October 5, 2010 Unconventional Natural Gas A Brief Review for Instituto Petroquimica Argentina William L. Tittle Principal and Director of Strategy Americas and Asia Raul Arias Alvarez Senior Consultant and Manager Latin America
Table of Contents What is unconventional natural gas? How significant is it, using the U.S. as an example? What are the reserves? What are the issues impacting the future supply?
What is unconventional natural gas? Gas recoverable from shale Coal bed methane (expected to decline in the U.S.) Tight gas from low permeability sandstone Gas hydrates Underground coal gasification Shale gas is the most important in the medium term, and tight gas from low permeability sandstone is now considered conventional
What is shale gas? Gas recoverable from shales Shales are fine grained sedimentary rocks formed by compression of clay or mud Algae or other microrganisms in land covered by water provided the carbon for production of gas and oil over long periods of time Many organic shale reservoirs contain both free gas in fractures and absorbed gas in kerogen and clay surfaces within the shale matrix In shales the grains are so tight that there is little movement of liquids or gases through the shale In order for the gas to be recovered, fractures must be created in the shale (usually hydraulically with lots of water)
U.S. Shale Gas Production by Play (Billion Cubic Meters) Production has grown 8 fold in the last ten years to 12% of total gas production
Five plays account for about 95% of Current Production The Barnett play alone represents 60% of production today, but is expected to peak by 2015 The Marcellus, Fayetteville and Haynesville plays will be the main growth areas from 2015 to 2025 The Marcellus shale spans a distance of 600 miles and covering an area of 54 thousand square miles (state of Florida) By comparison the Barnett play covers a linear area of 120 miles The Marcellus shale is extremely variable from a few feet to over 250 feet in thickness Marcellus is said to have favorable minerology in that it is a lower density rock with higher porosity (meaning it may be filled with more gas)
North American Shale Gas Reserves Total More Than 2000 Trillion Cubic Feet
Global Unconventional Natural Gas in Place for (Total: Integrated 32,560 trillion Energy cubic System feet) of the University of Global Victoria Unconventional in British Columbia, Natural Gas Canada in Place and only includes tight gas, shale gas and coal seam (Total: 32,560 trillion cubic feet) Global Unconventional gas resources are huge Global Unconventional Natural Gas in Place (Total: 32,560 trillion cubic feet) Other Regions 7% Western Europe 3% North America 25% China & Asia 16% Pacific 11% Latin America 11% Middle East & North Africa 10% Russia 17% Q309_00101.0009.4111_Charts.xls\F2.1 Source: Institute for Integrated Energy System of the University of Victoria in British Columbia, Canada and only includes tight gas, shale gas and coal seam deposits
Three key properties determine economic viability of unconventional gas recovery Volume - The size of the deposit and the quantity of natural gas that has migrated into the trapping formation Porosity - The capacity of the formation to contain natural gas Permeability - The ability of natural gas to flow within the formation to the wellbores of the extraction wells If the gas deposit is missing any of these properties or if any of the properties is substantially deficient, then commercial development is not viable
There are three categories of exploration and production programs that target unconventional natural gas Existing resourceshere plays - Deposits are where a number active commercial of critical development issues which drilling will and impact gas production future is a taking future place availability of shale Emerging plays - Areas where there has been limited gas commercial development activity but that have extensive under explored acreage Frontier plays - Geographic areas where there has been limited exploration activity and no prior commercial development
The most successful applications have involved the following technologies: here Three are dimensional a number seismic of critical imaging issues which will impact Well future logging devices a future availability of shale gas Four dimensional seismic arrays Cross-well seismic sources Hydraulic fracturing designs Horizontal and multilateral drilling programs
There are three principal reasons for the higher cost structure of unconventional gas: here Production are a number wells - Due of to critical the intrinsic issues characteristics which will of impact unconventional future a natural future gas availability deposits, the of transmissibility shale gas (flow) of fluids from the formations is severely constrained by the low permeability of the rock formations. In order to contact and effectively drain the reservoirs, more wells are required than for conventional gas reservoirs. The higher number of production wells also increases the production infrastructure and corresponding costs. Horizontal drilling technology has helped to reduce the number of wells required; however, the cost of a horizontal well is substantially higher than the cost of a vertical well
There are three principal reasons for the higher cost structure of unconventional gas (continued): here Fracture are a stimulations number of - The critical lower issues permeability which of unconventional will impact gas reservoirs future a also future reduces availability the individual of well shale productivities, gas resulting in a slower cost recovery. The improvements in hydraulic fracture stimulation technology, through new fluid systems, multistage and simultaneous stimulations, reduced damage to the proppant pack, and three dimensional fracture simulators have significantly increased the production rates. However, the stimulations are expensive, requiring a substantial mobilization of equipment, materials and manpower Environmental protection - The management of produced waters, especially in coal seam gas operations, is a critical issue that can significantly impact the economics of unconventional gas projects. Developers are employing innovative solutions to treat and dispose of the produced waters, including the reinjection into reservoirs to enhance oil recovery
The mechanism by which unconventional natural gas is produced from a shale gas deposit involves: Free gas depletion - The high permeability fractures will dominate initial production from a shale gas well. However, due to the limited exposure of the wellbore to the fracture networks, the production rate will quickly decline Matrix de-sorption - The gas production will stabilize at a rate that reflects the amount of gas that can be released from the shale rock matrix and through de-sorption
The technical and operational challenges that are associated with shale gas development are: Ground water contamination - Because shale deposits are thick, the application of massive fracture programs increases the risk of generating and extending fractures into adjacent strata and potentially contaminating ground water formations Land Use - The development of shale gas deposits requires thousands of wells requiring i numerous well sites, roads for access, water transport pipelines, and transmission lines for delivering the gas off site. All of these compromises large surface areas, and could be detrimental to the competing use or interests of the land owners
The technical and operational challenges that are associated with shale gas development are(cont): Water Availability - The fracture stimulations require hundreds of thousands of gallons of water for each fracture stage. In areas that have seasonal variations in the availability of water, the operators must construct reservoirs that are used to store diverted river water during periods of higher flow. The potential impacts include fresh aquifer and stream flow depletion and disruption and shortages of drinking water Water Disposal - One of the biggest challenges facing the operators is the cost of transporting and disposing wastewater from drilling and fracturing operations to offsite treatment plants. A typical hydraulic fracture for a well in the Marcellus shale deposit in Western Pennsylvania returns between 2 million and 3 million gallons of water
Shale gas production also shows a high rate of decline over time
Geological characteristics of shale gas deposits differ greatly which impacts productivity and costs
The following are among the most promising developments in shale gas technology: here Simo-fracs are a number - The simultaneous of critical or issues sequential which fracturing will of impact wells drilled future into shale a future formations availability is a recent trend. of shale Operators gas are fracturing two or more adjacent wells in order to expose the shale formation to more pressure and thus create a more extensive network of fractures to improve gas production rates and ultimate recovery Staged fracturing - Shale gas operators have developed a technique to hydraulically fracture the shale formations in discreet segments of the reservoir that are penetrated by the wellbores. The staged approach allows the operators to adjust the fracture program to the width (thickness) of the formations so as not to extend the fractures to other strata
The following are among the most promising developments in shale gas technology (cont.): here Numerical are a number simulators of - The critical design issues of hydraulic which fracturing will impact programs future is aided a future by the availability use of numerical of simulators shale gas that predict formation fractures in the shale gas reservoirs, allowing the operators sufficient time to engineer the fracture program to achieve the desired results Real time monitoring i - Through h the use of micro-seismic i i arrays, the operators can now monitor in real time the manner in which a fracture is propagating in the formation as the hydraulic fracture is being performed. This technology is particularly important for ensuring that the fractures do not extend into water bearing strata
Critical issues will impact future availability of shale gas and the players are positioning themselves Critical issues Future energy demand and resulting energy prices Public acceptance of the environmental safety of hydraulic fracturing techniques for shale gas recovery Independent gas companies were the early investors but international oil and gas companies are now entering the field British Gas has formed a joint venture with Exco Resources Statoil, BT and Total have formed a venture with Chesapeake Energy Mitsui has a joint venture with Anadarko Reliance has a joint venture with Atlas Energy The biggest shale gas related deal has been the $41 billion acquisition iti of XTO Energy by ExxonMobil
October 5, 2010 Unconventional Natural Gas William L. Tittle Principal and Director of Strategy Americas and Asia Raúl Arias Álvarez Senior Consultant and Manager Latin America