Economics of shale gas production

Oct 03, 2012 since 2007, when vast amounts of shale gas in the united states have been tapped, us natural gas production has significantly grown by 20% causing sharp fall in henry hubs natural gas spot price. But shale gas discoveries are also opening up substantial new resources of tight oil, also known as shale oil. Shale gas production drives world natural gas production. Since 2007, when vast amounts of shale gas in the united states have been tapped, us natural gas production has significantly grown by 20% causing sharp fall in henry hubs natural gas spot price. These basic uncertainties are economic technological, and geologic. To access the remainder of the truth is out there shale gas production economics spreadsheet model and inputs you must be logged as a rbn backstage pass subscriber. In the us, domestic natural gas production has grown rapidly figure 2, from 17. Calculation of fullfield production through 2050 for wells drilled through 2030, including a stochastic risking of po. Yet drilling and completion costs are typically far higher for shale wells than they are for conventional drilling. Jan 25, 2020 recently, several seminal works have been drawing attention to the revolution of shale gas production technology of the usa, the impact of shale gas on energy sectors, as well as the influences of shale gas on macroeconomic variables of employment, economic growth, etc.

The economics of shale well production are calculated the same way for liquid shale plays there is just more uplift from the higher priced liquids output. Apr 10, 20 last week our attention was drawn to the state of energy report published by the texas independent producers and royalty owners tipro. Some in the industry call or have called shale gas andor light tight oil plays statistical plays. Barnett shale model2 conclusion barnett study determines.

This contrasts with a conventional gas reservoir produced from sands and carbonates such as. In december 2018, the total number of rigs operating in the us averaged 1,078 for oil and gas combined. The authors analyze the economics of natural gas production in the u. Private firms keen on shale gas exploration, demand concessions.

United states eagle ford shale report 2019 oil and gas. Energy futurist chris nelder explores some serious questions about the economics of shale gas, and wonders if its really a gamechanger, or a ponzi. Although usually oil shale economics is understood as shale oil extraction economics, the wider approach evaluates usage of oil shale as whole, including for the oil shale fired power generation and production of byproducts during retorting or shale oil upgrading processes. Breakeven oil prices underscore shales impact on the. While our main focus is on shale gas, fracking has also. Economics of brown shale gas production there are three principal areas of uncertainty in evaluating the commercial potential of natural gas production from the devonian shales. Americas shale gas revolution has led to exports that span. Production of natural gas from shale in local economies. The truth is out there shale gas production economics. Putting the hype aside, highly authoritative studies and reports have shown unambiguously that shale oil production is slowing down even in the permian. The first gap is the absence of an econometric study.

When oil and gas streams leave the production platform, they include production from different wells. Shalegas production using hydraulic fracturing of mostly horizontal wells has led to considerable controversy over waterresource and environmental impacts. Economics of north american oil and gas shale plays. One way of looking at this is to peek into the economics of us shale production. The truth is out there shale production economics part 2.

Shale gas reserves are located in the lower 48 states, with. Dec 14, 2011 the questionable economics of shale gas. Permeability refers to the capacity of a porous, sediment, soil or rock in this case to transmit a fluid. Shale oil extraction fracking benefits from innovative drilling techniques. The study objective was to quantify net water use for shalegas production using data from texas, which is the dominant producer of shale gas in the u. Great eastern energy corporation geecl and essar oil and gas exploration and production eogpl have been keen on exploiting shale resources in their respective cbm fields in west bengal after a policy change in 2018. These production gains are representative of a vast, important, but complicated resource base. Led by new applications of hydraulic fracturing technology and horizontal drilling, development of new sources of shale gas has offset declines in production from conventional gas reservoirs, and has led to major increases in reserves of us natural gas. These wells experience high depletion rates amounting to 70%90% in the first year of production. See definitions, sources, and notes link above for more information on this table. The paper also summarizes the current science and economics literatures on negative externalities.

Shale oil production makes the united states more energy independent. The us production increase was driven by shale plays in marcellus, haynesville and permian. Rates of return on investment in oil and gas are highly dependent on commodity prices. And natural gas output continues to surge with associated gas from the liquid wells. United states crude oil production 19502020 data 2021. The march 2019 issue of page one economics explores these policy options and how they may apply to the booming u.

Expanded production and potential implications for the u. Shale gas is natural gas produced from shale formations that typically function as both the reservoir and the source rocks for the natural gas. Argentinas commercial shale gas production was just 0. Looking forward, we estimate crude oil production in the united states to stand at 1. Global natural gas production increased by 190 bcm, or 5. We dont disagree, which is why we have matched up standard industry approaches for production and economic modeling, with the statistical, stochastic modeling capabilities of r. Consequently, this turned industrys attention to profitability of. In anticipation of those announcements, todays commentary looks at the productionweighted economics of publicly traded oil producers to understand how shale oil production costs compare to current oil prices.

The economic uncertainties involve primarily expected well head prices and the tax treatment. The ultimate gas recovery from a well eur the sunk costs drilling a well. Almost half of this came from the us 86 bcm, which as with oil production recorded the largest annual growth seen by any country in history. Shale gas and tight oil from low permeability reservoirs have provided a new lease on life for u. This means shale oil drillers must replace 40%45% of the current production each year just to. Ethane is chemically very similar to methane, wilczewski says, but methane is a smaller molecule. Granted, the eagle ford shale may not reside in the same heavyweight class as the permian basin. The economics of shale oil saudi america united states. Since january 2010, dry natural gas production in the play has risen from 0. Shale gas is projected to account for more than 40% of the countrys total natural gas production by 2040, which would make china the secondlargest shale gas producer in the world after the united states. Although the shale gas potential of many nations is being studied, as of 20, only the us, canada, and china produce shale gas in commercial quantities, and only the us and canada have significant shale gas production. A primer on the economics of shale gas production just how cheap is shale gas.

In the longterm, the united states crude oil production is projected to trend around 1. The gases produced from these shale formations is significantly richer in natural gas liquids than conventional gas would be, said warren wilczewski, an industry economist at the u. Storing barrels of shale oil helps prices remain more stable. Because shale gas production is projected to be a large proportion of u. Well economics depend on the quality of rock and are strongly improved by natural gas and liquids processing economics in the higher liquids areas of the field. Speight phd, dsc, in shale gas production processes, 20. Development of unconventional shale gas resources involves intensive capital investment accompanying large commercial production uncertainties. We describe the economic benefits of the shale gas boom, including direct market impacts and positive externalities, providing back of theenvelope estimates of their magnitude. A primer on the economics of shale gas production just how. In the reference case, for example, shale gas production accounts for 49% of total u.

The expansion of shale gas production has been accompanied by falling unit production costs, making it possible for shale gas to become rapidly competitive. The economics of shale gas development lbj school of public. Shale production decline probable within 1218 months. Shale gas production energy information administration. Chinese shale gas production is expected to reach 17 billion cu m bcm in 2020. So what is the actual life cycle production cost of shale gas in north america.

Shale oil costs more than conventional oil to extract. Projected natural gas prices depend on shale gas resource. Fracking causes ecological damage to the environment. New reserves from unconventional formations of shale and tight gas became economically profitable to tap. Last week our attention was drawn to the state of energy report published by the texas independent producers and royalty owners tipro. Jul 29, 2014 the economics of shale gas production. Some 2011 studies pointed to high rates of decline of some shale gas wells as an indication that shale gas production may ultimately be much lower than is currently projected. The shale gas revolution has transformed the economics of oil and gas production in the u. We use this information to make the website work as well. Aug 08, 2019 hydraulic fracturing, or fracking, opened up more natural gas for production, but the technology added costs to the oil extraction process. Shale production and reserves study bureau of economic. As a share of total production, this represents an increase from 4. Shale flattens oil cost curve, anchors futures prices.

There are a large number of variables that need to be taken into account. These rates can lead to sufficient oil and gas volumes during the economically critical first four years of production to make the business case for drilling shale gas and light, tight oil wells, though other factors such as oil and gas prices, well costs, etc. While china has ambitious plans to dramatically increase its shale gas production, these efforts have been checked by inadequate access to technology, water, and land. To access the remainder of the truth is out there shale gas production economics spreadsheet model and inputs you must be logged as a rbn backstage pass subscriber full access to the rbn energy blog archive which includes any posting more than 5 days old is available only to rbn backstage pass subscribers. Despite relaxation of transport constraints in the permian basin, a slowdown in oilproduction growth in us shale plays will continue, says fitch solutions macro research.

Shale gas formations are unconventional reservoirs i. Recently, several seminal works have been drawing attention to the revolution of shale gas production technology of the usa, the impact of shale gas on energy sectors, as well as the influences of shale gas on macroeconomic variables of employment, economic growth, etc. All future wells are assumed to be 4,000ft horizontals. The shale production and reserves study, conducted by the bureau of economic geology at the university of texas at austin, integrates engineering, geology, and economics in a numerical modeling approach that allows for scenario testing based on many input parameters. Breakeven oil prices underscore shales impact on the market. The shale gas production and economic growth in local. In anticipation of those announcements, todays commentary looks at the production weighted economics of publicly traded oil producers to understand how shale oil production costs compare to current oil prices. Official shale gas production data from form eia895 can be found in natural gas gross withdrawals and production. Oct 17, 20 the marcellus shale play alone explains why total us natural gas production continues to increase.

Development of horizontal drilling and hydraulic fracturing is crucial for economic production of shale gas reservoirs, but it must be performed with caution and as a multidisciplinary approach. Shale production has transformed the economics of oil and gas production in the u. Annual shale gas production in the us grew from about 1 trillion cubic feet tcf in 2006, to about 9. Shale gas in the united states is rapidly increasing as an available source of natural gas. I have heard many different numbers cited for the breakeven cost of shale oil, but some context is required to properly address the issue. Using bureau of labor quarterly census data the report provides a summary of state and national benefits attributed to growing us oil and gas production during 2012. In terms of chemical makeup, shale gas is typically a dry gas composed primarily of methane 6095% vv, but some formations do.

In this paper we develop a model to explore the economics of shale gas production and calibrate it to a gas well. Future natural gas prices reflect the cost of developing incremental production capacity. During a panel discussion at the recent davos 2019, world econominc forums annual meeting, hess ceo john hess summarized the importance of us shale production. So what does this mean for 2020 production, and what is the longer term price needed to support us shale. We describe the economic benefits of the shale gas boom, including direct market impacts and positive externalities, providing backoftheenvelope estimates of their magnitude. Vieconomics of brown shale gas production 47 prospective shale gas may be sold in intrastate commerce. Economic appraisal, bringing together multidisciplinary project data and information and providing likely economic outcomes for various development scenarios, forms the core of business decisionmaking. Its just another play with a somewhat higher cost structure but larger resource base than conventional gas. Oil shale economics deals with the economic feasibility of oil shale extraction and processing. Below is a breakdown of new us production by halfcycle breakevens, represented as a percentage of new us production for that time frame. Hydrocarbon accounting establishes how much of those came from each well. Eagle ford shale in the us, 2019 oil and gas shale market analysis and outlook to 2023, reveals that the shale play has reverted a production decline and leading operators continue to. We use cookies to collect information about how you use gov. Main drivers of the economics of shale plays many factors can affect the economics of.

While almost double last years production of 9 bcm, china will still. Full access to the rbn energy blog archive which includes any posting more than 5 days old is available only to rbn backstage pass subscribers. Several attributes put the eagle ford among the most profitable shale basins in the u. Today we complete our analysis of shale production economics. Nevertheless, one may claim that two gaps appear in literature. Economic, environmental, and social sustainability implications of shale gas should be assessed on a life cycle basis, along the whole supply chain, instead of focusing on a single activity or life cycle stage to avoid shifting the impacts leakage from. Jan 31, 2020 shale oil production makes the united states more energy independent. The economics of shale gas development lbj school of. Hydraulic fracturing, or fracking, opened up more natural gas for production, but the technology added costs to the oil extraction process. Shale gas resources are becoming an important energy source for meeting rising energy demand over the next few decades. Shale gas production data collected in conjunction with proved reserves data on form eia23 are unofficial. In the oil patchs proverbial basin battle of economics and relative value, the eagle ford shale is coming on strong. Consequently, this turned industrys attention to profitability of shale gas extraction. When setting environmental policy, regulators may cap the amount of a pollutant allowed, charge per unit emitted, or ban it outright.