Re: [asa] vast new gas supplies

From: Don Winterstein <dfwinterstein@msn.com>
Date: Sat Dec 05 2009 - 06:37:41 EST

I've finally been able to speak with someone who's directly involved with gas production from shales. He's not a "recognized authority" on the subject, but previous interactions have taught me he keeps closely in touch with industry trends, and his assessments are generally reliable. So I'll share.

First, big oil is getting involved in this play (contrary to my speculations below). He tells me Exxon is pursuing rights in Germany, and Chevron is trying to get up to speed in the US. But small companies were indeed the ones that got the ball rolling.

Second, with gas prices as high as they were initially, wells were productive enough that companies were able to cover their costs and start profiting after only a year. However, they were victims of their own success: The abundance of the gas they produced caused prices to plummet, so the wells are no longer so profitable. But the (energy out)/(energy in) ratio promises to be considerably greater than 1.0 for most wells.

Longer term this shale gas production should have major environmental benefits. As the Business Week article pointed out, some power generation in the US has already switched from coal to gas because of the new abundance and low prices. My contact thinks the major environmental benefits will come in China, where some proposed coal power plants may now be able to switch over to gas.

In context of the energy catastrophy that Glenn Morton and others have predicted will follow peak oil, the ability to produce abundant gas from shale should go a long way towards letting economies down softly rather than catastrophically.

Don

  ----- Original Message -----
  From: Don Winterstein<mailto:dfwinterstein@msn.com>
  To: John Burgeson (ASA member)<mailto:hossradbourne@gmail.com>
  Cc: asa<mailto:asa@calvin.edu>
  Sent: Wednesday, November 18, 2009 11:57 PM
  Subject: Re: [asa] vast new gas supplies

  Speaking on the basis of my industry experience (but otherwise out of ignorance), I believe big oil will steer clear of these shale plays, because their overhead is too high for the high level of hassle and relatively small production likely from individual shale wells. I visualize many small companies drilling thousands of wells primarily to feed local utilities. How much they can produce and how fast will depend strongly on (among several other things) the number of wells drilled. That number in principle can be very large for this kind of play.

  Since government presumably is not subsidizing this production (as it subsidizes ethanol from corn, for example), the fact that companies are pursuing this play is good circumstantial evidence that returns exceed costs, where costs include, besides energy input, company overhead, land leasing, royalties, taxes and no doubt several other things. There's also possible benefit from turning one kind of energy into a more useful kind.

  An important facet of gas from shale is that it opens the possibility that many areas of the country formerly without hydrocarbon production may now be able to get their energy from local wells.

  Don

    ----- Original Message -----
    From: John Burgeson (ASA member)<mailto:hossradbourne@gmail.com>
    To: Don Winterstein<mailto:dfwinterstein@msn.com>
    Cc: asa<mailto:asa@calvin.edu>
    Sent: Wednesday, November 18, 2009 9:56 AM
    Subject: Re: [asa] vast new gas supplies

    Glenn and I (and others) have had some dialog on this, although not recently.

    The gut issues are twofold:

    1. How fast can these supplies be drawn? Analogy -- if you have
    $10,000,000 in the bank, but can only withdraw $10 a day, you are not
    "rich."

    2. How much energy does it take to extract gas energy? If it takes 1.1
    BTU of energy to extract 1.0 BTU, that is not a good deal.

    I don't pretend to have the answers to this -- just pointing out two
    of the questions that must be asked.

    On 11/18/09, Don Winterstein <dfwinterstein@msn.com<mailto:dfwinterstein@msn.com>> wrote:
> The Colorado School of Mines report is at
> http://www.mines.edu/Potential-Gas-Committee-reports-unprecedented-increase-in-magnitude-of-U.S.-natural-gas-resource-base<http://www.mines.edu/Potential-Gas-Committee-reports-unprecedented-increase-in-magnitude-of-U.S.-natural-gas-resource-base<http://www.mines.edu/Potential-Gas-Committee-reports-unprecedented-increase-in-magnitude-of-U.S.-natural-gas-resource-base%3Chttp://www.mines.edu/Potential-Gas-Committee-reports-unprecedented-increase-in-magnitude-of-U.S.-natural-gas-resource-base>>.
> This report tells me (between the lines) that some of these huge claimed
> reserves are somewhat more speculative--read "possibly impractical or
> inaccessible"--than I thought.
>
> Don
>
> ----- Original Message -----
> From: Don Winterstein<mailto:dfwinterstein@msn.com<mailto:dfwinterstein@msn.com>>
> To: asa<mailto:asa@calvin.edu<mailto:asa@calvin.edu>>
> Sent: Tuesday, November 17, 2009 9:37 PM
> Subject: [asa] vast new gas supplies
>
>
> New applications of old technology have dramatically raised estimates of
> producible US gas supplies. According to Business Week (10/19/09), a
> Colorado School of Mines report claims US reserves may be as high as 1800
> TCF (trillion cubic feet), equivalent to 320 billion barrels of oil, or more
> than Saudi Arabia's known reserves. Most of this amount at this point
> exists only as speculation, but the reality is that known producible
> reserves have gone up 39% in the past two years--as the price of gas has
> plummeted.
>
> Oil companies have known for decades that huge quantities of methane
> existed in US sedimentary rock, and they've tried mostly in vain to produce
> it economically. Much of the earlier effort attempted to extract gas from
> tight (relatively impermeable) sandstones. The new reserves instead are in
> shale, a kind of rock seldom thought to make good reservoirs. Production
> involves a combination of two old technologies, drilling wells horizontally
> and then hydraulically fracturing the rock. Hydraulic fracturing involves
> pumping fluids and proppants into wells at high enough pressures to crack
> the rock in situ. The proppants, which are hard particles carried into
> formations by the fluids, get wedged in cracks and hold them open to give a
> lasting increase in permeability.
>
> Use of this technology is not limited to the US but should be applicable
> to many shales worldwide. Shale is the most common kind of sedimentary
> rock, and much of it is known to contain methane.
>
> Don
>
>

    --
    Burgy

    www.burgy.50megs.com<http://www.burgy.50megs.com/>

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Received on Sat Dec 5 06:38:27 2009

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