Energy independence from shale up in smoke?


The shale mining fraternity, still reeling from the release of a Scientific Report on the effect of shale gas mining – released by the Canadian Council of Academies has been dealt another blow with the news that the golden energy goose of California has been reduced by 96% – by the US Energy Information Administration. The industry and its proponents in government and commerce have long been warned about the overhyping of shale gas assets in the US. Even in South Africa, the original estimates by the USGS, of 485tcf have been downgraded by South Africa’s own scientists to a ‘best case extraction scenario of 40tcf.

U.S. officials cut estimate of recoverable Monterey Shale oil by 96%

Economy, Business and Finance Petroleum Industry Energy Resources Upstream Oil and Gas Activities
The Monterey Shale formation contains about two-thirds of the nation’s shale oil reserves
An earlier estimate assumed Monterey Shale oil deposits were as easily recoverable as those found elsewhere

Federal energy authorities have slashed by 96% the estimated amount of recoverable oil buried in California’s vast Monterey Shale deposits, deflating its potential as a national “black gold mine” of petroleum.

Just 600 million barrels of oil can be extracted with existing technology, far below the 13.7 billion barrels once thought recoverable from the jumbled layers of subterranean rock spread across much of Central California, the U.S. Energy Information Administration said.

The new estimate, expected to be released publicly next month, is a blow to the nation’s oil future and to projections that an oil boom would bring as many as 2.8 million new jobs to California and boost tax revenue by $24.6 billion annually.

The Monterey Shale formation contains about two-thirds of the nation’s shale oil reserves. It had been seen as an enormous bonanza, reducing the nation’s need for foreign oil imports through the use of the latest in extraction techniques, including acid treatments, horizontal drilling and fracking.

The energy agency said the earlier estimate of recoverable oil, issued in 2011 by an independent firm under contract with the government, broadly assumed that deposits in the Monterey Shale formation were as easily recoverable as those found in shale formations elsewhere.

The estimate touched off a speculation boom among oil companies. The new findings seem certain to dampen that enthusiasm.

Kern County in particular has seen a flurry of oil activity since 2011, with most of the test wells drilled by independent exploratory companies. Major oil companies have expressed doubts for years about recovering much of the oil.

The problem lies with the geology of the Monterey Shale, a 1,750-mile formation running down the center of California roughly from Sacramento to the Los Angeles basin and including some coastal regions.

Unlike heavily fracked shale deposits in North Dakota and Texas, which are relatively even and layered like a cake, Monterey Shale has been folded and shattered by seismic activity, with the oil found at deeper strata.

Geologists have long known that the rich deposits existed but they were not thought recoverable until the price of oil rose and the industry developed acidization, which eats away rocks, and fracking, the process of injecting millions of gallons of water laced with sand and chemicals deep underground to crack shale formations.

The new analysis from the Energy Information Administration was based, in part, on a review of the output from wells where the new techniques were used.

“From the information we’ve been able to gather, we’ve not seen evidence that oil extraction in this area is very productive using techniques like fracking,” said John Staub, a petroleum exploration and production analyst who led the energy agency’s research.

“Our oil production estimates combined with a dearth of knowledge about geological differences among the oil fields led to erroneous predictions and estimates,” Staub said.

Compared with oil production from the Bakken Shale in North Dakota and the Eagle Ford Shale in Texas, “the Monterey formation is stagnant,” Staub said. He added that the potential for recovering the oil could rise if new technology is developed.

A spokesman for the oil industry expressed optimism that new techniques will eventually open up the Monterey formation.

“We have a lot of confidence in the intelligence and skill of our engineers and geologists to find ways to adapt,” said Tupper Hull, spokesman for the Western States Petroleum Assn. “As the technologies change, the production rates could also change dramatically.”

Rock Zierman, chief executive of the trade group California Independent Petroleum Assn., which represents many independent exploration companies, also sounded hopeful.

“The smart money is still investing in California oil and gas,” Zierman said.

“The oil is there,” Zierman said. “But this is a tough business.”

Environmental organizations welcomed the news as a turning point in what had been a rush to frack for oil in the Monterey formation.

“The narrative of fracking in the Monterey Shale as necessary for energy independence just had a big hole blown in it,” said Seth B. Shonkoff, executive director of the nonprofit Physicians Scientists & Engineers for Healthy Energy.

J. David Hughes, a geoscientist and spokesman for the nonprofit Post Carbon Institute, said the Monterey formation “was always mythical mother lode puffed up by the oil industry — it never existed.”

Hughes wrote in a report last year that “California should consider its economic and energy future in the absence of an oil production boom from the Monterey Shale.”

The 2011 estimate was done by the Virginia engineering firm Intek Inc.

Christopher Dean, senior associate at Intek, said Tuesday that the firm’s work “was very broad, giving the federal government its first shot at an estimate of recoverable oil in the Monterey Shale. They got more data over time and refined the estimate.”

For California, the analysis throws cold water on economic projections built upon Intek’s projections.

In 2013, a USC analysis, funded in part by the Western States Petroleum Assn., predicted that the Monterey Shale formation could, by 2020, boost California’s gross domestic product by 14%, add $24.6 billion per year in tax revenue and generate 2.8 million new jobs.

louis.sahagun@latimes.com

 

U.S. has ‘overfracked and overdrilled,’ Shell director says


Buyer beware: Shell admits not all fields are created equal. 

U.S. has ‘overfracked and overdrilled,’ Shell director says

Yadullah Hussain | 18/10/13 7:00 AM ET
More from Yadullah Hussain | @Yad_FPEnergy

Matthias Bichsel, director of the projects and technology business at Royal Dutch Shell Plc.
The United States’ oil and gas industry has “over-fracked and over-drilled”, according to Matthias Bichsel, projects and technology director at Royal Dutch Shell Plc.

“The reservoirs don’t need that many wells. The reservoirs don’t need that many stages of fracks, because not all the pieces of the rocks are as good,” Mr. Bichsel said in a telephone interview from Vancouver last week, where he was speaking at a company event.

The United States is on course to become the world’s largest oil supplier, according to PIRA Energy Group, a New York-based energy consultancy.

“The U.S. shale liquids growth of 3.2 million barrels per day over the last four years has been nearly unparalleled in the history of world oil; only Saudi Arabia in 1970-74 raised its production faster,” PIRA said in a statement.

But it has not translated into a boost in profits of all companies, especially as natural gas prices have slid amid a production surge. Shell came late to the U.S. shale boom and has been left disappointed by the performance of its Eagle Ford shale assets. The company recently announced that it’s selling its 106,000 net acres in Dimmit, LaSalle and Webb counties as they did not fit its “global targets for materiality and scale.”

While Mr. Bichsel does not believe the U.S. shale gas is overhyped, he does think that not all fields are created equal.

“We only talk about the Bakken, Eagle Ford, and the Permian in West Texas, and the Marcellus — we never talk about the basins that have not worked,” said Mr. Bichsel, a geologist by training. “We have some areas that are simply not as good as others.”

In Wyoming and Utah, for instance, the industry could not get the Green River basin to really work, Mr. Bichsel said in a speech this year.

“And I’m afraid that some countries may be setting themselves up for dashed expectations. Take Poland, for instance, where a number of operators have announced that they’re pulling out.”

The shale industry is evoking either over-optimism or excessive negativity, which is not helping the industry, Mr. Bichsel said.

“What we are often lacking is the middle-of-the-road approach — and it is very dangerous when we hype things, because it sets expectation which perhaps can’t be fulfilled to the degree that you would like.”

Shale gas opportunities in British Columbia are also gaining momentum, with Shell and its Asian partners among the consortiums interested in shipping liquefied natural gas from the West Coast to Asian markets.

Canada has the opportunity to create a vibrant export industry for a commodity that is ready to take on a greater role in the world’s energy mix, Mr. Bichsel said in a speech in Vancouver last week.

But there are challenges ahead.

“An LNG project also requires a large capital outlay, and so the project owners also must keep a wary eye on the global financial markets. As any investor knows, these are susceptible to unpredictable changes, too,” Mr. Bichsel noted.

A key sticking point could be pricing that’s crucial to determine feasibility of projects. Shell, which sells 80% of its LNG linked to oil prices, believes long-term, oil-indexed contracts reassures investors who are building the capital- intensive projects.

Major natural gas importers such as Japan, India and China, however, want to delink LNG prices from oil prices.

“But energy security is also a priority for them, and LNG sellers that offer reliable supply have a competitive advantage. And caveat emptor – let the buyer beware: linking LNG to the vagaries of a gas-trading hub may not necessarily provide as stable a pricing mechanism.”

I can’t slake my thirst with oil and gas


News

Ban ‘fracking’ until we have enough water

http://www.economicvoice.com/ban-fracking-until-we-have-enough-water/50039226

Ban 'fracking' until we have enough water

August 10th, 2013
Author: Jeff Taylor

How can we possibly be considering hydraulic fracturing (fracking) for cheap energy when water is so scarce that we’re pushing to have water meters fitted to millions of homes to conserve the precious liquid?

Fracking involves taking billions of litres of water, mixing it with a cocktail of chemicals and pumping it at high pressure deep underground to hydraulically fracture the rock so releasing gas and oil.

Just at the time that thegovernment is pushing fracking as the solution to the problem of expensive energy, we’re being told that millions will have to havewater meters fitted because our reservoirs are in danger of running dry.

Now call me cynical but could the two be connected? Surely not. Surely in a modern democracy we the people would have had this all explained to us so we could decide? Or are our leaders and their advisers so stupid that they don’t realise that this conflict exists? Or are they so sure of the stupidity of the people they govern? I’ll leave that one for you to decide.

Apart from the water supply issue, which is already happening in the US, there are also concerns over the pollution of the water table with so much contaminated water being pumped into the ground as well as its effect on the ground we stand on.

Glass of Water © The Economic Voice

Glass of Water © The Economic Voice

But most importantly water is one of the fundamentals of life. But we are in danger of placing cheap energy higher up the tree. Or more accurately we are in danger of putting corporate profit higher up the tree (if we haven’t already). Which one is more important – cheap and abundant water? Or cheap and abundant energy?

What on earth is the point of having abundant cheap energy, if you pay for it with expensive and scarce water? Fracking should only be allowed when it is totally safe, is proven not to pollute the water table and when there’s enough water to actually conduct drilling operations without limiting what people need for their day to day lives at a very low cost.

I can drink water, wash with it and cook with it but I can’t even slake my thirst with gas and oil.

Shale gas losing its lustre in the US?


Big Oil and Gas industry writing down billions in U.S. shale gas assets

July 29, 2012

On Friday shale gas driller Encana Corporation, the largest natural gas company of Canada announced it had written down more than $1.7 billion in shale gas assets on its books, the majority from its U.S. shale gas operations as it posted its ominous 2nd quarter operating results. Encana Chief Executive Officer Randy Eresman went on record saying to expect his company to have to take additional shale gas asset write downs in the near future. Such asset impairment write downs directly affect the industry’s operating credit lines as reduced value assets on their books results in financial lenders lending the companies less cash going forward.

Encana Corporation is also the focus of a U.S. Department of Justice price collusion investigation regarding the allegation it has conspired withChesapeake Energy to fix prices for shale gas land lease agreements with state of Michigan landowners. The investigation is ongoing.

Other shale gas development companies also wrote down major assets as continued shale gas industry aggressive claims meet the realities of the tough economics the industry never fully anticipated.

English based BG Group decreased the value of its U.S. shale gas operations by $1.3 billion also this past Friday to reflect a weaken outlook for U.S natural gas prices. Exco Resources Inc. of Texas reported a $276 million write down on its assets. Meanwhile Australian based shale gas driller BHP is embroiled in a decision to write down its U.S. shale gas operations by an estimated $US2.5 billion on the shale gas assets it acquired just last year from Chesapeake Energy for $US4.75 billion, more than half what it paid to Chesapeake Energy.

The popular view is the main culprit is the ongoing price of today’s U.S. price for natural gas of $3.08 per million British Thermal Units (MBTU), a price which dipped as low as $1.90 per MBTU back in April of this year. When the shale drilling boom began, the drillers proclaimed aggressive values for the gas held in ground as calculated in land lease agreements with landowners. Back in early 2008, the price of natural gas at the U.S. Henry Hub was being priced at more than $15.00 per MBTU. As the drilling boom took off unabated and natural gas began appearing into storage, the price the market was willing to pay for it declined month by month.

This was perhaps the best true “free market” signal to the industry which it continued to ignore until market prices all but collapsed.

Left out of such supply discussions are what appears to be the significantly higher extraction costs for shale gas when compared to conventional drilling into large pockets of natural gas. The costs for the armies of men, machines, water tankers, pumpers and frack operations along with all the diesel fuel required to drive all this heavy metal in out of the hills and mountains of Pennsylvania day in and day out has been quietly taking its toll in the form of high extraction costs. Pennsylvania Marcellus’ deeper drilling depths compared to Ohio and New York State play yet another significant cost factor.

The unavoidable hit or miss process of exploration resulting in dry or unproductive wells is significant when individual wells cost between $3.5 million to $5 million from the industry’s own public releases. Encana for example hit a number of dry wells in Pennsylvania’s Marcellus before it pulled back. Frack water tailing pond construction and related disposals costs are significant and in constant need to maintain the integrity of such ponds while trucking out the toxic frack water for disposal.

As lenders tighten up cash lending, all of these factors take on new and more challenging dimensions.

Perhaps the most baffling issue which receives little public attention remains the strange and unusual production output curves of a typical shale gas well. It’s now been extensively documented shale gas wells produce their greatest output of gas product within their first 12 to 24 months of operation and then begin rapidly and aggressively declining. As the industry attempts to decrease extraction costs by drilling more wells closer together and to drill them faster, it appears more gas is inadvertently put on the market than it can absorb.

In the 1980s, the term, “Drilling to exhaustion” first appeared when describing the industry penchant for more drilling in face of whatever ails it.

Many claim the answer lies in higher natural gas prices. More now believe it’s to mandate the use of natural gas by electric utilities and for U.S. industrial transportation in order to drive demand and raise natural gas pricing even though the industry’s central promise to the country was cheap and abundant natural gas through hydraulic fracking.

Senior U.S. electric utility executives remain wary of the natural gas industry and its long history of volatile pricing. Many in the electric utility industry refer to natural gas as the ‘crack cocaine of the power industry’. According to leaked industry emails as published by The New York Times, one energy company official stated this fear when he said, “They get you hooked and then they raise the price.” Investment in a natural gas based transportation structure is going to take billions of dollars to deploy.

The shale gas industry continues to reel under the unrelenting economic realities of today’s price for natural gas from their own self-inflicted mad rush to get as much shale gas out of the ground as possible over the last 5 years. Now this is resulting in major shale gas asset write offs. Incredibly some here in Pennsylvania now believe the answers lie in yet more taxpayer dollars to drive demand under Senator Bob Casey’s “STATE Natural Gas Act” to mandate more use of natural gas while Gov. Corbett vows to fight on for PA ACT 13 provisions to strip local townships of their ability to enact zoning restrictions against shale gas drilling in their local municipalities.

Disclaimer: The writer holds no U.S. securities in any shale gas company nor is he a member of any environmental group or anti-fracking group. He holds no financial arrangements with any of the entities and/or individuals listed in the article. He is not being paid to write by any shale gas industry group, pro or con.

To see Encana’s 2Q financials, go to: http://www.encana.com/

To learn more about Pennsylvania’s ACT 13 legislation, go to:http://www.portal.state.pa.us/portal/server.pt/community/act_13/20789

Gas flares in Dakota 2012 = emissions of 1 million cars


$1 Billion of Natural Gas Wasted in North Dakota through Flaring in 2012

By Joao Peixe | Wed, 31 July 2013 21:50 |

Flaring is a problem in the US fracking industry, especially in North Dakota, but the true extent of that problem has not been fully understood until the release of a recent report which suggests as much as $1 billion of natural gas was wasted in North Dakota last year due to flaring activities.

Energy companies are more interested in the oil produced by fracking, due to the far higher price it fetches on the market compared to natural gas, so few are willing to invest in the necessary technology and infrastructure to capture the natural gas and natural gas liquids that are rise up from the ground alongside the oil.

The study was performed by Ceres, and used official data from the North Dakota Industrial Commission. They found that in May 2013 29 percent of the natural gas produced was flared, and that the amount of natural gas flared in 2012 was equivalent to adding an extra one million cars on the roads.

 

Flaring natural gas in North Dakota
Flaring natural gas in North Dakota. 

Ryan Salmon, the lead author and manager of Ceres’ oil and gas program, said that“the US is now one of the top 10 flaring countries in the world, primarily due to the rapid growth of flaring in North Dakota. Although the state’s oil and gas industry is stepping up its efforts to curb flaring, the total volume of flared natural gas continues to grow. Investors are looking for producers and regulators to take more aggressive action to prevent the loss of this valuable fuel.”

 

Investors and state officials in North Dakota are expected to increase pressure on developers to force them to reduce the amount of natural gas that they flare, collecting more to sell on the market. One effort suggested is to set a flaring limit of 10 percent of production, however no date has been set for when this target will be introduced. The report warns that production in North Dakota continues to expand at a similar rate, and the amount of flaring does not fall below 21 percent, then the overall amount of gas wasted will just continue to increase.

Pat Zerega, a senior director at Mercy Investment Services, explained that “the flaring of natural gas is a tremendous economic waste, and it threatens the oil and gas industry’s license to operate, as well as the environment. As oil and gas developments expand into more remote regions like North Dakota, the issue of flaring will continue to be a concern for investors, the environment and the industry.”

By. Joao Peixe of Oilprice.com