The “Shale Revolution”: Myths and Realities. Presentation by David

Report
The “Shale Revolution”
Myths and Realities
Trans-Atlantic Energy Dialogue
Washington, DC
December 10, 2013
J. David Hughes
Global Sustainability Research Inc.
Post Carbon Institute
1
Conventional Wisdom
• The United States is on the verge of Energy Independence thanks
to the “SHALE REVOLUTION”.
• Shale Gas production will continue to grow for the foreseeable
future (2040 at least) and prices will remain below $4.50/mcf for
the next 10 years and below $6.00/mcf for the next 20 years.
• The way is clear for U.S. LNG exports to monetize the shale
bounty. Large scale LNG exports of shale gas from Canada will
provide a bonanza.
• Tight Oil will allow U.S. production to exceed that of Saudi Arabia
and U.S. imports will shrink to zero.
2
© Hughes GSR Inc, 2013
U.S. Natural Gas Supply Projection by Source, 2010-2040,
EIA Reference Case 2013
30
LNG Imports
Alaska
Associated
Canada Imports
Coalbed Methane
Conventional
Shale Gas
Tight Gas
Offshore
55% increase in
production by 2040
U.S. domestic consumption
25
Shale Gas
(+105% 2012-2040)
20
Alaska
15
Tight Gas
10
Associated
Conventional
5
0
2010
Offshore
2015
2020
2025
Year
© Hughes GSR Inc, 2013
50% of 2040 Production
Trillion Cubic Feet per Year
35
2030
2035
2040
3
(data from EIA Annual Energy Outlook 2013, Tables 13 and 14, http://www.eia.gov/forecasts/aeo/er/excel/yearbyyear.xlsx)
U.S. Crude Oil Production Projection by Source and
Region 2010-2040 (EIA 2013 Reference Case)
9
Alaska
Onshore EOR
Onshore Shale/Tight Oil
Lower-48 Onshore Conventional
Lower-48 Offshore
Peak Production 2019
Alaska
7
6
Onshore EOR
5
Shale/Tight Oil
4
3
Lower-48 Onshore Conventional Production
2
1
0
2010
Lower-48 Offshore
2015
2020
2025
Year
© Hughes GSR Inc, 2013
2030
2035
32% of 2040 Supply
Million Barrels per Day
8
2040
4
(data from EIA Annual Energy Outlook 2013)
Contributions to Global Oil Production Growth
2013-2035 (IEA World Energy Outlook 2013)
Tight Oil more than
doubles from current
levels by 2025 then
declines to current
levels by 2035
Light Tight Oil
5
© Hughes GSR Inc, 2013
(IEA World Energy Outlook 2013)
U.S. Shale Gas Production from EIA data, 2007 - June, 2013
Gas Production (Billion cubic feet per day)
35
42% of U.S. Production
30
Peak Excluding Marcellus
and tight oil plays
occurred November 2011
Now Down 12%
25
20
15
10
Peak Excluding Marcellus
occurred August 2012
Now Down 5%
Marcellus
Marcellus (PA and WV)
Bakken (ND)
Eagle Ford (TX)
Antrim (MI, IN, and OH)
Rest of U.S.
Woodford (OK)
Fayetteville (AR)
Haynesville (LA and TX)
Barnett (TX)
Eagle Ford
Haynesville
5
Barnett
0
2007
2008
2009
2010
Year
© Hughes GSR Inc, 2013
2011
2012
2013
6
(data from EIA, 2013, http://www.eia.gov/naturalgas/weekly/img/ShaleGas-201306.xlsx)
Tight Oil, NG Liquids and Conventional Production from
Six Plays, 2007- June, 2013 (EIA DPR Report, 2013)
Oil Production (Thousand Barrels per Day)
4000
3500
3000
2500
Eagle Ford
Bakken
Haynesville
Marcellus
Permian
Niobrara
Eagle Ford
2000
Bakken
1500
1000
Permian Basin
500
0
2007
2008
2009
2010
Year
© Hughes GSR Inc, 2013
2011
2012
2013
7
(data from EIA DPR report December, 2012)
Tight Oil Production from Six Plays, 2007- June, 2013
(EIA DPR Report, 2013) - Excludes NGLs and Conventional
Oil Production (Thousand Barrels per Day)
2500
2000
Eagle Ford
Bakken
Haynesville
Marcellus
Permian
Niobrara
U.S. Tight Oil
Production Now
About 2.3 mbd
1500
Eagle Ford
1000
Bakken
500
0
2007
2008
2009
2010
Year
© Hughes GSR Inc, 2013
2011
2012
2013
8
(data from EIA DPR report December, 2013)
9
U.S. Shale Gas Production by Play – June 2013
10
Billion Cubic Feet per Day
9
8
7
Top 3 Plays = 68% of Total
Top 6 Plays = 92% of Total
6
5
4
3
2
1
0
© Hughes GSR Inc, 2013
Shale Play
10
(data from EIA current to June, 2013)
U.S. Tight Oil Production by Play – June 2013
Thousand Barrels per Day
900
800
700
600
Top 2 Plays = 74% of Total
Top 4 Plays = 85% of Total
500
400
300
200
100
0
Shale Play
© Hughes GSR Inc, 2013
11
(data from EIA current to June, 2013 – excludes NGLs and conventional production)
The Shale Play Life Cycle
• Discovery followed by leasing frenzy.
• Drilling boom follows to meet “held-by-production” lease
requirements.
• Sweet spots identified, targeted and drilled off.
• Production rises rapidly and is maintained for cash-flow despite
potentially uneconomic full-cycle costs.
• Sweet spots become saturated and well quality and field
production decline.
• Plays like the Haynesville become middle aged after just five
years.
12
© Hughes GSR Inc, 2012
13
Haynesville Gas Production and Number of
Operating Wells, 2006-2013
4000
Peak January 2012
8
7
3500
Gas Production
Number of Wells
3000
6
2500
5
2000
4
1500
3
1000
2
1
500
0
2006
0
2007
2008
2009
2010
Year
© Hughes GSR Inc, 2013
2011
2012
Number of Operating Wells
Gas Production (Billion cubic feet per day)
9
2013
14
(data from DrillingInfo/HPDI, July, 2013, three month trailing moving average)
Haynesville Type Gas Well Decline Curve
Gas Production
(Thousand cubic feet per Day)
8000
7000
Yearly Declines
First year = 66%
Second year = 49%
Third year = 41%
Fourth year = 49%
6000
5000
4000
3-Year Decline = 89%
3000
2000
1000
0
1
6
11
16
21
26
31
Months on Production
© Hughes GSR Inc, 2013
36
41
46
15
(data from DrillingInfo/HPDI, March, 2013)
Overall Field Decline for Haynesville Gas Production
based on Production Decline from pre-2012 Wells
4000
7
3500
Production from pre-2012 Wells
Number of pre-2012 Wells
6
3000
5
2500
Overall Field Decline = 47%
4
2000
3
1500
2
1000
1
500
0
2007
0
2008
2009
2010
Year
© Hughes GSR Inc, 2013
2011
Number of Operating pre-2012 Wells
Gas Production (Billion cubic feet per Day)
8
2012
16
(data from DrillingInfo/HPDI, March, 2013)
Type Gas Well Decline Curves for Top Five Shale Gas Plays
Constituting 81% of Shale Gas Production
Gas Production
(Thousand cubic feet per Day)
8000
Haynesville
Marcellus
Barnett
Fayetteville
Woodford
7000
6000
5000
Average 3-Year
Decline = 84%
4000
3-Year Decline
Haynesville = 89%
Marcellus = 79%
Barnett = 79%
Fayetteville= 80%
Woodford = 77%
3000
2000
1000
0
1
6
11
16
21
26
31
Months on Production
© Hughes GSR Inc, 2013
36
41
46
17
(data from Drillinginfo, March, 2013)
Overall Field Decline for Top Five Shale Gas Plays
based on Production Decline from pre-2012 Wells
Gas Production (Billion cubic feet per Day)
8
7
6
Field Decline (per year)
Haynesville = 47%
Marcellus = 29%
Barnett = 28%
Fayetteville = 35%
Woodford = 44%
Average Field
Decline = 37%
5
4
3
2
Haynesville
Marcellus
Barnett
Fayetteville
Woodford
1
0
2008
2009
2010
2011
Year
© Hughes GSR Inc, 2013
2012
18
(data from Drillinginfo, March, 2013)
Shale Gas Production from Top Five Plays Constituting
81% of U.S. shale gas production, 2006 - 2013
Gas Production (Billion cubic feet per day)
9
8
7
6
5
Barnett
Fayetteville
Woodford
Haynesville
PA Marcellus
WV Marcellus
4
3
2
1
0
2006
2007
2008
2009
2010
Year
© Hughes GSR Inc, 2013
2011
2012
2013
19
(data from Drillinginfo, July, 2013, three month trailing moving average)
Shale Gas Production from Top Five Shale Gas Plays
Constituting 81% of Production, 2006-June, 2013
Gas Production (Billion cubic feet per day)
30
25
20
15
Peak Excluding
PA Marcellus
August 2012
Now Down 12%
PA Marcellus
WV Marcellus
Woodford
Fayetteville
Haynesville
Barnett
PA Marcellus
10
Haynesville
5
Barnett
0
2006
2007
2008
2009
Year
© Hughes GSR Inc, 2013
2010
2011
2012
2013
20
(data from DrillingInfo, October, 2013, three month trailing moving average)
U.S. Gas Rig Count by Basin, 2011-2013
1,000
Other
Marcellus
Barnett
Haynesville
900
800
700
600
Other
500
Falling Rig Count
will cut Production and
put pressure on Price
once inventory of
Drilled-but-not-connected
Wells is worked off
400
300
61%
Marcellus
200
Barnett
24%
100
Haynesville
0
Feb, 11 Jun, 11 Oct, 11 Feb, 12 Jun, 12 Oct, 12 Feb, 13 Jun, 13 Oct, 13
© Hughes GSR Inc, 2013
15%
21
(data from Baker-Hughes, November, 2013)
Sweet Spots are
Key to Understanding
the Evolution of
Shale Plays
22
Horizontal Well Quality Trends – Top Five Shale Gas Plays
Average Intial Productivity per Well
Indexed to 2010
1.2
Marcellus – Youth
Fayetteville – Early Middle Age
1
Barnett – Middle Age
0.8
Haynesville – Late Middle Age
0.6
Woodford – Early Old Age
0.4
Marcellus
Haynesville
Barnett
Fayetteville
Woodford
0.2
0
2008
2009
2010
Year
© Hughes GSR Inc, 2013
2011
2012
23
(data from Drillinginfo, March, 2013)
U.S. Oil Rig Count by Basin, 2011-2013
1,600
1,400
1,200
Other
Permian
Eagle Ford
Williston (Bakken)
Other
40%
1,000
800
600
Permian Basin
33%
Eagle Ford
14%
Williston (Bakken)
13%
400
200
0
Feb, 11 Jun, 11 Oct, 11 Feb, 12 Jun, 12 Oct, 12 Feb, 13 Jun, 13 Oct, 13
© Hughes GSR Inc, 2013
24
(data from Baker-Hughes, November, 2013)
Bakken/Three Forks Oil Production and Number of
Operating Wells, 2005- June 2013
7000
800
6000
Oil Production
Number of Wells
700
5000
600
500
4000
400
3000
300
2000
200
1000
100
0
2005
0
2006
2007
2008
2009
Year
© Hughes GSR Inc, 2013
Number of Producing Wells
Oil Production (Thousand Barrels/day)
900
2010
2011
2012
2013
25
(data from Drillinginfo, October, 2013, three month trailing moving average)
Bakken/Three Forks Type Oil and Barrels of Oil Equivalent
Well Decline Curves Including Montana and North Dakota
Oil Production (Barrels per Day)
600
Oil Production
BOE Production
500
Oil Decline
First Year = 70%
Second Year = 34%
Third Year = 23%
Fourth Year = 21%
400
300
3-Year Decline = 84%
200
100
0
1
6
11
16
21
26
31
Months on Production
© Hughes GSR Inc, 2013
36
41
46
26
(data from Drillinginfo, October, 2013)
Bakken Field Production Decline – Oil Production from all
Wells Drilled Prior to 2012
5000
4500
600
4000
First Year Field Decline = 44%
500
3500
3000
400
2500
300
2000
1500
200
Total Oil Production
Number of pre-2012 Wells
100
1000
Number of Producing Wells
Oil Production (Thousand Barrels/day)
700
500
0
2007
0
2008
2009
2010
Year
© Hughes GSR Inc, 2013
2011
2012
2013
27
(data from Drillinginfo, October, 2013)
28
Bakken/Three Forks Production By County,
North Dakota and Montana, June, 2013
Production (Thousand Barrels per day)
250
Total Production = 787 Kbbls/day
Top 2 counties = 52% of production
Top 4 counties = 85% of production
200
150
100
50
0
Mountrail McKenzie
(ND)
(ND)
Williams
(ND)
Dunn (ND) Divide (ND) Remaining Richland Remaining
ND
(MT)
MT
counties
counties
County
© Hughes GSR Inc, 2013
29
(data from Drillinginfo, October, 2013)
Bakken/Three Forks Type Oil Well Decline Curves
by County and Region
Oil Production (Barrels per Day)
700
Divide (ND)
Dunn (ND)
McKenzie (ND)
Mountrail (ND)
Williams (ND)
Other ND Counties
Richland (MT)
Other MT Counties
600
500
400
300
200
100
0
1
6
11
16
21
26
31
Months on Production
© Hughes GSR Inc, 2013
36
41
46
30
(data from Drillinginfo, October, 2013)
Bakken/Three Forks Well Distribution through mid-2013
31
© Hughes GSR Inc, 2013
(data from Drillinginfo, October 2013)
Bakken Oil Production - Declining Drilling Rate Scenario,
Risked at 80% for locations versus Unrisked, 2005-2035
30000
Peak 2015
25000
1000
Risked Total Oil Production
Unrisked Total Oil Production
Risked Number of Wells
Unrisked Number of Wells
800
20000
600
15000
400
10000
Risked Wells = 21474
Unrisked Wells = 25974
Risked total production = 4.5 billion bbls
Unrisked total production = 5.0 billion bbls.
Max Drilling rate = 3500 wells/y
Final Drilling rate = 2000 wells/y
200
5000
0
0
2005
2010
2015
2020
Year
© Hughes GSR Inc, 2013
2025
Number of Producing Wells
Oil Production (Thousand Barrels/day)
1200
2030
2035
32
(data from Drillinginfo, October, 2013)
Bakken and Eagle Ford Oil Production – Declining Drilling
Rate Risked at 80% for locations, 2005-2035
Oil Production (Thousand Barrels/day)
2500
Peak 2016
Bakken Risked Wells = 21474
Eagle Ford Risked Wells = 37052
Bakken risked total production = 4.5 billion bbls
Eagle Ford risked total production = 6.5 billion bbls.
Max Drilling rate = 5500 wells/y
Final Drilling rate = 3000 wells/y
2000
1500
Eagle Ford
NEED (2013 - 2026):
48,000 more Wells
$450 Billion more Capex
Prize: 9.5 Billion barrels
(last 75% will require
much higher prices)
1000
500
Bakken
0
2005
2010
2015
2020
Year
© Hughes GSR Inc, 2013
Eagle Ford Risked Production
Bakken Risked Production
2025
2030
2035
33
(data from Drillinginfo, October, 2013)
Shale Takeaways
• Shale gas production in several top plays is declining and tight oil production
from the top two plays is likely to peak in the 2016-2017 timeframe
• High well- and field-decline rates mandate sustained high levels of drilling to
maintain production.
• Sweet spots become exhausted early on in field development hence drilling
rates must continually escalate to maintain production levels.
• Liquids production with associated gas has allowed gas production to
remain stable – for now – but long term sustainability is questionable.
• High quality shale plays are not ubiquitous:
• 68% of shale gas production comes from 3 plays.
• 74% of tight oil production comes from 2 plays.
• Environmental concerns with fracking are widespread and will likely escalate
with the escalating drilling treadmill needed to maintain, let alone grow, shale
gas and oil production.
34
© Hughes GSR Inc, 2013

similar documents