector
2009-2035 (Reference Case, EIA, 2012)
Electricity +30%
(data from Energy Information Administration Annual Energy Outlook, 2012)
Market
Share
Commercial +14%
Industrial +14%
30%
33%
14%
21%
32%
13%
18%
16% Growth 2009-2035
34%
© Hughes GSR Inc, 2012
Residential -3%
CNG
Pipeline Fuel +11%
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aw
att
Hou
rs
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Forecast U.S. Electricity Generation by Fuel
2009-2035 (Reference Case, EIA, 2012)
(data from Energy Information Administration Annual Energy Outlook, 2012)
Market
Share
Natural Gas +49%
Coal +11%
7%
20%
44%
23%
9%
18%
39%
27%
27.9% Growth 2009-2035
6%
© Hughes GSR Inc, 2012
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Ter
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att
Ho
urs
Year
Solar Geothermal Wind Biomass and other renewables
(data from Energy Information Administration Annual Energy Outlook, 2012)
Market
Share
Biomass and all other renewables +261%
Wind +156%
3.7%
9.4%
226% Growth 2009-2035
© Hughes GSR Inc, 2012
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.
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Per
cen
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Lif
etim
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rod
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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
© Hughes GSR Inc, 2012
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% 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
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Pou
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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)
© Hughes GSR Inc, 2012
• 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.