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100309 VKuuskraa Gas Shales

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    March 5, 2010

    Gas Shales Drive the Unconventional Gas Revolution

    JAF28178.PPT1

    Gas Shales Drive theUnconventional Gas RevolutionPrepared By:

    Vello A. Kuuskraa, President

    ADVANCED RESOURCES INTERNATIONAL, INC.

    Arlington, VA

    Prepared for:

    Washington Energy Policy Conference

    The Unconventional Gas Revolution

    Sponsored by:

    National Capital Area Chapter/US Association for Energy Economics

    Center for Strategic and International Studies

    March 9, 2010, Washington, D.C.

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    The Paradigm Shift

    Driven by a new understanding of the size and availability ofgas shales and unconventional gas, a paradigm shift is underwayon natural gas supplies.

    This paradigm shift began a decade ago in the U.S. with only

    modest fanfare. Low cost coalbed methane in the San Juan Basin of

    Colorado and New Mexico led the way.

    Next was the introduction of highly productive tight gasdevelopment at the Jonah and Pinedale fields in western

    Wyoming. Third was the emergence of the Barnett and now the other

    North American gas shales.

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    Gas Shales: Whats the Big Deal?

    Shale Gas is the most important energy development sincethe discovery of oil

    Fred Julander,CEO of Julander Energy

    Mission Critical: Can Shale Gas Save the World?ASPO, September 21, 2009

    Shale Gas Blasts Open World Energy MarketThe Sunday TimesNovember 1, 2009

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    Three Critical Questions

    Three questions need to be addressed, if gas shales and otherunconventional gas resources are to be a major pathway to a low-carbon future:

    Question #1. Will there be adequate supplies of natural gas?

    Our company, Advanced Resources International, has undertaken detailed, basin-levelassessments of gas shales and other unconventional gas resources. Similar work is

    underway by other companies and agencies.

    Question #2. What role could technology play to assure natural gassupplies remain affordable?

    Past R&D by DOE/NETL, GRI and industry has cracked the technology code.Additional technology progress is needed to lower costs and improve productivity.

    Question #3. Can these new natural gas resources be developed in anenvironmentally sound way?

    Significant segments of the industry are pursuing green development - - reducingsurface impacts, re-using produced water and capturing methane emissions.

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    What Is Unconventional Gas?

    Unconventional gas formationsare continuous, deposited overlarge areas rather than indiscrete traps.

    The geologic setting of

    unconventional gas is severalorders more complex thanconventional gas.

    For coalbed methane and gasshales, the gas source, trap and

    reservoir are the same, not threedistinct elements as forconventional gas.

    RESOURCEPL

    AYS

    Self-Sourcing Reservoir

    Gas Adsorbed in Coal

    Requires Depressuring and Usually

    Dewatering

    Self-Sourcing Plus Traditional Porosity

    Reservoirs

    Gas Adsorbed in Organic Matter

    Requires Pervasive Natural or Created

    Fracture Network

    Continuous Deposition

    Low Permeability

    Both Traditional and Basin-

    Center Settings

    COALBED METHANE

    GAS SHALES

    TIGHT GAS SANDS

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    0

    2

    4

    6

    8

    10

    12

    2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

    AnnualProduction

    (D

    ry,

    Bcf/d

    Othe r Ba rne tt Fa ye tte vi ll e Woodford Ma rce ll us Ha yne svi ll e

    JAF2010_18.XLS

    (e)

    Production of gas shales has gown by ten-fold and is expected to

    reach 10 Bcfd, equal to 18% of U.S. natural gas production this year.

    Source: Advanced Resources International (2010)

    2000 2009 (e) 2010 (e)

    (Bcfd) (Bcfd) (Bcfd)

    Haynesville - 0.9 1.6

    Marcellus - 0.2 0.7

    Woodford - 0.5 0.7

    Fayetteville - 1.4 1.8Barnett 0.2 4.6 4.8Other 0.9 0.8 0.8

    Total 1.1 8.5 10.4

    How Much Do Gas Shales Contribute Today?

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    How Large is the Gas Shale Resource?

    We have completed in-depth assessments of the Magnificent SevenNorth American gas shale basins which dominate todays activity.

    Other eastern gas shale plays in the U.S. - - Antrim, Huron, EagleFord and Utica - - plus the numerous Western Shale basins add to thistotal.

    Gas Shale

    Basins

    Resource

    Endowment

    Remaining

    Recoverable

    Resource*

    Tcf Tcf

    U.S. (5 Basins) 3,420 470

    Canada (2 Basins) 1,380 240

    *Approximately 25 Tcf has been produced or place into proved reserves.

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    Eastern U.S. Gas Shale Basins

    Source: Advanced Resources International

    Five of the Magnificent Seven gas

    shale plays are in the Eastern U.S.

    Resource

    Endowment

    (Tcf)

    Produced/

    Proved

    Reserves

    (Tcf)*

    Undeveloped

    Recoverable

    Resource

    (Tcf)*

    Barnett 250 19 40

    Fayetteville 320 3 50

    Woodford 300 2 30

    Haynesville 790 1 130

    Marcellus 1,760 - 220

    Total 3,420 25 470

    *As of end of 2008.

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    Other Unconventional Gas Resources

    While the most visible, gas shales are only one of theunconventional gas resources under development today:

    Coalbed Methane, including the mighty San Juan coal basin,provides 5 Bcfd.

    Tight Gas Sands, in both the Rockies, the Mid-West and East, Texas,provide 18 Bcfd.

    By year 2020, we look for unconventional gas (including gasshales, coalbed methane and tight gas) to provide 46 Bcfd andaccount for over two-thirds of total U.S. natural gas production.

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    05

    10

    15

    20

    25

    30

    35

    40

    45

    50

    2008 2010 2012 2014 2016 2018 2020Uncon

    ventionalGasProduction

    (Bcfd)

    U.S. Shale U.S. Tight Gas Sands N.A. CBM

    *Assuming sufficient demand and a natural gas price ($US, Henry Hub) of $7/MMBtu.

    Source: Advanced Resources International, Model of Unconventional Gas (MUGS) (2009).

    U.S. Gas Shale

    U.S. Tight Gas

    U.S CBM

    JAF2010_19.XLS

    Projected Gas Shale and

    Unconventional Gas Production*

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    Question #2. What role could technology play to

    assure natural gas supplies remain affordable?

    Gas shales and unconventional gas are a R&D and policysuccess story:

    The DOE/NETL helped build the essential resource and scienceknowledge base.

    The Gas Research Institute and industry launched the earlytechnology demos.

    Section 29 tax credits (now expired) helped attract capital and buildeconomies of scale.

    However, we are still in the early, emerging stages of having an

    optimum set of technologies appropriate for the large lower qualityportion of the unconventional gas resource.

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    What Changed the Game?

    Horizontal Well with Multi-Stage Fracturing

    Source: EnCana

    Natural gas production fromshallow, fractured shaleformations in the Appalachian andMichigan basins of the U.S. has

    been underway for decades.What changed the game was

    the recognition that one couldcreate a permeable reservoirand high rates of gas productionby using intensively stimulatedhorizontal wells.

    G Sh l D i h U i l G R l i

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    Stage 3

    Early Horizontal Well Completion Practices

    Latest Gas Shale Well Completion Practices

    Stage 2 Stage 1

    5,000

    1,500

    What Changed the Game?

    This break-through inknowledge and technologyenabled the numerousdeep, low permeability gasshale formations to becomeproductive, making the

    Barnett Shale the largestnatural gas field in Texas.

    Meanwhile, horizontalwell lengths and intensity ofstimulation continue toevolve.

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    G Sh l D i th U ti l G R l ti

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    Question #3. Can these new natural gas resources

    be developed in an environmentally sound way?

    Reducing Surface Impacts

    Capturing Methane Emissions

    Re-Using Produced Water

    As drilling increases and production grows, a harsherspotlight will fall on natural gas. Green natural gasdevelopment will help put a more environmentally friendly

    face on this activity.

    G Sh l D i th U ti l G R l ti

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    Green Unconventional Gas Development

    Source: Canadian Association of Petroleum Producers, 2010

    Reducing Land Use Impacts with Multi-Well Pads and Horizontal Wells

    Gas Shales Drive the Unconventional Gas Revolution

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    Drilling Multiple (22) Wells From A Single Well Pad(Williams Fork/MV, Piceance Basin)

    Source: Williams, 2007

    Gas Shales Drive the Unconventional Gas Revolution

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    Voluntarily Reducing Methane Emissions

    Source: U.S. Environmental Protection Agency (www.epa.gov.gasstar/accomplish.htm)

    Since 1990, Natural Gas Starpartners have eliminated over500 Bcf of methane emissions

    from the oil and gasproduction sector.

    Williams reports 24 Bcf ofmethane emissions capturedwith costs of $17 million and

    revenues of $159 million.

    Cumulative Methane Emission Reductions by EPANatural Gas STAR Partners (2000-2008)

    0

    100

    200

    300

    400

    500

    600

    700

    800

    900

    2000 2001 2002 2003 2004 2005 2006 2007 2008

    Year

    Cumu

    lativeEmissionRed

    uctions(Bcf)

    Other

    Production Sector

    Gas Shales Drive the Unconventional Gas Revolution

    http://www.epa.gov.gasstar/accomplish.htmhttp://www.epa.gov.gasstar/accomplish.htm
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    Concluding Remarks

    Our work to date shows that the nation has largesupplies of gas shales and unconventional gas.

    Progress in technology can help keep these

    natural gas supplies affordable, encouraging theirgreater use in power generation and transportation.

    With green development practices, these largeresources can be developed in an environmentallysound way.

    Gas Shales Drive the Unconventional Gas Revolution

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    AdvancedResources

    Internationalwww.adv-res.com

    Office Locations

    Washington, DC4501 Fairfax Drive, Suite 910

    Arlington, VA 22203

    Phone: (703) 528-8420

    Fax: (703) 528-0439

    Houston, Texas

    11490 Westheimer, Suite 520

    Houston, TX 77042

    Phone: (281) 558-6569

    Fax: (281) 558-9202


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