Bishop Hill Smaller than we thought
Jan 24, 2012 Energy: gas Greens H/T to Anonym in Unthreaded, for pointing us to this report at Bloomberg. It seems that extractable reserves in the Marcellus Shale are much lower than previously thought:
The U.S. Energy Department cut its estimate for natural gas reserves in the Marcellus shale formation by 66 percent, citing improved data on drilling and production.
About 141 trillion cubic feet of gas can be recovered from the Marcellus shale using current technology, down from the previous estimate of 410 trillion, the department said today in its Annual Energy Outlook. About 482 trillion cubic feet can be produced from shale basins across the U.S., down 42 percent from 827 trillion in last year’s outlook.
I wonder how important that caveat - "with current technology" - is.
Reader Comments (53)
"with current technology" probably equals "under current ecoloon restrictive legislations"
A sober warning to all us "deniers" not to fall under the spell of the conventional energy industry assurances that supplies of fossil fuel stretch far, far into the future. Unknown unknowns..etc!
More research on nuclear,please. Yes, and on "renewables"....a great idea whose time mostly has not yet come as a consequence of technical immaturity.
Not saying this is incorrect Bish but all exploration companies give underestimates to avoid falling foul of the Stock/Shares regulators. Add to that all the new innovations I see in the Oil/Gas journals that I get monthly will see improved extraction. Innovation is something oil engineering companies are famous for even if the green machine does not like them ;-)
More research on nuclear,please. Yes, and on "renewables"....a great idea whose time mostly has not yet come as a consequence of technical immaturity.
Jan 24, 2012 at 8:05 AM | Unregistered CommenterJack Savage
Thorium nuclear by all means yes, but please no research into renewables. Windmills are as good as they are going to get (not very - air is too thin and wind unpredictable), and wave generators are just flotsam waiting to happen. Estuary tidal has some potential, but the reality is that if you want to keep the lights on in an industrial country we need large scale conventional thermal power stations. That said Rossi does seem to be onto something very big with his E-Cat device, which will transform everything.
@Iapogus
Our entire wind turbine drive is a total disaster, agreed. Ditto present solar panels. However," renewables" include such successful technologies as hydro power.
Personally, I class nuclear as a renewable. Once we have truly mastered the awesome power of nuclear the supply of energy is effectively infinite. I have no doubt it is the future but who would not welcome,say, a cheap paint coating which would function as a solar panel? The third world would...right now.
This superlative essay on energy has guided my thinking for some time now.
http://www.energytribune.com/articles.cfm?aid=2469
lapogus
Down here in the south-west we hear nothing but excitement about how renewables are going to be great for the economy of the south-west. Money is being poured into the wave-hub (£42million) and now the Marine Energy Park which will enable "energy technologies harnessing waves and tides could provide the UK with up to 27 GW of energy by 2050, equivalent to eight coal-fired power stations". (Note as usual the fact that they don't know the difference between energy and power)
In the last seven years, £100 million has already been invested in the sector in the south west, including the Wave Hub test site, the Fab-Test nursery site at Falmouth and new research facilities at the Universities of Plymouth, Exeter and Bristol.
Today we have the official commissioning of the Fullabrook Wind Farm in Devon, the largest wind farm in England, and which is already causing huge noise issues and whose size has horrified those who were expecting something much smaller.
Money is literally being poured into the sea and blown away by the wind in the south-west.
Meanwhile, they've increased the estimated reserves of the Monterey formation in California:
http://nextbigfuture.com/2012/01/eia-estimates-california-monterey-to.html
Re: lapogus
Reports on the E-Cat device are inconclusive.
At the present moment it is a black box and until it has been independently tested and verified that it produces more energy than it consumes I will remain sceptical of its claims.
Is that the royal "we" Bish ;)
The future is bright, or not, depending on whose press release one reads. Of course the "The Oil Drum" has been saying this for years.
A quick googling shows that the EIA report of last year estimated about 30% higher US shale gas reserves than any of the trade associations. Now this year it shows about 30% less than those same other estimates. I think it's probably best to wait until those trade associations update their own reports before drawing any firm conclusions.
opps wrong thread, damn multi tab browsing :o
(should have been in the shale thread)
I'll get me coat
Argh I give up!
Re: lapogus
Reports on the E-Cat device are inconclusive.
At the present moment it is a black box and until it has been independently tested and verified that it produces more energy than it consumes I will remain sceptical of its claims.
Jan 24, 2012 at 9:17 AM | Unregistered Commenter TerryS
That's what I thought. But last November's test showed an average output of 479kW output for 5 hours. There were independent scientists present and the customer (probably the US military) was satisfied. Did you read the report from Nyteknik ?
Scepticism is a good thing but you can have too much of it.
Rossi only invited a few science journalists, he can't be bothered with the mainstream media. It is early days in terms of scaling it up but he is on to something big. I hope so anyway.
There are always huge misunderstandings on quoted reserve estimates, especially in the unproven category. For a comprehensive explanation see ref below, also with a useful overview of shale gas in Section 8.6
http://spe.org/industry/docs/PRMS_Guidelines_Nov2011.pdf
They're excluding fracking.
141 Tcf is a HUGE amount of gas... those of us who make a crust from the business get giddy over a 1 Tcf discovery! And 'with current technology' means the estimate is only likely to get larger (assuming it's accurate now - which is highly un likely given the uncertainties), as technology and understanding improves. Just liken it ot the early days of conventional drilling, how many billions of barrels were left underground in the US through poor understanding of reservoir dynamics and over production....
This is not new. In fact it is expected. I recall the PEMEX hype about a new discovery a few years back. The press was telling us how it was proof that the peak oil hypothesis was wrong and was pointing to deep water discoveries around the globe. But as more data came in the discovery was written down by 95% and many of the deep water plays were quietly sold by their original owners as they figured out the huge capital commitment that would be needed and the small amount of annual production that would result from the development of those fields. So far the actual 10-K filings are showing that there is a shale gas bubble that will burst unless prices rise above the $7-$8 break even cost of production. Yes, new developments in technology will help but they will appear when the best prospects in the core areas have already been developed and the industry is left with marginal lower-energy-density formations that are not anywhere close to economic at this time.
"Drilling in the Marcellus accelerated rapidly in 2010 and 2011, so that there is far more information available today than a year ago. Indeed, the daily rate of Marcellus production doubled during 2011 alone. Using data though 2010, USGS updated its TRR estimate for the Marcellus to 84 trillion cubic feet, with a 90-percent confidence range from 43 to 144 trillion cubic feet—a substantial increase over the previous USGS estimate of 2 trillion cubic feet dating from 2002."
When production DOUBLES in one year, I think we can safely say this "estimate" is just an attempt by the Obama administration to justify squandering trillions on "green" boondoggles.
The Obamabots plan to claim there is no reason to change any of their stupid plans to squander trillions on electric cars and solar panels and wind turbines.
"This study projects that Marcellus gas production could expand to over 17 billion cubic feet per day by 2020"
http://marcelluscoalition.org/wp-content/uploads/2011/07/Final-2011-PA-Marcellus-Economic-Impacts.pdf
That would be 5 x 2011 production. That would mean ONE shale field would be supplying 30% of current US needs.
cedarhill
Bruce
I think these two observations pretty much cover it. Of interest is that the US has TOO MUCH natural gas. Now that it is at about $2.50 per million cubic feet, the production has finally been slashed. Why have all those Green Things if you have Natural Gas? Natural Gas is causing severe gas for the Obama administration so the Dept of Energy (who brought us Solyndra) is playing it down any way they can.
They're excluding fracking.
Jan 24, 2012 at 11:59 AM | Unregistered Commenter cedarhill
from the article...
"About 141 trillion cubic feet of gas can be recovered from the Marcellus shale using current technology, down from the previous estimate of 410 trillion......
The Marcellus Shale is a rock formation stretching across the U.S. Northeast, including Pennsylvania and New York. Shale producers use a technique known as hydraulic fracturing, which involves pumping water, sand and chemicals underground to extract gas embedded in the rock."
@cedarhill
Are they just talking about fracking in the article, but not counting it in the original data or something?
Frosty
See Bruce's post above, re the USGS estimate. I think TRR = total recoverable reserve. It all has to be fracked. Shale permeability is far too low to yield anything without fracking.
Extraction of hydrocarbons from shale oil formations is still a relatively nascent technology. There are bound to be some ups and downs in estimates of economic reserves as the methodology rolls out from experimental, to small, then large-scale production, along with the ensuing development and tweaks, but the long-term estimates of such reserves will increase. World-wide, the extractive industries have a great record for developing new technology.
Does the estimate include fracking or not?
Just a wild guess, but the answer could be "yes".
That is, while considerable gas is being extracted in Pennsylvania without incident, NYS in its infinite wisdom has deemed it unsafe to their water supply. Therefore the study can count Marcellous shale deposits in PA but not in NY until some technological breakthrough (miracle?) occurs that will allow Gov Cuomo to relent. (As was noted, there is a recently announced deposit in California, but IMHO it would take more than a miracle to frack there.)
Thks Pharos.
What is not discussed is the production decline rates of fracked plays, I think the reason production doubled was the massive increase in new drill sites, which more than outpaced declining wells (most of which are not really very old).
"Many believe that the high initial rates and cumulative production of shale plays prove their success. What they miss is that production decline rates are so high that, without continuous drilling, overall production would plummet. There is no doubt that the shale gas resource is very large. The concern is that much of it is non-commercial even at price levels that are considerably higher than they are today."
from http://www.theoildrum.com/node/7075 (dated October 28, 2010)
paraphrasing "your comment will appear after editor approval"
is my comment lost, or in some moderation queue?
between this hassle and the intolerable capcia thingy I wonder how may folks have just given up trying to post, I gave up for ages, thinking the issues might have been addressed by now I tried again, it seems even worse than last time.
I used to be mildly irritated at the software this blog runs on, it has developed into a pronounced hatred
I think the ultimate limitation on the availability of shale oil hydrocarbons will be the how much the ecoloon lobby will be allowed to impede development, as alluded to by Jeroen B this morning. BTW, the NCB were experimenting with in situ gassification of coal deposits (related to current shale oil extraction technology) in the Salop coalfields over 50 years ago, but gave it up due to the lack of government interest/investment. Yet again we've been overtaken by the yanks and chinese
see this just proves my point further, my previous post is missing, my later complaint post appears thrice whilst I get the message "the server has been reset"
most annoying.
[Repeated comments now removed. BH]
Frosty
A lot of good shale stuff on the 'No Hot Air' blog (the very last link on the Bishop's sidebar), including a video of the Parliamentary Committee hearing Cuadrilla gave evidence to.
There is something hugely reassuring, comforting and enjoyably politically incorrect to UK citizenry of a certain age, that the petroleum industry (apart from European operators, BP and DECC), still stick to US tradition and drill in feet, with pipe diameters in inches, pressures in psi, temperatures in farenheit, volumes in acre-feet, barrels and cubic feet etc. etc. The push for metrification just was not popular or neccessary, the metric units being ill-suited, awkward and cumbersome in the ranges used. Well, how tall are you in metric?
@Pharos: 'There is something hugely reassuring, comforting and enjoyably politically incorrect to UK citizenry of a certain age, that the petroleum industry (apart from European operators, BP and DECC), still stick to US tradition and drill in feet, with pipe diameters in inches, pressures in psi, temperatures in farenheit, volumes in acre-feet, barrels and cubic feet etc. etc.'
Totally agree with you. My main activity involves British mining history/archaeology which involves working in inches, feet, yards, fathoms, chains, bings, fothers, hundredweights etc! A large number of the 'friendly fire' incidents that have occurred in recent military conflicts have resulted from that fact that ground forces work in metric and sea/air forces still use nautical miles and knots. Result: serious cock-up - one NM = 2km.
do you remember how Shell, a few years ago, was hauled over the coals because it revised downwards its estimate of "proven" reserves (whatever that means). The chairman had to resign. All energy companies have taken in that lesson....
Does the estimate include fracking or not?
Just a wild guess, but the answer could be "yes".
It is yes. And it does not take into account politics. The issue is economic production and there is no way to spin that into a positive given the actual production data. So far it is clear from all of the 10-Ks that the shale gas story is mostly hype just as the housing and internet stories were.
do you remember how Shell, a few years ago, was hauled over the coals because it revised downwards its estimate of "proven" reserves (whatever that means). The chairman had to resign. All energy companies have taken in that lesson....
There is no evidence of this in the shale gas sector. If you look at the EURs and the actual production data there is no way that the reserve estimates and the depreciation costs are real. It is only a matter of time before there is a massive write-down to try to set the accounting a little closer to the dire reality. Another issue is the reporting of "BOE" reserves for shale gas properties. Thanks to the SEC rules the companies use the 6:1 energy ratio rather than the 30:1 price ratio. This, along with the ability to guess at reserve estimates without having sufficient production data, make the shale producers very attractive to large conventional producers who have a depletion problem that needs to be swept under the rug. If the US ever put into place the equivalent of Canada's NI 43-101 standard the shale bubble would collapse immediately just as previous shale manias have.
Vangel wrote
quote
If the US ever put into place the equivalent of Canada's NI 43-101 standard the shale bubble would collapse immediately just as previous shale manias have.
unquote
That's very interesting. So it's really just a scam? To be able to say that with such certainty you must have a lot of experience in the field -- the fact you are anonymous is a bit worrying, so many people just troll in like circumstances -- so could you give us some clues about your qualifications? Not that I'd doubt you, but I'm planning a new central heating system (coal is so last year) and if shale gas is just hype I'll have to think of something else.* Casting doubt is easy behind the mask.
It would be nice to get rid of coal -- dirty, lots of CO2, sulphur etc. However, if it's just hype with the shale then coal it is.
JF
*Maybe thorium.
Pharos, thanks for directing me to "no hot air" unfortunately searching "production decline" does not yield enough threads to give even a glimpse of the big picture, only one thread with even a modicum of substance was about NG Vs shale, another relied on a paywalled article from the WSJ.
It's at the other end of the substance quota compared to TOD IMO, which suffers from too much substance where you can get lost for days, compared to running out of substance in 15 mins on NHA.
Frosty
I think there is some verbal explanation of the expected decline characteristic in the Cuadrilla session video. Reservoir engineers would probably run an extended testing program over several weeks on each well to get sufficient flow and pressure data to confidently calculate the pressure decline rates and rock volumes the frac job has connected to, and from that data estimate the future production curve for that particular well. All the fracking really does is greatly increase the area of the wellbore/rock interface via a network of induced fractures held open by a proppant, like sand, giving the well a decent cumulative permeable connectivity to the formation. But the very low inherent permeability of the shale beyond the immediate induced fractures (unless it has natural fracture systems) would be expected to result in a steep decline of formation pressure, and correspondingly modest production rates compared to the initial flow potential.
Pharos, do you think Cuadrilla (i.e. UK shale) is old enough to legitimise "known" decline rates? I think they started in March 2011.
The economic picture painted by US Marcellus Shale does not bode well IMO see:
Shale Gas—Abundance or Mirage? Why The Marcellus Shale Will Disappoint Expectations
http://www.theoildrum.com/node/7075
if you can point me to a UK analysis containing even half the substance of the above linked TOD post it might be possible to gain a deeper understanding of the UK situation. There seems little difference in the technicalities between the two, besides proximity to customers. Future production curves amount to little more than arm waving at this point IMO, see the analysis on the TOD graph for Marcellus http://www.theoildrum.com/files/Figure%2012%20Shale%20Abundance%20of%20Mirage%20Image%20File%20October%202010_New.jpg
I see no reason to disagree with the conclusion of the TOD post "The shale plays are called resource plays for a reason: they are all about resources but not profit or the shareholder." I suppose we'll just have to wait and see!
btw the Cuadrilla video linked at NHA leads to Cuadrillas youtube channel, I watched all 6 videos http://www.youtube.com/user/cuadrillaresources/videos
didn't hear anything about "expected decline characteristics" maybe you're referring to a different video?
That's very interesting. So it's really just a scam?
No, it isn't. Anyone who actually listens to the conference calls and reads the 10-Ks knows that the shale gas producers are not making any money if they can't hedge their production above $7 per Mcf. We have already had Aubrey McClendon, CEO Chesapeake, admit that he would not be drilling as much unless he had to in order to keep the leases active. His estimate was that gas has to be much higher than current prices in order to break even, which is the reason why he is moving Chesapeake away from gas production and trying to sell it to investors as a shale liquids company. We already know that the CEO of Devon Energy admit that his break-even price was $6-$7. And we do know that when earnings are reported they are based on EURs (estimates of the total amount of oil or gas that will be recovered from a well) that are not supported by the actual production data. We have already heard many CEOs talk about funding gaps and asset sales in conference calls.
The only way to call something a scam is if the information was not disclosed. But from what I see the information is out there for anyone with a bit of time on his/her hands to analyze. Let me point out that Nortel's filings were showing that the company never made any real money during the IT boom. While it was reporting profits it was not including depreciation adequately for quarter after quarter. At some point the company would do a one time write down and the game would continue for a few more quarters. The process would be repeated again and start all over again. As a result, shares that I was valuing at $0.60-$0.80 (with some very optimistic assumptions) were selling north of $80 and continued going higher until reality ultimately intervened. I am suggesting that the energy companies that are not concentrating on the sweet spots in the core areas of the best formations will not make any money. Keep in mind that companies have to drill to keep their leases even if prices are very low. That creates a glut and huge negative cash flows that can't be papered over for very long. And what it also does is hit the drilling side, which means that once the glut is over we may be looking at a decline curve that guarantees a shortage if there is any kind of stable economy or recovery.
To be able to say that with such certainty you must have a lot of experience in the field -- the fact you are anonymous is a bit worrying, so many people just troll in like circumstances -- so could you give us some clues about your qualifications?
I am a 52-year old retired engineer who has to make money to stay retired. I have been retired for the past decade because I have made money investing in energy and natural resources and managed to stay away from bubbles. I am not very good at accounting and finance to be able to catch all of the deceptions but know enough to be able to see what the regulatory filings are telling me. Every year I attend a number of conferences, including the PDAC in Toronto. While I am there I talk to several dozen geologists, engineers, finance people, and compare notes about what we see in the resource sector. Many of the people I talk to have more than 30 years of experience in the industry and have seen how the various bubbles have played out in the past. These are the same people who predicted that PEMEX would write down their much hyped discovery, that said that the Jack fields would not amount to very much production over the next decade and that the ice wall scheme to upgrade shale liquids in Colorado would fail to be economic. Given their track record and the information I am fairly confident in my predictions.
Not that I'd doubt you, but I'm planning a new central heating system (coal is so last year) and if shale gas is just hype I'll have to think of something else.* Casting doubt is easy behind the mask.
Gas may still be your best option even if prices head above the $7 per Mcf marginal cost of production. Of course, your price will depend on where you are because gas is still a market with a lot of regional variation. And if you are not certain you can easily hedge your costs by locking into a five year contract that will have you pay a few percent above spot but will protect you from future price hikes.
It would be nice to get rid of coal -- dirty, lots of CO2, sulphur etc. However, if it's just hype with the shale then coal it is.
Life is simple but it is not easy. The information is there. You know what the full cost of marginal production is because most companies have disclosed it. (Please do not be confused by the $3 or so finding and development cost that is being reported. That is usually around a third or so of the full cost.) If you find that the companies can make a profit drilling shale than I am wrong and the risk may be worth taking. If you reach the same conclusions that I am reaching you might want to look into making a lot of money by purchasing the shares of coal or conventional oil and gas companies with lots of reserves in safe areas of the world.
Hello Vangel
I haven't been monitoring this thread - sorry. Just wanted to say thanks again for bringing this to my attention (here at BH) last April. A very useful heads-up.*
Cheers,
BBD
*There was an article at Bit Tooth Energy that came up shortly before that (Heading Out popped in to discuss the shale hype). I've dug it out. For those interested, it is here.
BBD
*There was an article at Bit Tooth Energy that came up shortly before that (Heading Out popped in to discuss the shale hype). I've dug it out. For those interested, it is here. (http://bittooth.blogspot.com/2011/04/ogpss-new-eia-shale-gas-report.html)
It is clear that there are some very smart people in the industry who have a totally different take on the situation than the media and stock promoters. I don't know about you but I find it fascinating that the same people who doubt the mainstream media and the promoters when they are pushing AGW are so eager to buy the shale story without checking the facts. As I pointed out, the CEOs of the shale companies do not wish to go to jail. They make it clear in their presentations and their filings that the risks are huge and that the businesses are cash flow negative. I found it interesting that even some companies that seem to be in the sweet spots and should be able to make money are still scrounging for financing, looking to sell off assets and refuse to pay out dividends. Being the coward that I am when I invest my own cash that sets off a bunch of red flags that sends me to the databases and conference calls to look for more information.
Sadly, what I find is not very reassuring. In fact, it is outright scary not because so many people are bound to be burned in the bubble but that shale diverts us from the serious work that needs to be done to assure that we can make the transition from oil to another source of energy without massive disruptions or wars. Last year I had a chat with a mining company CEO who uses specialty equipment to get to smokers on the sea floor. The price per ton of the material that is brought up is high so the operation is very promising. I was pursuing the methane hydrate angle because I thought that there was a lot of potential in this approach given the fact that there were many deposits around the globe and that the energy density indicated that we can get a fairly high return on the energy invested. As far as I saw it, the trick was to get competent engineers to tackle a few of the issues and that if you got enough smart people involved we could have a number of viable solutions to the Peak Oil problem.
The response was interesting. I was told that the shale hype did would discourage financing in alternatives so even if the idea had merit (still to be determined) potential investors would have to wait. I find that to be the infuriating part. The system is set up to imply that there is sufficient energy trapped in shale to meet our needs even when the actual production implies that there is a serious problem with the energy return on the energy invested. I am hoping that the national companies in Mexico and other countries will finally do the exploration that is required to confirm the conventional deposits that the geologists suggest are in place. If they get moving they will be able to produce enough LNG that we could make up the shortfalls without driving prices so high that the economy is destroyed. The increases will also make risk takers more willing to look at methane hydrates and other possible sources. But for that to happen we may need to see the bubble finally pop. Hopefully the damage will not be as severe as I fear.
BBD:
*There was an article at Bit Tooth Energy that came up shortly before that (Heading Out popped in to discuss the shale hype). I've dug it out. For those interested, it is here. (http://bittooth.blogspot.com/2011/04/ogpss-new-eia-shale-gas-report.html)
I just forwarded your link to a friend who has been looking at the shale picture and he wanted me to thank you. Thanks again from both of us.
Thanks for popping in with that link BBD, I wasted a few hours on TOD looking for that!
Vangel
An admittedly unsupported and likely paranoid thought of mine is that the shale oil diversionary tactic is a very good way of keeping nuclear off the table.
If I was in the business of selling coal for baseload generation, I might consider this a fine strategy ;-)
Frosty - glad the link was useful. I wish I'd posted it earlier now - it was seeing Vangel's name on the thread that motivated me to find it.
Frosty
That mention of anticipated decline rates was only touched on briefly ( it could only be in the vaguest of terms because they hadn't even tested the well at that stage) - in the Cuadrilla Parliamentary HoC Energy and Climate Change Committee Grimond Room Meeting on Tuesday 1 March at about 10.26-10.28 in. Of course their exploration/evaluation programme has yet barely started. It will probably take years of appraisal drilling before even they have enough reservoir engineering data to convince themselves they have an economically viable venture, together with all the marketing contracts environmental impact studies and the rest of it, to finally go ahead and submit a detailed development plan and apply for a production license.
There is no problem with decline rates. The problem is that there is so much gas they have outstripped the pipelines capabilities. Drilling in shale is now incredibly cheap compared to even a year ago. And they are finding so much gas.
The Oil Dumb has a vested interest in claiming shale is a scam, but doubling production in 1 year is not a scam.
An admittedly unsupported and likely paranoid thought of mine is that the shale oil diversionary tactic is a very good way of keeping nuclear off the table.
I had that thought for a bit but then I went back to my understanding of human nature and concluded that the main driver is personal gain on the part of the promoters and those that benefit from the activities. that includes the financial media, which is mostly concerned about its own revenues and always seems to be the last to catch on.
If I was in the business of selling coal for baseload generation, I might consider this a fine strategy ;-)
Don't laugh. If I were an investor who does not have enough exposure I would be looking to pick up cheap coal plays at this time and would be grateful for all of the shale hype that keeps the prices of the shares lower than they should be. At a past PDAC one of the presenters and I went through the Australian data and discovered that the biggest gains in wealth in the country accrued to individuals who were in the business of coal, copper, and iron production. Sadly for us we decided to spend some of our cash on a great lead mining prospects that basically got destroyed by the government. That error cost quite a bit of my gains and has me favouring Africa, China, and even places like Haiti over the US and Australia. While political risks persist, at least they are priced in properly and I am not overpaying for them as I would be if I were buying into a deposit in Montana or Queensland.