Natural gas "cliff" debunked by JD!

Serial_Worrier · Heavy Crude Joined: Jun 05, 2008 Posts: 285

link JD bodyslams the doomers yet again.

OilFinder2

Serial_Worrier · Heavy Crude Joined: Jun 05, 2008 Posts: 285

Always nice to point out the abundance of natural resources. Everything WILL be fine!

Carlhole · Knight of the Realm Joined: Jul 05, 2004 Posts: 3274

I've emailed Julian Darley, author of High Noon For Natural Gas, several times to ask him about the new forecasts for US NG production. No reply.

Is he hiding? Haven't heard a peep out of him about it.
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Serial_Worrier · Heavy Crude Joined: Jun 05, 2008 Posts: 285

Ferretlover

Concerned · Light Sweet Crude Joined: Sep 23, 2004 Posts: 1553

TheDude

Sure, NG production has kept up its pace, which is fine so long as you don't mind having the cost of over 30k wells drilled tacked onto your bill:

US Natural gas wells drilled (large)

Or it's fine as long as you're fortunate not to live in the EU, facing the twin specters of depletion and Puty-Pute.

UK Winter Gas Jumps to a Record on Norwegian Field Closure

Utilities project up to 20 percent hike in natural gas price

Game, Set, Match: It’s Natural Gas By Default

Concerned · Light Sweet Crude Joined: Sep 23, 2004 Posts: 1553

ROCKMAN

Matt et al, the data does tell a story but it's a rather simple one: the development of the unconventional gas plays certainly killed all the projections of a gas cliff occurring by now. Their models didn’t include the rapid development of the NG resource plays. But, then again, almost no one did 15 years ago. And this story will continue for a good while IMHO. My company just increased it plan for rigs drilling unc gas in 2009 by 50%....14 rigs total. We're one of the biggest unc gas players in the country. But there is a problem with looking at the recent gains in NG production volumes and seeing those extend as you would expect from convention reservoirs. They won't. And that is actually the reason you see unc NG drilling accelerating ever faster. While the initial flow rates are improving all the time thanks to advances in fracturing technology it doesn’t change the production profile of these wells: a high initial rate lasting a year or two followed by a very rapid decline. But it is true that many of these wells will be producing decades from now. But at rates of only 1 or 2% on their initial rates. This presents a very serious problem for the public companies in the unc NG plays: drill a number of good wells and your reserve volume jumps. Good for stock growth. But the wells go into steep decline and volume quickly vanishes. Bad for stock value. So how do you keep your proved reserve volume up: drill even more wells. Very good for stock value. But now you have even more wells with rapid decline rates. Very bad for stock value.

I’ve told the story elsewhere of a Texas public oil (UPRC) that effectively committed corporate suicide about 25 years ago by drilling 600+ successful oil wells here. It was an oil resource play (Austin Chalk) which was drilled vertically. Same high initial flow rates followed by rapid decline. Their stock shot up as they drilled more and more wells. But eventually the play ran out…there were no more drilling locations left. They essentially hit their own corporate PO. The stock quickly fell in to the toilet and they were eventually sold for scarp. All the public companies drilling the unc NG plays right now know this story well. For whatever reason if the companies stop drilling replacement wells to cover their depletion rates they are dead meat as far as Wall Street is concerned. The companies would still be making great profits since they wouldn’t be spending any money to drill but the stock market couldn’t care less. Stock value is based upon anticipated growth of proven reserve value…not on net income.

Don’t ask me how long these plays will last. Whatever that number is today it will likely be quit different in a couple of years. Technology is still improving and new plays are just beginning to be evaluated. We may see gas rates continue rising for 15 or 20 years. Or maybe just 6 or 8 years. What is certain is that all potential unc NG locations will be drilled as long as the economic value is there. But just like Ghawar Field, these plays will eventually die out. There will be a day long before the last unc NG wells are drilled that these public companies will either reinvent themselves or they will disappear.

pstarr

This story could be a textbook chapter on EROIE.

This hot new high-tech gas industry uses rigs built during the high-eroie regime, maintained during a middle-eroie period, to drill for low-eroei gas. It takes more rigs, more labor, more time to get at this marginal stuff. When the subsidy ends the prices skyrocket.

Bakken, coal-seam, stranded gas etc. have to be fracted, collected etc. at a great cost in money and especially crude oil and natural gas, leaving less for Mom and kid's daily trips to the malls.

Why folks, even here at peakoil, don't see decling financial and social conditions as a function of decling net energy, is a mystery to me.
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ROCKMAN

pstarr,

I still can't get a good handle on drilling EROIE. Probably never will if I have to take into account the full life cycle of the equipment and other resources. I have found out that a typical (there is no such thing) NG resource well uses about 50,000 gals of diesel. Beyond that it's difficult (read: impossible) to quantify total energy consumption. I can do it easily on a dollar basis (they make around 2.5 to 3.5 times the investment). You can try to equate that to energy perhaps but I have a clue how to go about it: amortize the rig, the steel casing, the manpower. But, from a financial standpoint, it is self correcting. As long as a 15% rate of return can be made (more or less) the wells will continue to be drilled. From an industry stand point it doesn't matter if there is a net energy loss as long as there's profit to be made. And, as I've pointed out elsewhere, that profit doesn't have to be very high for the public companies to keep punching holes in order to maintain a growing reserve base.

TheDude

I remember whenever someone would bring up the Bakken at TOD Jeff Brown would relate the story of the Austin Chalk. We had some yacks here about the potential of drilling 35k wells to boost domestic production. In retrospect it sounds plausible with government backing behind it, by which I mean mandates. 35k sounded pretty nuts a year ago, but we're close to drilling that many wells a year anyway.

Course Oil Finder was very gung ho on Bakken before the USGS spoiled the party, and he still has doubts about the validity of the report...also to go after the Bakken you'd have to forget about unconventional NG in the process, or build/buy/rent a good few rigs for it. Maybe the learning curve will apply to oil drilling as well. Or would we be better off just trying to tap offshore fields? Bit of a puzzle wondering what the US would will do in the midst of shortages. Probably sit and spin in the case of Congress.
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pstarr

ROCKMAN

pstarr,

You've reminded of a news report I heard yesterday. I think it's about to be done in the EU: a law requires a "carbon cost", or some such term, of all retail items. A printed symbol of some sortsn the package. I can only imagine it's going to be just as daunting as cooking EROIE numbers.