The Second Unconventional Gas Wave
- Jeff Miller (Halliburton)
- Document ID
- Society of Petroleum Engineers
- Journal of Petroleum Technology
- Publication Date
- February 2013
- Document Type
- Journal Paper
- 20 - 22
- 2013. Copyright is retained by the author. This document is distributed by SPE with the permission of the author. Contact the author for permission to use material from this document.
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Gas exploration activity in North America looks like it is in the doldrums. In the past 12 months, gas-directed North American rig counts have fallen by almost half. This is easy to understand. Since the beginning of 2010, front-month gas futures prices have fallen from USD 5.60/MMBtu to their current level of USD 3.60/MMBtu. I have a bullish view on the long-term future of natural gas. When accounting for all of the upside influences—environmental imperatives, relentless demand growth in the developing world, the potential of the domestic power sector, revitalization of the US industrial base, and downstream innovations such as gas to liquids (GTLs)—the picture looks positive. At the same time, I have a firm belief that continuing innovation will drive efficiency, making gas an even more attractive alternative and leading to more exploration and development. These indicators lead me to believe a second wave in the development of the North American gas business is on the way.
The first wave has been quite a ride. Only a few years ago, gas industry pundits assumed that new gas demand could only be met with imports. An entire subindustry was developed around the regasification, storage, and transport to market of imported liquefied natural gas (LNG). Today, LNG regasification facilities are largely idle. Instead of increasing, gas imports have fallen dramatically—from 12.6 Bcf/D in 2007 to less than 9 Bcf/D in the most recent 12 months.
Although gas production has increased dramatically, from just under 55 Bcf/D in 2007 to a current rate of 69 Bcf/D, the increases in production have been absorbed incrementally, without long-term structural adjustments in the US energy economy or significant investments in infrastructure. Existing gas plants displacing coal in the power sector and reductions in imports have absorbed more than 70% of the increase in gas production.
The United States is still a net gas importer, but the industry is now focused on developing export markets. Those markets are there. Demand growth in China is almost certain for a generation. If Japan follows up on its commitment to step away from nuclear power, new supplies will need to be found there.
Exporting gas will require us to adopt workable regulations, develop infrastructure, and change a mind-set. The United States is accustomed to thinking as an energy importer. As new sources are developed, we tend to guard them jealously and reserve them for domestic use. The Federal Energy Regulatory Commission approves the construction of LNG liquefaction facilities and the Department of Energy grants export licenses based on a “public interest” standard.
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