Life Goes On, As Does Drilling For Oil

People around the world are not going to stop using oil and gas (nor can they) because of the recent oil leak in the Gulf of Mexico. As they say in the following article, the oil and gas industry must learn from this catastrophic spill and move on. There is nothing to be gained by punishing the entire industry because of British Petroleum's mistakes.
Peter

The World Drills On

Written by Wall Street Journal Editorial 08 August 2010

With reason to hope that the ruptured oil well in the Gulf of Mexico is being brought under control, it's time to start thinking into the future. The Obama Administration is sticking by its ruinous deepwater drilling moratorium, when it would be better to take a hint from the rest of the world's oil-producers. Their response to the Gulf disaster? Learn from it, and drill on.

Norway, run by the very model of modern environmentalists, announced a deep-water drilling halt until the spill is done. However, its ban applies only to new drilling, unlike the Obama Administration's total ban.

Norway also announced it's moving ahead with a deep water push into the Barents and Norwegian Seas, putting up 94 new blocks for drilling leases. Minister of Petroleum and Energy Terje Riis-Johansen made clear he views the stoppage as temporary.

Brazil is accelerating its drilling pace, announcing it would spend some $200 billion the next five years to tap newly discovered offshore reserves at depths to 23,000 feet. State-controlled Petrobras, the world's biggest deep water producer, recently struck oil three miles under Brazil's sea—a reserve that could yield 380 million barrels of oil and natural gas.

Australian Resources Minister Martin Ferguson has offered 31 new leases off his country's coast that allow for wells at twice the depth of the BP Macondo. As recently as 2000, Australia was self-sufficient in oil and gas but its import costs are rising. The new leases reverse that trend.

"There is no intention by the government to scale back the development of the oil and gas industry in Australia," Mr. Ferguson said. "It is important in terms of the nation's energy security, jobs and the overall economy." Maybe he'd consider a position at Interior?

New Zealand has authorized its first permit to drill off the east coast of its North Island, with Energy and Resources Minister Gerry Brownlee saying it is vital that the country "attract investment" from the same oil companies that U.S. politicians are bashing.

Canada continues to allow drilling in deep water off Newfoundland and Labrador and is moving ahead with exploration licenses in the Arctic. The U.K. is still drilling in deep water in the North Sea.

Many of these countries even hope to benefit from America's politically motivated moratorium by bidding for deep water rigs now working in the Gulf. Brazil's Petrobras is looking far and wide for deep water drilling rigs, with a goal of 60 by 2017, and it's looking to sign long-term contracts with owners of rigs now idled in the Gulf.

These are hardly rogue nations. What they share is an understanding that environmental concerns must be balanced with the reality that oil and gas remain crucial to economic growth, and that their reserves are increasingly in deep water. The leaders of these nations are also confident that the oil industry has the technology and know-how to do this right, with proper oversight.

America's oil and gas reserves are no less essential to the U.S. economy, notwithstanding President Obama's romance with "green jobs." Every day the Administration spends trying to justify its moratorium is one more day when the U.S. is losing jobs that may not return.

Source

Shale Gas Explained

There is a reason why Newsweek Magazine (where the following article was just published) recently sold for a pittance. The article is poorly researched and reveals the author's ignorance of the subject. However, it does explain some of the reasons why gas produced from shale is so very important. (Source) I've reproduced the article here just to show what the general public is being told about shale gas.
Peter

Shale Gas: Hope for Our Energy Future

You probably have never heard of oilman George Mitchell, but more than anyone else, he has changed the global energy outlook. In 1981, Mitchell's small petroleum company faced dwindling natural gas reserves. He proposed a radical idea: drill deeper in the company's Texas fields to reach gas-bearing shale rock more than a mile down. Because the gas was tightly packed, most engineers believed it was too costly to extract profitably. But after nearly two decades of trying, Mitchell proved doubters wrong. The result: The world has far more available natural gas than anyone suspected.

The BP oil spill cast a cloud over almost all energy news. Well, shale gas is good news. Here's why.

Until recently, scarce U.S. natural gas reserves suggested increasing dependence on expensive foreign supplies of liquefied natural gas. No more. Also, natural gas emits about 50 percent less carbon dioxide—the major greenhouse gas—than coal. Substituting gas for coal in electricity plants could temper emissions. Finally, shale gas in Europe and Asia has huge geopolitical implications. It could reduce dependence on Russian natural gas and frustrate any gas cartel mimicking OPEC.

How much shale gas exists is unknown, but estimates are huge. The Potential Gas Committee is a group of geologists who regularly estimate future U.S. gas supplies. In 2000, the group's estimate equaled about 54 years of present annual consumption; by 2008, it was almost 90 years. "This isn't the end," says Colorado School of Mines geologist John Curtis. Globally, one study estimated the recoverable supply at 16,200 trillion cubic feet, more than 150 times today's annual world gas use.

Some standard drilling techniques, applied imaginatively, liberated shale gas. The first was "fracturing" (also called "fracing"): injecting liquids into reservoirs to create openings that allow the gas to flow up the drill pipe. For years, Mitchell's engineers experimented with different "fracing fluids." All were expensive, and the resulting gas flows weren't profitable. In 1997, engineers tried a less costly mix of sand and water. The economics of shale gas improved dramatically, says Dan Steward, a former geologist for Mitchell.

Devon Energy, which bought Mitchell's company in 2002, improved the economics further by emphasizing "horizontal drilling." In conventional wells, the drill goes straight down and collects gas or oil near the well bore. With horizontal drilling, the pipe is turned sideways when it hits the reservoir and collects gas or oil for hundreds or thousands of feet. Gas flows increase. Fewer wells are needed. Costs drop.

Natural gas provides about a quarter of U.S. energy—for home heating, electricity generation and factories. This proportion will probably increase, but the emerging shale boom faces two problems. The first is hype.

Shale gas has many virtues, but gains will come at the margin. It isn't a panacea for every energy ailment.

Consider the impact on oil imports. In theory, natural gas—compressed or converted into a liquid—could replace oil in some vehicles. But natural gas now fuels only about 120,000 of roughly 250 million U.S. cars, vans, trucks and buses. At today's prices, natural gas is competitive with oil, but there's a chicken-and-egg problem: Drivers won't use it without filling stations; companies won't build stations without drivers.

So fuel switching will likely focus on heavy-duty trucks with regular routes that require few stations. If 500,000 heavy-duty trucks changed to natural gas, oil consumption would drop almost half a million barrels a day, estimates Michael Eaves of Clean Energy, a builder of natural gas filling stations. That's about 5 percent of U.S. imports. The impact is large because trucks travel about 100,000 miles a year and get only about five miles to a gallon, says Eaves.

Similar qualifications apply to the substitution of natural gas for coal in electricity generation. On paper, the potential seems enormous, because many gas generating units are underutilized. But practical problems intrude. Coal is the low-cost fuel; coal-fired and gas-fired plants often serve different markets. On balance, present gas-fired plants might reduce use of coal-fired electricity by 5 to 9 percent, a Congressional Research Service study estimated. Future gas plants might expand this.

The second threat to shale gas is over-regulation. Environmentalists are split. Some favor shale gas as a desirable "bridge fuel" until use of non-carbon energy expands. Others argue gas drilling will threaten drinking water supplies; that was a theme of "Gasland," a film shown this year on HBO. The charges seem overblown. As the BP spill reaffirmed, all drilling requires regulation. There are environmental issues, especially the safe disposal of "fracing fluids." But onshore drilling, including "fracing," has proceeded for decades without polluting water supplies. In shale gas, thousands of feet typically separate shale deposits from water tables.

George Mitchell's persistence made shale gas a huge geological gift. Only fools would discard it.

Barnett Horizontal Shale Gas Production Holds Steady

There is good news from where horizontal drilling and shale gas production was perfected, The Barnett Shale of north Texas. Even though there has been a dramatic decline in drilling activity because of lower gas prices, the production level of the existing and the few new wells appears to be holding steady. I interepret this as good news for the Barnett Shale and good news for all the similar shale gas plays such as the Haynesville, Fayetteville, and Marcellus Shales. Hopefully once these wells are drilled into the optimum stratigraphic location, properly fracture-stimulated and completed, they continue producing at substantial rates for a prolonged period. These are positive economic signals and something we're all concerned about. (Source) From the U.S. Energy Information Administration.
Peter

Prices, Investment, and Drilling Technology Drive Barnett Shale Production Growth. Despite a sharp decline in Henry Hub spot prices from the levels reached in the summer of 2008, natural gas production in the Barnett shale in Texas continued to climb through the middle of 2009 and appears to have reached an undulating plateau since then. Production growth in the Barnett shale comes from several large natural gas producers who continued to maintain strong production even in an environment of relatively low natural gas prices (see Figure). During 2005-2008, growth in the Barnett shale production was driven by high natural gas prices, successful application of horizontal drilling, and hydraulic fracturing, as well as significant investments made by natural gas companies in production assets and state-of-the-art technology. When natural gas prices declined sharply in the second half of 2008, the momentum in production growth continued, in part because of the 3-6 month lag generally observed between changes in prices and a production response. As natural gas prices continued to decline in 2009, so did the number of drilling rigs. However, despite more than a 60 percent reduction in the number of drilling rigs from the peak levels in 2007-08, production in the Barnett shale remained high due to several factors:

Increased per-unit production output as a result of improved production efficiencies from horizontal drilling (which allows multiple horizontal wells to be drilled from a single rig) and an improved understanding of how natural gas is produced from this formation. Large operators hedged a significant portion of their natural gas production on the futures market when natural gas prices were higher. Significant capital investments in acquiring technologies, leases, etc., combined with the resultant large debt, required continuous production so operators could service the debt. Contractual lease obligations require operators to continue drilling or risk losing leases. High initial production rates in the Barnett shale wells decreased the number of drilling rigs required to maintain and even to increase natural gas production output.