U.S. Shale Gas: Less Abundance, Higher Cost

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The link points to a very technical analysis of the U.S. shale gas situation, with some uncomfortable conclusions.

U.S. Shale Gas: Less Abundance, Higher Cost

Executive Summary

Our analysis indicates that industry reserves are over-stated by at least 100 percent based on detailed review of both individual well and group decline profiles for the Barnett, Fayetteville and Haynesville shale plays. The contraction of extensive geographic play regions into relatively small core areas greatly reduces the commercially recoverable reserves of the plays that we have studied.

The Barnett and Fayetteville shale plays have the most complete history of production and thus provide the best available analogues for shale gas plays with less complete histories. We recognize that all shale plays are different but, until more production history is available, the best assumption is that newer plays will develop along similar lines to these older plays. There is now far too much data in Barnett and Fayetteville to continue use of strong hyperbolic flattening decline models with b coefficients greater than 1.0.

Results to date in the Haynesville Shale play are disappointing, and will substantially underperform industry claims. In fact, it is difficult to understand how companies justify 125 rigs drilling in a play that has not yet demonstrated commercial viability at present reserve projections until gas prices exceed $8.68 per mmBu.

Conclusion

We suspect that the current euphoria about shale gas will follow the path of other energy panaceas including coal-bed methane and tight sandstone gas. Shale gas will remain an important part of the North American energy landscape but its costs will almost certainly be higher, and its abundance less than many now believe. Producer behavior will be modified by the effect of changing perceptions on capital availability and the entry of new, more substantial players.