Friday, April 10, 2009

Unconventional Gas - Another Conference and info

While I was attending the EIA Conference in Washington, there was a Conference in Fort Worth on Unconventional Gas ( (hat tip Go Haynesville Shale). To illustrate the value of these reserves I am going to take a table from a paper by J. Daniel Arthur and Bobbi Jo Coughlin that shows some of this information.

From Arthur and Coughlin (pdf)

Their paper deals with the water and other fluids used in hydrofracing the shale, and I will return to it, in a later post. But first notes that I picked up about the Unconventional Gas Conference, starting at Go Haynesville Shale. . Petrohawk gave a paper in which, based on the results of 15 wells in the Haynesville, leads them to predict an average ultimate recovery of 7.5 bcfg for each well which has led them to predict (with 2 offset wells from each current producer) they have a reserve of 150 bcf proven . Last year, before these numbers came out, an analyst for JP Morgan commented
Brian Kuzma, E&P analyst for JPMorgan Securities Inc., says 5-Bcfe wells suggest Haynesville leasehold is worth $40,000-plus per acre. "These wells only cost $5- to $6 million each, which would mean that these reserves would be worth some $1.25 per thousand cubic feet in the ground, using $7.50 gas prices. Given a 5-Bcf well--4 Bcf after royalties--on 120 acres, this equates to $42,000 an acre in value."
Given the enhanced production that Petrohawk are now claiming, that increases these values accordingly.

UPDATE: I have added a link to the second part of Austin Eudaly's coverage of the Conference, and a note on a biomethane development.

Initial production from these wells can range up to 20 mcf/day, with the Petrohawk 15 averaging some 18 mcf although I have not heard any numbers on the decline rates of the wells. We will have to see if they follow the Barnett pattern. It also depends where in the field that you are, since some in North Caddo Parish are reported as coming in quite low. One problem with having wells that productive is that the gas has to go somewhere and at that volume flow, and that number of wells the existing pipelines will not be able to cope. The Tiger pipeline won’t be available until 2011.The City of Shreveport will however be using some of the gas to fuel a new set of buses, purchased with the Stimulus money.. The buses cost over $100,000 more to buy, but will be economic over the longer haul, and they should show up in about 15 months.

In the first paper at the Conference Andy Hopwood, the BP America Vice President gave a few bullet points that Austin Eudaly recorded. As I mentioned in reporting on the EIA Conference, there is anticipated to be a surge in LNG supplies coming out of the Middle East this year. The number is in the 8 -10 bcf/day range and there is some question as to where that will go. Depending on the market much of it may go to Europe or China, but any remaining may well enter the US.

BP will be using America to learn about exploiting gas shales, it is one of the ten flagship technologies that BP has identified for special investment and they expect to take the experience in the US and apply it in places such as Australia, where similar shales can be found. However he reminded the 600 strong audience that conventional gas wells still produce 50% of American gas (which is an interesting decline in itself). Further, though BP has a position in the Haynesville the current glut has caused them to delay any new drilling.

That glut, which was foreseen by a report by Gail at TOD, is likely to be transient, given the short life of most of the gas shale wells, and the rapid drop (to less than 50%) of the number of rigs still operating. The price is now at $3.50 (Henry Hub) (per million btu or kcf) and shows no sign of slowing its steady decline. The weekly EIA report, however does note that some fertilizer operations are restarting with the lower price and this may start to form a floor to further price drops. However with gas being added to storage, even with a cooler temperatures, there is still more than enough to go around.

Update Austin Eudaly has updated his report from the Unconventional Gas Conference, with a report on the paper by Thomas Gardner of Simmons and Co, on the gas glut, (Sensibly describing how it came about and warning that things won’t get better until 2010) and one by Andrew Littlefair of Clean Energy Fuels Corporation, who is a close aide to T. Boone Pickens. The company is the largest provider of natural gas for transportation in North America. If you remember part of Picken’s Plan is to replace the use of natural gas for electricity generation by installing wind turbines. In consequence the freed up natural gas can be used for transportation. The talk covered a lot of the technical aspects of the gas location and the economics of the process, but Austin chose not to cover that.

Meanwhile Clean Energy Fuels has signed an agreement to sell biomethane produced from a landfill in McCommas Bluff to Shell Energy, who will supply it to a utility for power generation. The volume is anticipated to be 4,500 million btu’s (4.5 mcf) per day. The landfill is owned by the City of Dallas and will close in 2042, but is expected to continue to produce gas for at least 30 years after that.

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