Global Unconventional Gasâ It Is There, But Is It Profitable?
MANAGEMENT
Global Unconventional Gas— It Is There, But Is It Profitable? Stephen A. Holditch, Texas A&M University, and HusamAdDeen Madani, Saudi Aramco
Gas reservoirs are often classified as conventional or unconventional. Conventional gas reservoirs are characterized by high permeability with the gas stored in sand or carbonate formations in pore spaces that are interconnected. A gas resource is generally considered conventional if it does not require a large stimulation treatment to be able to produce oil and gas at economic flow rates. An unconventional gas reservoir can be defined as a natural-gas reservoir that cannot be produced at economic flow rates or in economic volumes unless the well is stimulated by a large hydraulic fracture treatment, a hori-
zontal wellbore, or multilateral wellbores (Holditch, 2006). The three most common types of unconventional gas resources are tight sands, coalbed methane, and gas shales. Unconventional gas reservoirs are characterized by low permeability, in the microdarcy range (Fig. 1) or less. As the permeability deceases, the economic risk of developing the resource increases, and the investment required also increases because more wells have to be drilled to produce the reservoir, as each well recovers less gas per well than one can recover per well from a conventional reservoir.
Stephen A. Holditch, SPE, is Department Head and holds the Samuel Roberts Noble Foundation Endowed Chair in Petroleum at Texas A&M University’s Harold Vance Department of Petroleum Engineering. He previously worked for Schlumberger, where he worked on projects for Holditch Reservoir Technologies and on special projects to assist the management of Schlumberger. He served Holditch as president of S.A. Holditch & Associates, a full-service petroleum engineering consulting firm from 1977 to 2000. Holditch also has been a production engineer at Shell Oil Company. He joined the petroleum engineering faculty at Texas A&M in 1976 and was named to the R.L. Adams Endowed Professorship in 1995. Holditch served as SPE president during 2002 and is an Honorary Member and Distinguished Member of SPE. He has earned numerous SPE awards, including the Anthony B. Lucas Award, Lester C. Uren Award, and Distinguished Service Award for Petroleum Engineering Faculty. He earned BS, MS, and PhD degrees in petroleum engineering from Texas A&M. HusamAdDeen Madani, SPE, has been a petroleum engineering systems analyst at Saudi Aramco since January 2004. He was a recipient of the 2008 SPE International Young Member Outstanding Services Award for his leadership contributions to programs for young professionals. Earlier this year, he earned an MS degree in petroleum engineering from Texas A&M University, where he conducted Madani research on calculating the technically and economically recoverable resources for unconventional gas reservoirs.
42
The US Department of Energy’s (DOE’s) Energy Information Administration (EIA) defines the total naturalgas resource base as all of the gas that has ever been trapped inside the Earth, including the volumes that have already been produced. The part of the total natural-gas resource base that interests investors most, however, is the remaining natural gas waiting to be extracted. Research indicates the existence of large, unconventional gas reservoirs located throughout the world. Rogner (1997) estimated that there are 9,000 Tcf of original gas in place (OGIP) reserves in coalbed methane, 16,000 Tcf of OGIP in shale gas, and 7,400 Tcf of OGIP in tight gas sands around the world (Table 1). Since Rogner published his paper, the oil and gas industry has discovered enormous volumes of natural gas in unconventional gas reservoirs in North American and in several other basins around the world. It is believed that the OGIP estimates in Table 1 are very conservative. The industry will be updating the values in Table 1 and it is expected that the values of OGIP will increase substantially. With declining conventional gas reserves in the United States, unconventional gas reservoirs are emerging as critical energy sources to meet the increasing demand for energy. The US DOE April 2009 report, Modern Shale Gas Development in the United States: A Primer, stated that over the last decade, production from unconventional resources in the US has increased almost 65%, from 5.4 Tcf/yr in 1998 to 8.9 Tcf/yr in 2007. This increase in production indicates that approximately 46% of today’s US total gas production comes from unconventional resources (Navigant 2008).
JPT • DECEMBER 2010
10 md
Tight gas Gas shales
Coalbed methane
0.1 md
Low quality
Increased Technology
1,000 md
Medium quality Large volumes; difficult to develop
Increased Prices
Small volumes; easy to develop
.001 md
Gas hydrates
Fig. 1—Resource triangle for natural gas (Holditch 2006).
The increasing reliance on unconventional resources has captured the interest of the oil and gas industry. Texas A&M University has begun assessing the amount of unconventional gas that is both technically recoverable and economically recoverable in the US and worldwide. The United States Geological Survey (USGS), among other agencies, periodically assesses and provides information on
how much gas is technically recoverable in US basins. However, few papers have been published concerning how much gas is economically recoverable in many of these plays. Given the publicly available production data, gas prices, and costs for unconventional gas reservoirs in US basins, there is an opportunity to develop a methodology to estimate how much gas can be economically recovered from the reported
TABLE 1—DISTRIBUTION OF GAS IN PLACE IN UNCONVENTIONAL RESERVOIRS (ROGNER 1997; KAWATA AND FUJITA 2001)
Region
Coalbed Methane (Tcf)
Shale Gas (Tcf)
Tight-Sand Gas (Tcf)
Total (Tcf)
North America
3,017
3,842
1,371
8,228
Latin America
39
2,117
1,293
3,448
Western Europe
157
510
353
1,019
Central and Eastern Europe
118
39
78
235
Former Soviet Union
3,957
627
901
5,485
Middle East and North Africa
0
2,548
823
3,370
Sub-Saharan Africa
39
274
784
1,097
Centrally planned Asia and China
1,215
3,528
353
5,094
Pacific (Organization for Economic Cooperation and Development)
470
2313
705
3,487
Other Asia Pacific
0
314
549
862
South Asia
39
0
196
235
World
9,051
16,112
7,406
32,560
JPT • DECEMBER 2010
assessments, given a range of prices and costs. Because of the low permeability of unconventional gas reservoirs, the cost of finding, developing, and managing those resources are usually significantly higher than with conventional resources. One main reason is the number of wells that have to be drilled. Because each well recovers less gas per well when compared with a well in a conventional reservoir, many more wells have to be drilled in unconventional reservoirs to recover the gas. The need for drilling more wells translates into the need for higher investment and higher economic risk when it comes to the management of unconventional gas reservoirs. Finding and development costs (F&DC), lease operating expenses (LOE), and market gas prices play significant roles in determining the amount of economically recoverable gas from the reservoir. OGIP refers to the total volume of gas contained in a reservoir before production. Using current technology, and disregarding costs, prices, and other investment criteria, the proportion of OGIP that can be technically produced is called technically recoverable resources (TRR). However, with favorable economic conditions and incentives, a portion of TRR can be economically produced and is referred to as economically recoverable resources (ERR). Fig. 2 illustrates the relationship between OGIP, TRR, and ERR. According to the EIA (2007), the estimated TRR of natural gas in the US is more than 1,744 Tcf (Fig. 3). Of this 1,744 Tcf, approximately 211 Tcf is classified as ERR. This value of 211 Tcf is essentially the proven gas reserves from all reservoirs producing gas in the US. The ERR portion of unconventional gas accounts for 60% of the onshore ERR (Navigant, 2008). This article describes a methodology to quantify and correlate the variables that influence the calculation of ERR (mainly F&DC, LOE, and gas prices), for unconventional gas reservoirs using data from an entire play, such as the Barnett Shale play. Undiscovered resources consist of deposits whose exact locations have not been identified, but whose existence seems likely because of geologic
43
MANAGEMENT than that of technically unrecoverable resources, because although the technology either exists or will exist, if no market exists or the cost is too high or the gas price is too low, much of the TRR will not be classified as ERR.
Gas Volume
OGIP
TRR
ERR
Time
Fig. 2—Impact of technology and economic conditions on gas recovery.
settings. Although geologists cannot specify an exact location for a reservoir’s location, they can be reasonably certain that these natural-gas reservoirs exist in specific basins and formations. In the US, the Department of the Interior and the USGS estimate how much undiscovered recoverable natural gas there is either in the US or in offshore areas that are under the government’s control. Those resources that have been discovered, and for which a specific reservoir location is known, can further be
broken down into those resources that are currently economically recoverable, and those that are not currently economically recoverable. EER are natural-gas resources in which the extraction cost is low enough, or gas prices high enough, for natural-gas companies to make a profit. However, as illustrated in the resource triangle concept (Fig.1) and in Fig. 3, if either the gas price increases, or the technology improves, some of the economically unrecoverable resources may become recoverable. This is a different category
Significance of Unconventional Gas Development In the US, 85% of the energy currently used comes from coal, oil, or natural gas, and 22% of the total energy comes from natural gas. Some experts think the percentage contribution of natural gas to US energy supply will be fairly constant over the next 20 years (EIA, 2007). It is also plausible that the volume of natural gas produced in the US could increase substantially in the coming decades. Natural gas from gas shales can be used to generate more electricity or provide transportation fuel. It will continue to be a major contributor of energy within the US because it is both abundant and much is economically recoverable at reasonable gas prices. Shale gas will continue offsetting the decline in energy supply to meet consumption growth (Fig. 4). The US has more than 1,744 Tcf of technically recoverable natural gas, including 211 Tcf of proved reserves, which is the ERR portion of the TRR (EIA, 2007). Assuming that the US will continue to produce natural gas at
2,250 2,000
Unproved shale gas and other unconventional
1,750
Tcf
1,500 1,250 Unproved conventional (including Alaska)
1,000 750 500 250
Proved reserves (all types and locations)
0 1999
2000
2001
2002 2003
2004
2005 2006
2007 2008
2009
2010
AEO edition
Fig. 3—Growth of US technically recoverable natural-gas resources (EIA, 2010).
44
JPT • DECEMBER 2010
Mq]hepu amqeliajp pd]p i]gao ukqn klan]pekj skng* Hkjc heba ]j` hks i]ejpaj]j_a pd]p i]ga ukqn ejraopiajp skng* @n]ckj eo dana*
MXZlldKiX`c\ij =iXZKXebj MXZlld9fo\j
Pfle\\[pflikXebj#kiX`c\ijXe[ZfekX`e\ijkfY\kfl^_cfe^$k\id g\i]fid\ij%K_XkËj_fnn\Ëm\Yl`ckk_\dj`eZ\(0-*%<m\ipk_`e^`efli\ok\ej`m\
Gif[lZk`feKXebj
\hl`gd\ekc`e\`jj\m\i\$[lkp\e^`e\\i\[kfjkXe[lgkf_Xij_nfib`e^Zfe[`k`fejXe[^\k k_\afY[fe\n`k_d`e`dXcdX`ek\eXeZ\%Gcljn\ZfejkXekcp[\m\cfgfligif[lZkc`e\YXj\[ feZljkfd\i]\\[YXZb%Jfpflbefnpfli;iX^fe\hl`gd\ekn`ccY\_`^_hlXc`kp#[\j`^e\[ ]fik_\afY#Xe[Zfjkpflc\jjkffnefm\i`kjc`]\k`d\%8e[k_XkËjaljkk_\\hl`gd\ek% ;iX^feXcjf^`m\jpfl\okiXjlggfik]fipfliYlj`e\jj#jlZ_Xj)+&.gXikjXe[j\im`Z\ k_ifl^_flieXk`fen`[\[\Xc\ie\knfib%9fkkfdc`e\Æ^f`e^n`k_;iX^fe\hl`gd\ek `jXjdXik`em\jkd\ek`epflifg\iXk`fe%9\ZXlj\`knfibj]fipflefn#Xe[b\\gjnfib`e^ ]fipfln\cc`ekfk_\]lkli\% DXb\`k_Xgg\e%
KXeb8ZZ\jjfi`\j
($/..$../$+)/,
JkfiX^\KXebj =l\cKXebj Jb`[KXebj Dl[KXebj
nnn%[iX^fegif[lZkjck[%Zfd
DXb\`k_Xgg\e%
L%J%fne\[Xe[fg\iXk\[%=fle[\[`e(0-*% :fgpi`^_k)'('Df[\ie>iflg@eZ%8cci`^_kji\j\im\[%
MANAGEMENT
25
20
Tcf
15
10
5
0 1990
1995
2000
2005
2010
2015
2020
2025
2030
2035
Fig. 4—Forecast of shale-gas growth in meeting energy demand (EIA, 2010).
approximately 20 Tcf/yr, which is the same rate it produced in 2007, the current TRR estimate is enough natural gas to supply the US for the next 90 years (EIA, 2007). This is a conservative estimate; historically, analysts estimating the size of the total recoverable resource have been able to increase their estimates, including estimates of unconventional gas resources, as they have gained more knowledge about the available resources and as recovery technology has improved. Between 1970 and 2006, the US produced approximately 725 Tcf of gas, and increased its natural-gas reserves by
6%. This increase in reserves was mainly caused by advancements in technology, which meant that uneconomic volumes of gas became economically recoverable. Experts anticipate that as the US depletes its conventional gas reserves, more of its proved reserves will come from unconventional natural-gas reservoirs. Fig. 5 illustrates the forecasted increase in daily production of unconventional gas in the US (DOE, 2009). Shale-Gas Development The US EIA currently ranks the Barnett Shale as the most productive gas field in
45
Production Capacity (Bcf/day)
40 35 30
Shale gas
25
Coalbed natural gas
20 15 10 5
Tight gas
0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Fig. 5—Unconventional natural gas outlook in the US (DOE, 2009).
46
the US with approximately 14,000 wells producing more than 5 Bcf/D in 2009. Fig. 6 illustrates that as recently as 10 years ago, the Barnett Shale was barely on the radar screen. Table 2 shows the technically recoverable gas in trillion cubic feet for some of the shales that are now providing an abundance of opportunity for the oil and gas industry. It is interesting to note that the data in Table 2 were published by the US DOE in 2009. Missing from Table 2 is the Eagle Ford Shale, which is the hottest shale play in the US and is comparable in size to the Haynesville and Marcellus shale plays. In comparison to other shales that are undergoing exploration, production from Barnett Shale will eventually be surpassed by the Haynesville Shale and the Marcellus Shale, assuming the TRR values in Table 2 are accurate. All of these shales have one thing in common—until recently, they were all thought of as source rocks. Now, these so-called source rocks are being developed as reservoirs. These source rocks apparently still have a large volume of natural gas and petroleum liquids in the rocks that have not been expelled and migrated elsewhere. The Impact of Technology Two “breakthrough” technologies have reshaped the economic profile of developing unconventional gas: (1) horizontal drilling and (2) multistage hydraulic fracturing. There were a number of DOE and Gas Research
JPT • DECEMBER 2010
15,000 13740
12,500 10146
Well Count
10,000 7311
7,500
TABLE 2—TRR IN SHALES Barnett
44.0
Fayetteville
41.6
Haynesville
251
Marcellus
262
Woodford
11.4
Antrim
20.0
New Albany
19.2
5720
5,000
4532 3735 2839
2,500
DOE 2009
1946 1390 466 534 726 150 190 266 321 393
0
(Texas Railroad Commission 2010)
Fig. 6—Barnett Shale well count.
Institute field projects in the 1980s and 1990s to improve the technology needed to develop the Ohio Shale in the Appalachian basin and the Antrim Shale in Michigan using vertical wells. To choose the best completion interval and properly stimulate the reservoir, the objectives of those field projects were focused on formation evaluation and improving hydraulic fracturing treatments. Creating long, conductive fractures was a major struggle in those early efforts. The game changed with the introduction of horizontal drilling and
multistage hydraulic fracturing techniques, which date to the pioneering efforts of Union Pacific Resources Company in the Austin Chalk in the early 1990s. In fact, the Austin Chalk is the model for modern shaledevelopment methods. Applying the same basic techniques developed in the Chalk, operators have opened the shale frontier—from the Barnett to the Bakken. Of course, there have been a lot of improvements in technology since the 1990s. However, horizontal wells and water-fracture treatments both were used in the Austin Chalk
Maximize productive surface area Perforation placement is critical Identification of sweet spots Real-time monitoring and control
Planned
Often Realized
Courtesy of Schlumberger
Fig. 7—Completion and fracture optimization.
JPT • DECEMBER 2010
Optimized
to get a lot of oil out of the ground as the vertical wells reached their economic limits. Fig. 7 illustrates the desired wellbore configuration to increase gas-flow rates and recovery from shale wells to the point that they become commercial. Estimating the ERR. As discussed, only a portion of the TRR is economically viable at given values of drilling costs, completions costs and a given value of gas price. As such, the third category we need to know is the ERR, which is the amount of gas that can be developed and produced at a profit. One must understand all three values of a given resource—OGIP, TRR, and ERR—to determine how to proceed with investments and development. Analyzing the Barnett Shale illustrates how to estimate ERR. The information in Table 2 is the TRR for seven shale formations. The Barnett Shale is reported to have 44 Tcf of TRR. Not all of this gas, of course, is economically recoverable at the present time. To determine the ERR in the Barnett Shale, we have taken the analysis of production data from the nearly 14,000 wells to determine the distribution of the Estimated Ultimate Recovery (EUR) for each of these wells in the Barnett Shale. We found the EURs are log-normally distributed (as expected), and can be summarized as follows: • P10=0.25 Bcf, which means 90% of the wells will recover at least 0.25 Bcf in 25 years • P50=1.5 Bcf, which means 50% of the wells will make 1.5 Bcf or more in 25 years and 50% of the wells will make less
47
MANAGEMENT
TABLE 3—ERR IN BARNETT SHALE
EUR
0.25 Bcf
P10
EUR
1.5 Bcf
EUR
P50
4.00 Bcf
P90
F&DC (USD)
Gas Price per Mcf (USD)
F&DC (USD)
Gas Price per Mcf (USD)
F&DC (USD)
Gas Price per Mcf (USD)
1,000,000
10.40
1,000,000
2.80
1,000,000
1.80
1,500,000
15.10
1,500,000
3.60
1,500,000
2.20
2,000,000
19.80
2,000,000
4.50
2,000,000
2.60
2,500,000
24.50
2,500,000
5.40
2,500,000
2.90
3,000,000
29.20
3,000,000
6.20
3,000,000
3.30
3,500,000
33.90
3,500,000
7.10
3,500,000
3.70
4,000,000
38.60
4,000,000
8.00
4,000,000
4.10
• P90=4.0 Bcf, which means only 10% of the wells will make more than 4.0 Bcf in 25 years. When calculating the economics using this EUR distribution making a number of reasonable assumptions (Al Madani 2010), one can compute the percentage of the TRR that is ERR. For the Barnett Shale, the values are
shown in Table 3 and Fig. 8. Table 3 shows that if the drilling and completion costs are USD 2 million, then a gas price of USD 4.50/Mcf of gas is required to produce 50% of the TRR. Since the TRR is 44 Tcf shown in Table 2, bringing the costs down to USD 2 million per well should allow production of 22 Tcf of gas from the Barnett if the
90% 80%
ERR/TRR
70% 60% 50% 40% 30% 20% 10% 1
10
Gas price (USD)/Mcf Fig. 8—ERR/TRR for the Barnett Shale.
48
100
gas price is USD 4.50 or more. To put this in perspective, the current booked reserves for natural gas in the US from all reservoirs is only 211 Tcf. Currently, only a few Tcf of Barnett Shale gas is included in that 211 Tcf. It is clear that the ERR for the US (booked reserves) will be increasing substantially as the reservoirs shown in Table 2 continue to be developed. Without question, the gas in place for all the formations in Table 2 is real and the values of TRR are believable. The two main questions are (1) how can the industry reduce the F&DC to make more of the TRR move to the ERR category at any given gas price, and (2) at any given F&DC, how much money does the market want to pay for the gas? At the right price, we can produce essentially all of the TRR gas in any of the formations, as long as the market and pipeline system exists. Fig. 8 shows there is a continuum, as predicted by the resource triangle concept. As the gas prices increase, you can recover more gas. As technology improves such that you either decrease costs or increase recovery per well, you will also increase the economically recoverable gas at any given gas price. This observation should be true of every unconventional gas reservoir in every basin in the world. Global Opportunity The world is full of stranded deposits of conventional gas that were found by chance while searching for oil, and gas without a market has little value. A company can find the most prolific unconventional gas reservoir in the world, but if it is located a long way from market infrastructure, it may not have any gas that is economically recoverable. To have value, gas reservoirs need to be located near regions with established markets and pipeline access. The US has led the way in developing shale and other unconventional gas reservoirs, and there is a tremendous opportunity to export the technology and expertise to plays around the world. In fact, several companies who have pioneered the US shale plays have already scoured the globe for basins where they can repeat the North American shale-gas success story. A problem familiar to oil and gas companies that do business around the
JPT • DECEMBER 2010
world is making certain the right team is in place to do the work. Technology can be exported anywhere, but it takes a special crew with the proper training to operate the rig and downhole equipment needed to drill a 5,000-ft lateral 12,000 ft under the ground in a geopressured reservoir. It also takes a special group of people with specific skills to put out a fracture treatment spread and spend four or more days on location working around the clock to stimulate a well in multiple stages. A company can do everything else right, and it will lose money if the fracture treatment is not executed flawlessly. Of all the shale basins around the globe, only a small percentage today has the local market infrastructure and service company capacity to make investing in shale or unconventional gas worthwhile. A good example is Europe, which is similar to North America in that natural gas is used both to generate electricity and for heating during the winter. There are a lot of shales in Europe, and European
nations are seriously evaluating the gas shales in their basins. On the basis of how sedimentary rocks are deposited, odds are that the more Europe is explored, the more shale gas and other unconventional resources will be found. For now, the global opportunity in shale gas is limited to select areas where markets and service company expertise exist, but one day there will be Barnett, Haynesville, and Marcellus look-alikes all over the world. The key is to study the source rocks. From Europe to the Middle East, Asia, Africa, Australia, and South America, shale gas is going to become as big a deal around the globe over the next 20 to 30 years as it has become in North America over the past 10 years. References Al Mandani, H. S. 2010. A Methodology to Determine Both the Technically Recoverable Resource and the Economically Recoverable Resource in an Unconventional Gas Play,
Master of Science Thesis, Texas A&M University, Texas. EIA. Annual Energy Review 2007, (June 2008) EIA. 2010. Annual Energy Outlook 2010 Early Release Overview. Holditch, S.A. 2006. Tight Gas Sands. SPE Paper 103356. Distinguished Author Series, J Pet Tech. Kawata, Y. and Fujita, K. 2001. Some Predictions of Possible Unconventional Hydrocarbon Availability Until 2100. Paper SPE 68755 presented at the SPE Asia Pacific Oil and GasConference, Jakarta, Indonesia, April 17–19. Navigant Consulting. 2008. North American Natural Gas Supply Assessment. Prepared for American Clean Skies Foundation. Rogner, H. 1997. An Assessment of World Hydrocarbon Resources. Institute for Integrated Energy System, University Of Victoria. US DOE. 2009. Modern Shale Gas Development in the United States: A Primer. JPT
Reservoir monitoring and wireless communication
Inflow and sand control
Zonal isolation
3XWWRJHWKHUWKHFRPSOHWLRQ\RXZDQW Whether your objectives are production optimization, cost reduction, reservoir management or intervention flexibility, we can put together a completion solution tailored to your precise requirements. We understand that every well is different, which is why we give you the widest choice at every stage, to improve performance, reduce downtime and extend the life of your well. www.tendeka.com
Global Unconventional Gas— It Is There, But Is It Profitable? Stephen A. Holditch, Texas A&M University, and HusamAdDeen Madani, Saudi Aramco
Gas reservoirs are often classified as conventional or unconventional. Conventional gas reservoirs are characterized by high permeability with the gas stored in sand or carbonate formations in pore spaces that are interconnected. A gas resource is generally considered conventional if it does not require a large stimulation treatment to be able to produce oil and gas at economic flow rates. An unconventional gas reservoir can be defined as a natural-gas reservoir that cannot be produced at economic flow rates or in economic volumes unless the well is stimulated by a large hydraulic fracture treatment, a hori-
zontal wellbore, or multilateral wellbores (Holditch, 2006). The three most common types of unconventional gas resources are tight sands, coalbed methane, and gas shales. Unconventional gas reservoirs are characterized by low permeability, in the microdarcy range (Fig. 1) or less. As the permeability deceases, the economic risk of developing the resource increases, and the investment required also increases because more wells have to be drilled to produce the reservoir, as each well recovers less gas per well than one can recover per well from a conventional reservoir.
Stephen A. Holditch, SPE, is Department Head and holds the Samuel Roberts Noble Foundation Endowed Chair in Petroleum at Texas A&M University’s Harold Vance Department of Petroleum Engineering. He previously worked for Schlumberger, where he worked on projects for Holditch Reservoir Technologies and on special projects to assist the management of Schlumberger. He served Holditch as president of S.A. Holditch & Associates, a full-service petroleum engineering consulting firm from 1977 to 2000. Holditch also has been a production engineer at Shell Oil Company. He joined the petroleum engineering faculty at Texas A&M in 1976 and was named to the R.L. Adams Endowed Professorship in 1995. Holditch served as SPE president during 2002 and is an Honorary Member and Distinguished Member of SPE. He has earned numerous SPE awards, including the Anthony B. Lucas Award, Lester C. Uren Award, and Distinguished Service Award for Petroleum Engineering Faculty. He earned BS, MS, and PhD degrees in petroleum engineering from Texas A&M. HusamAdDeen Madani, SPE, has been a petroleum engineering systems analyst at Saudi Aramco since January 2004. He was a recipient of the 2008 SPE International Young Member Outstanding Services Award for his leadership contributions to programs for young professionals. Earlier this year, he earned an MS degree in petroleum engineering from Texas A&M University, where he conducted Madani research on calculating the technically and economically recoverable resources for unconventional gas reservoirs.
42
The US Department of Energy’s (DOE’s) Energy Information Administration (EIA) defines the total naturalgas resource base as all of the gas that has ever been trapped inside the Earth, including the volumes that have already been produced. The part of the total natural-gas resource base that interests investors most, however, is the remaining natural gas waiting to be extracted. Research indicates the existence of large, unconventional gas reservoirs located throughout the world. Rogner (1997) estimated that there are 9,000 Tcf of original gas in place (OGIP) reserves in coalbed methane, 16,000 Tcf of OGIP in shale gas, and 7,400 Tcf of OGIP in tight gas sands around the world (Table 1). Since Rogner published his paper, the oil and gas industry has discovered enormous volumes of natural gas in unconventional gas reservoirs in North American and in several other basins around the world. It is believed that the OGIP estimates in Table 1 are very conservative. The industry will be updating the values in Table 1 and it is expected that the values of OGIP will increase substantially. With declining conventional gas reserves in the United States, unconventional gas reservoirs are emerging as critical energy sources to meet the increasing demand for energy. The US DOE April 2009 report, Modern Shale Gas Development in the United States: A Primer, stated that over the last decade, production from unconventional resources in the US has increased almost 65%, from 5.4 Tcf/yr in 1998 to 8.9 Tcf/yr in 2007. This increase in production indicates that approximately 46% of today’s US total gas production comes from unconventional resources (Navigant 2008).
JPT • DECEMBER 2010
10 md
Tight gas Gas shales
Coalbed methane
0.1 md
Low quality
Increased Technology
1,000 md
Medium quality Large volumes; difficult to develop
Increased Prices
Small volumes; easy to develop
.001 md
Gas hydrates
Fig. 1—Resource triangle for natural gas (Holditch 2006).
The increasing reliance on unconventional resources has captured the interest of the oil and gas industry. Texas A&M University has begun assessing the amount of unconventional gas that is both technically recoverable and economically recoverable in the US and worldwide. The United States Geological Survey (USGS), among other agencies, periodically assesses and provides information on
how much gas is technically recoverable in US basins. However, few papers have been published concerning how much gas is economically recoverable in many of these plays. Given the publicly available production data, gas prices, and costs for unconventional gas reservoirs in US basins, there is an opportunity to develop a methodology to estimate how much gas can be economically recovered from the reported
TABLE 1—DISTRIBUTION OF GAS IN PLACE IN UNCONVENTIONAL RESERVOIRS (ROGNER 1997; KAWATA AND FUJITA 2001)
Region
Coalbed Methane (Tcf)
Shale Gas (Tcf)
Tight-Sand Gas (Tcf)
Total (Tcf)
North America
3,017
3,842
1,371
8,228
Latin America
39
2,117
1,293
3,448
Western Europe
157
510
353
1,019
Central and Eastern Europe
118
39
78
235
Former Soviet Union
3,957
627
901
5,485
Middle East and North Africa
0
2,548
823
3,370
Sub-Saharan Africa
39
274
784
1,097
Centrally planned Asia and China
1,215
3,528
353
5,094
Pacific (Organization for Economic Cooperation and Development)
470
2313
705
3,487
Other Asia Pacific
0
314
549
862
South Asia
39
0
196
235
World
9,051
16,112
7,406
32,560
JPT • DECEMBER 2010
assessments, given a range of prices and costs. Because of the low permeability of unconventional gas reservoirs, the cost of finding, developing, and managing those resources are usually significantly higher than with conventional resources. One main reason is the number of wells that have to be drilled. Because each well recovers less gas per well when compared with a well in a conventional reservoir, many more wells have to be drilled in unconventional reservoirs to recover the gas. The need for drilling more wells translates into the need for higher investment and higher economic risk when it comes to the management of unconventional gas reservoirs. Finding and development costs (F&DC), lease operating expenses (LOE), and market gas prices play significant roles in determining the amount of economically recoverable gas from the reservoir. OGIP refers to the total volume of gas contained in a reservoir before production. Using current technology, and disregarding costs, prices, and other investment criteria, the proportion of OGIP that can be technically produced is called technically recoverable resources (TRR). However, with favorable economic conditions and incentives, a portion of TRR can be economically produced and is referred to as economically recoverable resources (ERR). Fig. 2 illustrates the relationship between OGIP, TRR, and ERR. According to the EIA (2007), the estimated TRR of natural gas in the US is more than 1,744 Tcf (Fig. 3). Of this 1,744 Tcf, approximately 211 Tcf is classified as ERR. This value of 211 Tcf is essentially the proven gas reserves from all reservoirs producing gas in the US. The ERR portion of unconventional gas accounts for 60% of the onshore ERR (Navigant, 2008). This article describes a methodology to quantify and correlate the variables that influence the calculation of ERR (mainly F&DC, LOE, and gas prices), for unconventional gas reservoirs using data from an entire play, such as the Barnett Shale play. Undiscovered resources consist of deposits whose exact locations have not been identified, but whose existence seems likely because of geologic
43
MANAGEMENT than that of technically unrecoverable resources, because although the technology either exists or will exist, if no market exists or the cost is too high or the gas price is too low, much of the TRR will not be classified as ERR.
Gas Volume
OGIP
TRR
ERR
Time
Fig. 2—Impact of technology and economic conditions on gas recovery.
settings. Although geologists cannot specify an exact location for a reservoir’s location, they can be reasonably certain that these natural-gas reservoirs exist in specific basins and formations. In the US, the Department of the Interior and the USGS estimate how much undiscovered recoverable natural gas there is either in the US or in offshore areas that are under the government’s control. Those resources that have been discovered, and for which a specific reservoir location is known, can further be
broken down into those resources that are currently economically recoverable, and those that are not currently economically recoverable. EER are natural-gas resources in which the extraction cost is low enough, or gas prices high enough, for natural-gas companies to make a profit. However, as illustrated in the resource triangle concept (Fig.1) and in Fig. 3, if either the gas price increases, or the technology improves, some of the economically unrecoverable resources may become recoverable. This is a different category
Significance of Unconventional Gas Development In the US, 85% of the energy currently used comes from coal, oil, or natural gas, and 22% of the total energy comes from natural gas. Some experts think the percentage contribution of natural gas to US energy supply will be fairly constant over the next 20 years (EIA, 2007). It is also plausible that the volume of natural gas produced in the US could increase substantially in the coming decades. Natural gas from gas shales can be used to generate more electricity or provide transportation fuel. It will continue to be a major contributor of energy within the US because it is both abundant and much is economically recoverable at reasonable gas prices. Shale gas will continue offsetting the decline in energy supply to meet consumption growth (Fig. 4). The US has more than 1,744 Tcf of technically recoverable natural gas, including 211 Tcf of proved reserves, which is the ERR portion of the TRR (EIA, 2007). Assuming that the US will continue to produce natural gas at
2,250 2,000
Unproved shale gas and other unconventional
1,750
Tcf
1,500 1,250 Unproved conventional (including Alaska)
1,000 750 500 250
Proved reserves (all types and locations)
0 1999
2000
2001
2002 2003
2004
2005 2006
2007 2008
2009
2010
AEO edition
Fig. 3—Growth of US technically recoverable natural-gas resources (EIA, 2010).
44
JPT • DECEMBER 2010
Mq]hepu amqeliajp pd]p i]gao ukqn klan]pekj skng* Hkjc heba ]j` hks i]ejpaj]j_a pd]p i]ga ukqn ejraopiajp skng* @n]ckj eo dana*
MXZlldKiX`c\ij =iXZKXebj MXZlld9fo\j
Pfle\\[pflikXebj#kiX`c\ijXe[ZfekX`e\ijkfY\kfl^_cfe^$k\id g\i]fid\ij%K_XkËj_fnn\Ëm\Yl`ckk_\dj`eZ\(0-*%<m\ipk_`e^`efli\ok\ej`m\
Gif[lZk`feKXebj
\hl`gd\ekc`e\`jj\m\i\$[lkp\e^`e\\i\[kfjkXe[lgkf_Xij_nfib`e^Zfe[`k`fejXe[^\k k_\afY[fe\n`k_d`e`dXcdX`ek\eXeZ\%Gcljn\ZfejkXekcp[\m\cfgfligif[lZkc`e\YXj\[ feZljkfd\i]\\[YXZb%Jfpflbefnpfli;iX^fe\hl`gd\ekn`ccY\_`^_hlXc`kp#[\j`^e\[ ]fik_\afY#Xe[Zfjkpflc\jjkffnefm\i`kjc`]\k`d\%8e[k_XkËjaljkk_\\hl`gd\ek% ;iX^feXcjf^`m\jpfl\okiXjlggfik]fipfliYlj`e\jj#jlZ_Xj)+&.gXikjXe[j\im`Z\ k_ifl^_flieXk`fen`[\[\Xc\ie\knfib%9fkkfdc`e\Æ^f`e^n`k_;iX^fe\hl`gd\ek `jXjdXik`em\jkd\ek`epflifg\iXk`fe%9\ZXlj\`knfibj]fipflefn#Xe[b\\gjnfib`e^ ]fipfln\cc`ekfk_\]lkli\% DXb\`k_Xgg\e%
KXeb8ZZ\jjfi`\j
($/..$../$+)/,
JkfiX^\KXebj =l\cKXebj Jb`[KXebj Dl[KXebj
nnn%[iX^fegif[lZkjck[%Zfd
DXb\`k_Xgg\e%
L%J%fne\[Xe[fg\iXk\[%=fle[\[`e(0-*% :fgpi`^_k)'('Df[\ie>iflg@eZ%8cci`^_kji\j\im\[%
MANAGEMENT
25
20
Tcf
15
10
5
0 1990
1995
2000
2005
2010
2015
2020
2025
2030
2035
Fig. 4—Forecast of shale-gas growth in meeting energy demand (EIA, 2010).
approximately 20 Tcf/yr, which is the same rate it produced in 2007, the current TRR estimate is enough natural gas to supply the US for the next 90 years (EIA, 2007). This is a conservative estimate; historically, analysts estimating the size of the total recoverable resource have been able to increase their estimates, including estimates of unconventional gas resources, as they have gained more knowledge about the available resources and as recovery technology has improved. Between 1970 and 2006, the US produced approximately 725 Tcf of gas, and increased its natural-gas reserves by
6%. This increase in reserves was mainly caused by advancements in technology, which meant that uneconomic volumes of gas became economically recoverable. Experts anticipate that as the US depletes its conventional gas reserves, more of its proved reserves will come from unconventional natural-gas reservoirs. Fig. 5 illustrates the forecasted increase in daily production of unconventional gas in the US (DOE, 2009). Shale-Gas Development The US EIA currently ranks the Barnett Shale as the most productive gas field in
45
Production Capacity (Bcf/day)
40 35 30
Shale gas
25
Coalbed natural gas
20 15 10 5
Tight gas
0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Fig. 5—Unconventional natural gas outlook in the US (DOE, 2009).
46
the US with approximately 14,000 wells producing more than 5 Bcf/D in 2009. Fig. 6 illustrates that as recently as 10 years ago, the Barnett Shale was barely on the radar screen. Table 2 shows the technically recoverable gas in trillion cubic feet for some of the shales that are now providing an abundance of opportunity for the oil and gas industry. It is interesting to note that the data in Table 2 were published by the US DOE in 2009. Missing from Table 2 is the Eagle Ford Shale, which is the hottest shale play in the US and is comparable in size to the Haynesville and Marcellus shale plays. In comparison to other shales that are undergoing exploration, production from Barnett Shale will eventually be surpassed by the Haynesville Shale and the Marcellus Shale, assuming the TRR values in Table 2 are accurate. All of these shales have one thing in common—until recently, they were all thought of as source rocks. Now, these so-called source rocks are being developed as reservoirs. These source rocks apparently still have a large volume of natural gas and petroleum liquids in the rocks that have not been expelled and migrated elsewhere. The Impact of Technology Two “breakthrough” technologies have reshaped the economic profile of developing unconventional gas: (1) horizontal drilling and (2) multistage hydraulic fracturing. There were a number of DOE and Gas Research
JPT • DECEMBER 2010
15,000 13740
12,500 10146
Well Count
10,000 7311
7,500
TABLE 2—TRR IN SHALES Barnett
44.0
Fayetteville
41.6
Haynesville
251
Marcellus
262
Woodford
11.4
Antrim
20.0
New Albany
19.2
5720
5,000
4532 3735 2839
2,500
DOE 2009
1946 1390 466 534 726 150 190 266 321 393
0
(Texas Railroad Commission 2010)
Fig. 6—Barnett Shale well count.
Institute field projects in the 1980s and 1990s to improve the technology needed to develop the Ohio Shale in the Appalachian basin and the Antrim Shale in Michigan using vertical wells. To choose the best completion interval and properly stimulate the reservoir, the objectives of those field projects were focused on formation evaluation and improving hydraulic fracturing treatments. Creating long, conductive fractures was a major struggle in those early efforts. The game changed with the introduction of horizontal drilling and
multistage hydraulic fracturing techniques, which date to the pioneering efforts of Union Pacific Resources Company in the Austin Chalk in the early 1990s. In fact, the Austin Chalk is the model for modern shaledevelopment methods. Applying the same basic techniques developed in the Chalk, operators have opened the shale frontier—from the Barnett to the Bakken. Of course, there have been a lot of improvements in technology since the 1990s. However, horizontal wells and water-fracture treatments both were used in the Austin Chalk
Maximize productive surface area Perforation placement is critical Identification of sweet spots Real-time monitoring and control
Planned
Often Realized
Courtesy of Schlumberger
Fig. 7—Completion and fracture optimization.
JPT • DECEMBER 2010
Optimized
to get a lot of oil out of the ground as the vertical wells reached their economic limits. Fig. 7 illustrates the desired wellbore configuration to increase gas-flow rates and recovery from shale wells to the point that they become commercial. Estimating the ERR. As discussed, only a portion of the TRR is economically viable at given values of drilling costs, completions costs and a given value of gas price. As such, the third category we need to know is the ERR, which is the amount of gas that can be developed and produced at a profit. One must understand all three values of a given resource—OGIP, TRR, and ERR—to determine how to proceed with investments and development. Analyzing the Barnett Shale illustrates how to estimate ERR. The information in Table 2 is the TRR for seven shale formations. The Barnett Shale is reported to have 44 Tcf of TRR. Not all of this gas, of course, is economically recoverable at the present time. To determine the ERR in the Barnett Shale, we have taken the analysis of production data from the nearly 14,000 wells to determine the distribution of the Estimated Ultimate Recovery (EUR) for each of these wells in the Barnett Shale. We found the EURs are log-normally distributed (as expected), and can be summarized as follows: • P10=0.25 Bcf, which means 90% of the wells will recover at least 0.25 Bcf in 25 years • P50=1.5 Bcf, which means 50% of the wells will make 1.5 Bcf or more in 25 years and 50% of the wells will make less
47
MANAGEMENT
TABLE 3—ERR IN BARNETT SHALE
EUR
0.25 Bcf
P10
EUR
1.5 Bcf
EUR
P50
4.00 Bcf
P90
F&DC (USD)
Gas Price per Mcf (USD)
F&DC (USD)
Gas Price per Mcf (USD)
F&DC (USD)
Gas Price per Mcf (USD)
1,000,000
10.40
1,000,000
2.80
1,000,000
1.80
1,500,000
15.10
1,500,000
3.60
1,500,000
2.20
2,000,000
19.80
2,000,000
4.50
2,000,000
2.60
2,500,000
24.50
2,500,000
5.40
2,500,000
2.90
3,000,000
29.20
3,000,000
6.20
3,000,000
3.30
3,500,000
33.90
3,500,000
7.10
3,500,000
3.70
4,000,000
38.60
4,000,000
8.00
4,000,000
4.10
• P90=4.0 Bcf, which means only 10% of the wells will make more than 4.0 Bcf in 25 years. When calculating the economics using this EUR distribution making a number of reasonable assumptions (Al Madani 2010), one can compute the percentage of the TRR that is ERR. For the Barnett Shale, the values are
shown in Table 3 and Fig. 8. Table 3 shows that if the drilling and completion costs are USD 2 million, then a gas price of USD 4.50/Mcf of gas is required to produce 50% of the TRR. Since the TRR is 44 Tcf shown in Table 2, bringing the costs down to USD 2 million per well should allow production of 22 Tcf of gas from the Barnett if the
90% 80%
ERR/TRR
70% 60% 50% 40% 30% 20% 10% 1
10
Gas price (USD)/Mcf Fig. 8—ERR/TRR for the Barnett Shale.
48
100
gas price is USD 4.50 or more. To put this in perspective, the current booked reserves for natural gas in the US from all reservoirs is only 211 Tcf. Currently, only a few Tcf of Barnett Shale gas is included in that 211 Tcf. It is clear that the ERR for the US (booked reserves) will be increasing substantially as the reservoirs shown in Table 2 continue to be developed. Without question, the gas in place for all the formations in Table 2 is real and the values of TRR are believable. The two main questions are (1) how can the industry reduce the F&DC to make more of the TRR move to the ERR category at any given gas price, and (2) at any given F&DC, how much money does the market want to pay for the gas? At the right price, we can produce essentially all of the TRR gas in any of the formations, as long as the market and pipeline system exists. Fig. 8 shows there is a continuum, as predicted by the resource triangle concept. As the gas prices increase, you can recover more gas. As technology improves such that you either decrease costs or increase recovery per well, you will also increase the economically recoverable gas at any given gas price. This observation should be true of every unconventional gas reservoir in every basin in the world. Global Opportunity The world is full of stranded deposits of conventional gas that were found by chance while searching for oil, and gas without a market has little value. A company can find the most prolific unconventional gas reservoir in the world, but if it is located a long way from market infrastructure, it may not have any gas that is economically recoverable. To have value, gas reservoirs need to be located near regions with established markets and pipeline access. The US has led the way in developing shale and other unconventional gas reservoirs, and there is a tremendous opportunity to export the technology and expertise to plays around the world. In fact, several companies who have pioneered the US shale plays have already scoured the globe for basins where they can repeat the North American shale-gas success story. A problem familiar to oil and gas companies that do business around the
JPT • DECEMBER 2010
world is making certain the right team is in place to do the work. Technology can be exported anywhere, but it takes a special crew with the proper training to operate the rig and downhole equipment needed to drill a 5,000-ft lateral 12,000 ft under the ground in a geopressured reservoir. It also takes a special group of people with specific skills to put out a fracture treatment spread and spend four or more days on location working around the clock to stimulate a well in multiple stages. A company can do everything else right, and it will lose money if the fracture treatment is not executed flawlessly. Of all the shale basins around the globe, only a small percentage today has the local market infrastructure and service company capacity to make investing in shale or unconventional gas worthwhile. A good example is Europe, which is similar to North America in that natural gas is used both to generate electricity and for heating during the winter. There are a lot of shales in Europe, and European
nations are seriously evaluating the gas shales in their basins. On the basis of how sedimentary rocks are deposited, odds are that the more Europe is explored, the more shale gas and other unconventional resources will be found. For now, the global opportunity in shale gas is limited to select areas where markets and service company expertise exist, but one day there will be Barnett, Haynesville, and Marcellus look-alikes all over the world. The key is to study the source rocks. From Europe to the Middle East, Asia, Africa, Australia, and South America, shale gas is going to become as big a deal around the globe over the next 20 to 30 years as it has become in North America over the past 10 years. References Al Mandani, H. S. 2010. A Methodology to Determine Both the Technically Recoverable Resource and the Economically Recoverable Resource in an Unconventional Gas Play,
Master of Science Thesis, Texas A&M University, Texas. EIA. Annual Energy Review 2007, (June 2008) EIA. 2010. Annual Energy Outlook 2010 Early Release Overview. Holditch, S.A. 2006. Tight Gas Sands. SPE Paper 103356. Distinguished Author Series, J Pet Tech. Kawata, Y. and Fujita, K. 2001. Some Predictions of Possible Unconventional Hydrocarbon Availability Until 2100. Paper SPE 68755 presented at the SPE Asia Pacific Oil and GasConference, Jakarta, Indonesia, April 17–19. Navigant Consulting. 2008. North American Natural Gas Supply Assessment. Prepared for American Clean Skies Foundation. Rogner, H. 1997. An Assessment of World Hydrocarbon Resources. Institute for Integrated Energy System, University Of Victoria. US DOE. 2009. Modern Shale Gas Development in the United States: A Primer. JPT
Reservoir monitoring and wireless communication
Inflow and sand control
Zonal isolation
3XWWRJHWKHUWKHFRPSOHWLRQ\RXZDQW Whether your objectives are production optimization, cost reduction, reservoir management or intervention flexibility, we can put together a completion solution tailored to your precise requirements. We understand that every well is different, which is why we give you the widest choice at every stage, to improve performance, reduce downtime and extend the life of your well. www.tendeka.com
