Shale Gas and its Potential Market in Europe
Shale Gas and its Potential Market in Europe
Chris Burns 29th January 2013
© 2013 GAFFNEY, CLINE & ASSOCIATES (“GCA”). ALL RIGHTS RESERVED. TERMS AND CONDITIONS OF USE: BY ACCEPTING THIS DOCUMENT, THE RECIPIENT AGREES THAT THE DOCUMENT TOGETHER WITH ALL INFORMATION INCLUDED THEREIN IS THE CONFIDENTIAL AND PROPRIETARY PROPERTY OF GCA AND INCLUDES VALUABLE TRADE SECRETS AND/OR PROPRIETARY INFORMATION OF GCA (COLLECTIVELY "INFORMATION"). GCA RETAINS ALL RIGHTS UNDER COPYRIGHT LAWS AND TRADE SECRET LAWS OF THE UNITED STATES OF AMERICA AND OTHER COUNTRIES. THE RECIPIENT FURTHER AGREES THAT THE DOCUMENT MAY NOT BE DISTRIBUTED, TRANSMITTED, COPIED OR REPRODUCED IN WHOLE OR IN PART BY ANY MEANS, ELECTRONIC, MECHANICAL, OR OTHERWISE, WITHOUT THE EXPRESS PRIOR WRITTEN CONSENT OF GCA, AND MAY NOT BE USED DIRECTLY OR INDIRECTLY IN ANY WAY DETRIMENTAL TO GCA’S INTEREST.
Outline 1. Unconventional gas (and oil) basics 2. The story so far in the US
3. Shale gas potential worldwide and in Europe 4. A look at European gas markets 5. Resources, reserves and shale gas development 6. Possible barriers to shale gas development in Europe 2
© 2013 Gaffney, Cline & Associates. All Rights Reserved.
Unconventional Gas Definitions • Tight Gas – siltstones, carbonates and very fine sandstones with low permeability – Slightly better flow rates than shales however higher risk of low charge
• CBM – Coal bed methane is usually trapped in coal deposits that have been buried to the kitchen window. – Gas is adsorbed to mineral surfaces.
• Gas Hydrates – Requires very cold conditions to maintain a solid state. Usually found in hard-to-reach places e.g. Siberia, Alaska or some locations in deep water offshore.
• Shale Gas – Shales are usually marine, deltaic or lacustrine deposits, often laterally extensive – Wide range of properties with permeability usually on the nanodarcy scale – Gas in natural fractures, pores, adsorbed to mineral or organic matter © 2013 Gaffney, Cline & Associates. All Rights Reserved.
What About Unconventional Oil? • Heavy oil and oil sands – High viscosity, high density hydrocarbons which may not flow naturally – Deposits contain high bitumen content and occur as a result of biodegradation]
• Oil shale – Fine grained kerogen-rich sedimentary rock mined at surface – Kerogen converted to hydrocarbons by pyrolysis, hydrogenation or thermal dissolution
• Coal and gas conversion (CTL & GTL) – Conversion of solids (coal) and gas to liquids, typically synthetic diesel and lubricants
• Tight oil (LTO) – Liquids-rich formations with low permeability and porosity – Can be associated with shale gas and occurs in some well-known shale gas plays – Not the same as oil shale – fluids have lower viscosity and API © 2013 Gaffney, Cline & Associates. All Rights Reserved.
Unconventional Gas Geology (Schematic)
Source: EIA
© 2013 Gaffney, Cline & Associates. All Rights Reserved.
Background – U.S. Unconventional Gas • Current US natural gas
production is ~ 24 TCF/Y • 58% of this (~14 TCF) is from unconventional reservoirs, including shale • The EIA forecasts this to rise to 70% by 2035 • Expansion in unconventional development driven by technology: – Horizontal drilling – Fracturing – “Smart” completions 6
Source: EIA 2012; OGJ
Barnett Shale: Activity
13,500 Gas wells completed in Barnett since 1997 © 2013 Gaffney, Cline & Associates. All Rights Reserved.
Barnett Shale: Vertical, Deviated or Horizontal? Maximum Gas Production 300000
Gas Produced – 6 months (MMSCF)
Vertical 250000
Horizontal Deviated
200000
150000
100000
50000
0 2/18/82
8/11/87
1/31/93
7/24/98 Date
Source: Drilling Info / Baker Hughes 8
© 2013 Gaffney, Cline & Associates. All Rights Reserved.
1/14/04
7/6/09
Horizontal Wells • Maximise wellbore contact with
reservoir
Increase size of “artificial reservoir”
• Maximise number of frac stages • Reduce surface footprint
– 100 ft open hole vertical wellbore, 8.5” diameter = 71 sq ft – 5,000 ft open hole horizontal wellbore, 8.5” diameter = 3,541 sq ft – 100 ft fracture = 15,708 sq ft
© 2013 Gaffney, Cline & Associates. All Rights Reserved.
Image: Baker Hughes
Globally – Estimated Shale Gas in Place Europe Europe(excl. (excl. CIS) ~ 550 TCF CIS) ~ 2,587 TCF
China Chinaand andIndia India ~~3,530 TCF 5,597 TCF North America ~North 3,840America TCF ~ 3,856 TCF North Africa and North Africa Middle East ~and MiddleTCF East ~ 2,550 2,128 TCF South America ~South 2,120America TCF ~ 4,569 TCF Australia ~ 2,310 Australia TCF ~ 1,381 TCF
Sources: CIA World Factbook / Rogner, 1997; EIA 2011 © 2013 Gaffney, Cline & Associates. All Rights Reserved.
Europe – Estimated Shale Gas 2011 Cuadrilla UK ~ 97 TCF in Estimates place; 20200 TCF TCF in-place rec in Bowland Shale
Scandinavia ~ 589 TCF in place; 147 TCF rec
BGR: 240 – 798 TCF in-place; Germany ??? 24 – 80 TCF recoverable
France ~ 717 TCF in place; 180 TCF rec Turkey ~ 64 TCF in place; 20 TCF rec Source: EIA 2011; PGI 2012; BGR 2012 11
© 2013 Gaffney, Cline & Associates. All Rights Reserved.
Revised PGI Poland ~by 792 2012: 187 TCF ininplace; 12.2 – 27.1 TCF rec TCF recoverable*
0
European Shale Gas Exploration Targets UK: Bowland Shale / Kimmeridge Clay
Sweden / Denmark: Alum Shale Poland / Lithuania: Alum Shale, Ordivician & Silurian Shales
NL :Posidonia Shale
Spain: Camino Fm.
Hungary: Mako Trough
Portugal: Lias Fms.
Turkey: Thrace Basin (Hamitabat / Mezrdere Fms.) Image: The Economist
12
© 2013 Gaffney, Cline & Associates. All Rights Reserved.
Poland – Unconventional Gas Targets 1. Baltic Basin (Cambrian / 2. 3. 4.
5. 6.
Ordovician / Silurian) Podlasie Depression (Silurian) Lublin Basin (Ordovician / Silurian) Upper Silesian Coal Basin (Carboniferous) Fore-Sudetic Monocline (Carboniferous) Carpathian Foredeep (Miocene)
1
2
5 3
4 6
Source: PGI 13
© 2013 Gaffney, Cline & Associates. All Rights Reserved.
0
50
100 150 200 250 km
Poland – Shale Gas Drilling Activity Lubocino 2H – fracturing “delayed” 86 Concessions licenced for unconventional gas exploration 33 shale gas wells drilled in Poland: • 5 horizontal • 3 with fracs • 7 vertical wells with fracs • How many have produced?
Sources: IHS / PGNiG 14
© 2013 Gaffney, Cline & Associates. All Rights Reserved.
Assessing Shale Gas Potential Discipline
What?
Exploration Geoscience / Basin Modelilng
• Delineate the play: Play presence, structure / sedimentology
Typical “Good” Shale Criteria
Why? Where in the subsurface are the target formations located? What was the depositional setting and what is the current structural setting?
How?
Minimum 15-20 m thick high TOC section 1.4 for dry gas Ro 1.1-1.4 for wet gas
Basin modeling and core / sample analysis
• Conventional geological & geophysical
Petrophyisics and Geochecmistry
Source rock basin modelling, Is the organic material in the source rock interpretation, burial history geochemistry gas-prone or oil-prone? – where is the target?
• Petrophysical & geochemical analysis for
maturity Is the organic material TOC, Source kerogen type, thermal maturity – thermally is it a mature enough to have produced, or be viable hydrocarbon source rock? producing gas? Are there moveable hydrocarbons in place?
•
Hydrocarbon Index HI = 1.0 (S2*100)/TOC Geomechanical interpretation – can be it be T Max 450+ Deg C effectively Inorganicdrilled mineralogyand stimulated? Understanding ability to induce fracturing 400 nanodarcy permeability
Petrophysical interpretation (including core / sample analysis) Petrophysical interpretation (including core / sample analysis)
>> Young’s Modulus and lower Poisson’s Ratio improves likelihood of productive fractures
Petrophysical interpretation (including core / sample analysis)
Most productive wells drilled at 90° to Shmax and therefore dominant natural fracture trend (in extensional or s-s regimes)
Natural fractures, Stoneley Wave analysis, seismic anisotropy, upscaling from 1D rock mechanical model
Porosity 3-6+%,
potentially present and producible
understand the shale – de-risking...
Geomechanics
Ro 0.6-1.1 for oil (higher risk of ductile rock)
Orientation of laterals and subsequent stimulation planning
© 2013 Gaffney, Cline & Associates. All Rights Reserved.
Source: JOA / GMI
Poland – Gas Production and Consumption Production bcf/y 700
Consumption bcf/y
600 500
2011 Imports: ~380 bcf/y
400 300 200
(~320 bcf/y from Russian Federation)
100
Source: US EIA / BP
16
© 2013 Gaffney, Cline & Associates. All Rights Reserved.
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
1999
2000
1998
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
0
Spain – Gas Production and Consumption Spanish gas imports in 2011: ~ 1,293 bcf
1600 1400
Other USA 2% 1%
1200 1000
Nigeria 18%
800 600
Norway 10%
Egypt 6%
400
Trinidad & Tobago Peru 7% 5% Belgium 1%*
200 Qatar 13%
0
Algeria 36% Production bcf/y Consumption bcf/y
2/3 of this is LNG
Source: US EIA / BP 17
© 2013 Gaffney, Cline & Associates. All Rights Reserved.
Oman 1%
UK – Gas Production, Consumption & Imports UK gas imports in 2012 > 1,800 bcf
4000 3500 3000
Algeria 1%
2500
Yemen 1%
Nigeria 3%
Trinidad & Tobago 1%
2000 1500 1000
Qatar 41%
500
Norway 41%
0
Netherla nds 12% Imports bcf/y Production bcf/y Consumption bcf/y
Source: US EIA / BP 18
© 2013 Gaffney, Cline & Associates. All Rights Reserved.
Gas Market in Poland and Elsewhere… • Current gas prices in Poland are set at around $11 per MMbtu and
•
•
•
• •
driven by the long-term high oil-indexed ‘take-or-pay’ contract with Gazprom. Following an arbitration settlement (PGNIG, E.On and RWE against Gazprom overpricing; settlement announced July 3, 2012), a renegotiated weighting of 85% indexed to oil and 15% to spot gas will be applied forward. The weight of oil-indexation is expected to slowly be replaced by spotindexed prices over the long-run: increasing differential between Russian largely oil-indexed and European natural gas spot prices. Planned liberalisation of the Polish gas market in 2013 will give independent suppliers third party access to the transportation and distribution infrastructure. Dutch TTF $10.34 / mmbtu and German NCG $10.48 / MMbtu Going forward European gas price corridor to be $10 – 12 / MMbtu?
© 2013 Gaffney, Cline & Associates. All Rights Reserved.
The European Gas Market Polskies LNG at Swinoujscie (3.6 million tonnes per year of import capacity) due in 2014
Overall, Europe is dependent on natural gas imports for 42.7% of its consumption, predicted to rise to 54% by 2015 (source: Natural Gas Market Review OECD, 2008). © 2013 Gaffney, Cline & Associates. All Rights Reserved.
European Shale - Reserves & Resources Resources Resources
European Shale Gas Discovered Discovered
Commercially Recoverable Recoverable
Cumulative Cumulative Production Production Proved Proved
Undiscovered
Non Non--Commercial Commercial
Reserves Reserves
Probable Probable
Possible Possible
To book reserves a producing well is required… Plus a few other things!
© 2013 Gaffney, Cline & Associates. All Rights Reserved.
European Shale Gas reserves likely start 2015 + …Poland?
Resources Reporting Standards (SPE PRMS) Project Maturity sub-classes
DISCOVERED COMMERCIAL
Proved
Proved
Proved plus Probable
Proved plus Probable plus Possible
CONTINGENT RESOURCES DISCOVERED SUB-COMMERCIAL
1C
2C
Lower Risk
Approved for Development
Justified for Development
Possible
Probable
On Production
3C
Development Pending Development Unclarified or On Hold
Project Maturity
Development not Viable
Unrecoverable
PROSPECTIVE RESOURCES UNDISCOVERED PETROLEUM INITIALLYIN-PLACE
Prospect Lead
Low
Best
High
Unrecoverable Range of Uncertainty
Categorise according to uncertainty © 2013 Gaffney, Cline & Associates. All Rights Reserved.
Play
Classify according to Risk
RESERVES INITIALLY-IN-PLACE
DISCOVERED PETROLEUM
TOTAL PETROLEUM INITIALLY-IN-PLACE
Production
Higher Risk
After: Petroleum Resources Management System (PRMS), March 2007 Prepared by Oil and Gas Reserves Committee of the SPE, Sponsored by WPC, AAPG, SPEE
Basics of Resource Classification Edge of Play
Proved
Blocks represent about 12.5% of Play on Block
Proved Undeveloped Probable
1 well – Proved by pilot Possible and/or Contingent Resources
8 wells – Proved undeveloped 16 wells – Probable (inner ring) (24 wells if technically supported (outer ring)) 1 well (just 2% of pink/blue area) could categorise 49 locations as 2P (i.e. about 12.5% of Play on Block)
Block Boundary
24
© 2013 Gaffney, Cline & Associates. All Rights Reserved.
Basics of Resource Classification Edge of Play
Proved Proved Undeveloped Probable
Possible and/or Contingent Resources
9Blocks wells –represent Proved byabout pilot 12.5% of Play on Block 16 wells – Further PUDS 1 well – Proved by pilot 24(+32) wells if technically 8 wells – Proved undeveloped supported - Probable wellscould – Probable (inner81 916wells, categorise ring) locations as 2P (24 wells if technically supported (outer ring)) 1 well (just 2% of pink/blue area) could categorise 49 locations as 2P (i.e. about 12.5% of Play on Block)
Block Boundary
25
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Basics Drillingthe of a second Resource Classification as shown Once 8 PUDswell are drilled andincreases tested by2P pilot Edge of Play
Proved Proved Undeveloped Probable
Possible and/or Contingent Resources
Could be Probable
2 wells wells ––represent Proved byabout 9Blocks Proved pilot 12.5% of Play on Block Could mean approximately 16 wells – Further PUDS 125% well(?30+% – Proved by pilot if including 24(+32) wells if technically space between) reported as 8 wells – Proved undeveloped supported - Probable 2P reserves wellscould – Probable (inner81 916wells, categorise Use Seismic as a means to ring) locations as 2P “fill the gap” (24 wells if technically supported (outer ring)) 1 well (just 2% of pink/blue area) could categorise 49 locations as 2P (i.e. about 12.5% of Play on Block)
Block Boundary
26
© 2013 Gaffney, Cline & Associates. All Rights Reserved.
Careful planning of wells (boreholes) can Basics Drillingthe of a second Resource Classification as shown Once 8 PUDswell are drilled andincreases tested by2P pilot increase 2P significantly Proved
Edge of Play
6 drilled wells allow about 70% of area to be called 2P reserves even after 1 pilot project demonstrating commerciality
Proved Undeveloped Probable
However: •Does this unit approach give a
true reflection of Reserves? •Is the 2P area too great when
geology is considered as the drilling pattern can lead to large areas being categorised as 2P? •If the 2P is valid, is this tied to Block Boundary
27
© 2013 Gaffney, Cline & Associates. All Rights Reserved.
the development plan; the development needs 229 wells!!
Basicsthe of Estimation Drilling a second well as shown Alternatives – Statistical Methods Once 8Reserves PUDs are drilled andincreases tested by2P pilot • Statistical methods
based on EUR (or other production index) • Require a lot of
data (typically > 100 wells!)
• Can be applied on
DSU or concentric radial basis
SPEE Monograph 3 28
© 2013 Gaffney, Cline & Associates. All Rights Reserved.
What Forecasting Techniques Are Used? • Extrapolation of decline curves – Basic – e.g., Arps model – Advanced – e.g., Fetkovich, Blasingame models
• Analytical well or reservoir simulators
• Numerical well or reservoir simulators • Analogy with similar wells or reservoirs – Type curves with distinguishing parameters
• Cross-check with in place volumes! – OGIP reality check – Measure of recovery efficiency 29
© 2013 Gaffney, Cline & Associates. All Rights Reserved.
Decline Curve Analysis in Unconventional Reservoirs Fit based on 5-yr production history
After 5 years
b= 1.2, di=11%, qf = 20 Mscf/D
EUR = 22 Bcf EUR = 8.6 Bcf EUR = 6.7 Bcf
EUR = 7.9 Bcf
© 2013 Gaffney, Cline & Associates. All Rights Reserved.
Plots from Stephanie Curie Rate time relation spreadsheet
EUR = 10 Bcf
EUR = 11 Bcf
Volumetric Estimation of Gas in Place • Shale resource estimates need to account for: – Free gas in pores and fractures – Adsorbed gas on the surfaces of organic matter – Gas dissolved in liquids GIIP = Gfree + Gsorbed + Gdissolved
• All of these are difficult to quantify in shales • Often dissolved gas is disregarded entirely • Free gas is difficult to estimate because of the difficulty in calculating accurate porosity and SW in low permeability formations
• Sorbed gas requires an understanding of sorption isotherms by analysing samples
Ambrose et al, 2010 . SPE 131772
© 2013 Gaffney, Cline & Associates. All Rights Reserved.
Recovery Factors • Calculating recoverable reserves requires understanding of recovery factors • How can we quantify a recovery factor? • The EIA’s World Shale Gas Report divides plays into:
35%
30%
25%
20%
15%
Exceptional
Favourable
Average
Less Favourable
Least Favourable
Established high rates of well performance
Low clay content; low to moderate geologic complexity; overpressured shale formation; high gasfilled porosity
Medium clay content; moderate geologic complexity; average reservoir pressure and properties
Medium to high clay content; moderate to high geologic complexity; below average reservoir properties
Severe underpressure and reservoir complexity
• Higher RFs may be achievable, but realistic estimates must be based on what is being achieved with current technology • But what about NGLs and changing yield? • Quantitative contribution and timing of adsorbed gas in shales?
33
© 2013 Gaffney, Cline & Associates. All Rights Reserved.
Points to Consider – Shale Gas Reserves • Should Reserves and Resources be defined the same way in • • • • •
•
unconventional reservoirs as for conventional ones? What specific criteria must be met in order for a discovery to be declared? What are the potential problems with a US-style project approach using well offset locations? Given lack of production history, what is the most appropriate method of predicting EUR? Can we accurately measure reservoir parameters? Can reservoir simulation assist? Are enough data available? How do we estimate recovery factors?
© 2013 Gaffney, Cline & Associates. All Rights Reserved.
Planning a European Shale Gas Project • Since there isn’t enough production history to predict EURs for shale
gas wells in Europe we might start by selecting an analogue play
Source: MIT 35
© 2013 Gaffney, Cline & Associates. All Rights Reserved.
Planning a European Shale Gas Project • Once production is
established, a pilot project will be required to establish commerciality • This will also facilitate moving up the learning curve – optimum well length, spacing, no. of stages, etc. • From this it will be possible to build a development plan and drilling schedule… • And so forecast production, CAPEX, OPEX, etc. 36
© 2013 Gaffney, Cline & Associates. All Rights Reserved.
Henry Hub †
Gas Spot Prices
Canada (Alberta) ‡ OECD Crude Equivalent Price
18.00 16.00
$US per MMbtu
14.00 12.00
10.00 8.00 6.00 4.00 2.00 0.00
Shale Gas Bubble
* Source: 1984-1990 German Federal Statistical Office 1991-2009 German Federal Office of Economics and Export Control (BAFA). † Source: Heren Energy Ltd. ‡ Source: Energy Intelligence Group, Natural Gas Week. Note: btu = British thermal units.
© 2013 Gaffney, Cline & Associates. All Rights Reserved.
Source: BP Statistical Review of World Energy 2010
Price Sensitivity Gas Price Scenario $10
$9
Gas Price Scenarios
Historical Gas Price
$8
High
US$/mcf
$7 $6 $5
Mid
$4 $3 $2
Low
$1 $0
Time
• Is it possible to be sure what spot prices are going to do in the future? • There is a possibility that reduction in prices will render some opportunities in a
shale gas project commercially unviable… • …In which case these volumes drop out of Reserves and into Contingent Resources © 2013 Gaffney, Cline & Associates. All Rights Reserved.
Breakeven Gas Prices - US 22 21 20 19 18 17 16 15
• Weijermaars’ study shows that many US shale operators failed to reach break-even in 2009 • So what? European spot prices are much higher, right? • Yes, but CAPEX and OPEX likely to be higher… • …and we’ve yet to see shale gas production rates comparable with the US
$/Mcf
14 13 12 11 10
Median $ 8.03
9 8 7 6 5 4 3
Source: Break-even analysis by Bank of America for 32 major US unconventional gas operators, as discussed by Ruud Weijermars, First Break, Sept. 2010
© 2013 Gaffney, Cline & Associates. All Rights Reserved.
Possible Barriers to Development: Surface Footprint
Jonah Gas Field, Pinedale, WY
© 2013 Gaffney, Cline & Associates. All Rights Reserved.
Frac Spread Surface Footprint
Image: Halliburton 42
© 2013 Gaffney, Cline & Associates. All Rights Reserved.
Environmental Considerations: Fresh water and Hazardous Chemicals • Fracture treatments require make-up water
• • •
• •
– 1,100-2,000 m3 / stage – 9,000-29,000 m3 for 9 stages Potentially hazardous chemicals –
Chris Burns 29th January 2013
© 2013 GAFFNEY, CLINE & ASSOCIATES (“GCA”). ALL RIGHTS RESERVED. TERMS AND CONDITIONS OF USE: BY ACCEPTING THIS DOCUMENT, THE RECIPIENT AGREES THAT THE DOCUMENT TOGETHER WITH ALL INFORMATION INCLUDED THEREIN IS THE CONFIDENTIAL AND PROPRIETARY PROPERTY OF GCA AND INCLUDES VALUABLE TRADE SECRETS AND/OR PROPRIETARY INFORMATION OF GCA (COLLECTIVELY "INFORMATION"). GCA RETAINS ALL RIGHTS UNDER COPYRIGHT LAWS AND TRADE SECRET LAWS OF THE UNITED STATES OF AMERICA AND OTHER COUNTRIES. THE RECIPIENT FURTHER AGREES THAT THE DOCUMENT MAY NOT BE DISTRIBUTED, TRANSMITTED, COPIED OR REPRODUCED IN WHOLE OR IN PART BY ANY MEANS, ELECTRONIC, MECHANICAL, OR OTHERWISE, WITHOUT THE EXPRESS PRIOR WRITTEN CONSENT OF GCA, AND MAY NOT BE USED DIRECTLY OR INDIRECTLY IN ANY WAY DETRIMENTAL TO GCA’S INTEREST.
Outline 1. Unconventional gas (and oil) basics 2. The story so far in the US
3. Shale gas potential worldwide and in Europe 4. A look at European gas markets 5. Resources, reserves and shale gas development 6. Possible barriers to shale gas development in Europe 2
© 2013 Gaffney, Cline & Associates. All Rights Reserved.
Unconventional Gas Definitions • Tight Gas – siltstones, carbonates and very fine sandstones with low permeability – Slightly better flow rates than shales however higher risk of low charge
• CBM – Coal bed methane is usually trapped in coal deposits that have been buried to the kitchen window. – Gas is adsorbed to mineral surfaces.
• Gas Hydrates – Requires very cold conditions to maintain a solid state. Usually found in hard-to-reach places e.g. Siberia, Alaska or some locations in deep water offshore.
• Shale Gas – Shales are usually marine, deltaic or lacustrine deposits, often laterally extensive – Wide range of properties with permeability usually on the nanodarcy scale – Gas in natural fractures, pores, adsorbed to mineral or organic matter © 2013 Gaffney, Cline & Associates. All Rights Reserved.
What About Unconventional Oil? • Heavy oil and oil sands – High viscosity, high density hydrocarbons which may not flow naturally – Deposits contain high bitumen content and occur as a result of biodegradation]
• Oil shale – Fine grained kerogen-rich sedimentary rock mined at surface – Kerogen converted to hydrocarbons by pyrolysis, hydrogenation or thermal dissolution
• Coal and gas conversion (CTL & GTL) – Conversion of solids (coal) and gas to liquids, typically synthetic diesel and lubricants
• Tight oil (LTO) – Liquids-rich formations with low permeability and porosity – Can be associated with shale gas and occurs in some well-known shale gas plays – Not the same as oil shale – fluids have lower viscosity and API © 2013 Gaffney, Cline & Associates. All Rights Reserved.
Unconventional Gas Geology (Schematic)
Source: EIA
© 2013 Gaffney, Cline & Associates. All Rights Reserved.
Background – U.S. Unconventional Gas • Current US natural gas
production is ~ 24 TCF/Y • 58% of this (~14 TCF) is from unconventional reservoirs, including shale • The EIA forecasts this to rise to 70% by 2035 • Expansion in unconventional development driven by technology: – Horizontal drilling – Fracturing – “Smart” completions 6
Source: EIA 2012; OGJ
Barnett Shale: Activity
13,500 Gas wells completed in Barnett since 1997 © 2013 Gaffney, Cline & Associates. All Rights Reserved.
Barnett Shale: Vertical, Deviated or Horizontal? Maximum Gas Production 300000
Gas Produced – 6 months (MMSCF)
Vertical 250000
Horizontal Deviated
200000
150000
100000
50000
0 2/18/82
8/11/87
1/31/93
7/24/98 Date
Source: Drilling Info / Baker Hughes 8
© 2013 Gaffney, Cline & Associates. All Rights Reserved.
1/14/04
7/6/09
Horizontal Wells • Maximise wellbore contact with
reservoir
Increase size of “artificial reservoir”
• Maximise number of frac stages • Reduce surface footprint
– 100 ft open hole vertical wellbore, 8.5” diameter = 71 sq ft – 5,000 ft open hole horizontal wellbore, 8.5” diameter = 3,541 sq ft – 100 ft fracture = 15,708 sq ft
© 2013 Gaffney, Cline & Associates. All Rights Reserved.
Image: Baker Hughes
Globally – Estimated Shale Gas in Place Europe Europe(excl. (excl. CIS) ~ 550 TCF CIS) ~ 2,587 TCF
China Chinaand andIndia India ~~3,530 TCF 5,597 TCF North America ~North 3,840America TCF ~ 3,856 TCF North Africa and North Africa Middle East ~and MiddleTCF East ~ 2,550 2,128 TCF South America ~South 2,120America TCF ~ 4,569 TCF Australia ~ 2,310 Australia TCF ~ 1,381 TCF
Sources: CIA World Factbook / Rogner, 1997; EIA 2011 © 2013 Gaffney, Cline & Associates. All Rights Reserved.
Europe – Estimated Shale Gas 2011 Cuadrilla UK ~ 97 TCF in Estimates place; 20200 TCF TCF in-place rec in Bowland Shale
Scandinavia ~ 589 TCF in place; 147 TCF rec
BGR: 240 – 798 TCF in-place; Germany ??? 24 – 80 TCF recoverable
France ~ 717 TCF in place; 180 TCF rec Turkey ~ 64 TCF in place; 20 TCF rec Source: EIA 2011; PGI 2012; BGR 2012 11
© 2013 Gaffney, Cline & Associates. All Rights Reserved.
Revised PGI Poland ~by 792 2012: 187 TCF ininplace; 12.2 – 27.1 TCF rec TCF recoverable*
0
European Shale Gas Exploration Targets UK: Bowland Shale / Kimmeridge Clay
Sweden / Denmark: Alum Shale Poland / Lithuania: Alum Shale, Ordivician & Silurian Shales
NL :Posidonia Shale
Spain: Camino Fm.
Hungary: Mako Trough
Portugal: Lias Fms.
Turkey: Thrace Basin (Hamitabat / Mezrdere Fms.) Image: The Economist
12
© 2013 Gaffney, Cline & Associates. All Rights Reserved.
Poland – Unconventional Gas Targets 1. Baltic Basin (Cambrian / 2. 3. 4.
5. 6.
Ordovician / Silurian) Podlasie Depression (Silurian) Lublin Basin (Ordovician / Silurian) Upper Silesian Coal Basin (Carboniferous) Fore-Sudetic Monocline (Carboniferous) Carpathian Foredeep (Miocene)
1
2
5 3
4 6
Source: PGI 13
© 2013 Gaffney, Cline & Associates. All Rights Reserved.
0
50
100 150 200 250 km
Poland – Shale Gas Drilling Activity Lubocino 2H – fracturing “delayed” 86 Concessions licenced for unconventional gas exploration 33 shale gas wells drilled in Poland: • 5 horizontal • 3 with fracs • 7 vertical wells with fracs • How many have produced?
Sources: IHS / PGNiG 14
© 2013 Gaffney, Cline & Associates. All Rights Reserved.
Assessing Shale Gas Potential Discipline
What?
Exploration Geoscience / Basin Modelilng
• Delineate the play: Play presence, structure / sedimentology
Typical “Good” Shale Criteria
Why? Where in the subsurface are the target formations located? What was the depositional setting and what is the current structural setting?
How?
Minimum 15-20 m thick high TOC section 1.4 for dry gas Ro 1.1-1.4 for wet gas
Basin modeling and core / sample analysis
• Conventional geological & geophysical
Petrophyisics and Geochecmistry
Source rock basin modelling, Is the organic material in the source rock interpretation, burial history geochemistry gas-prone or oil-prone? – where is the target?
• Petrophysical & geochemical analysis for
maturity Is the organic material TOC, Source kerogen type, thermal maturity – thermally is it a mature enough to have produced, or be viable hydrocarbon source rock? producing gas? Are there moveable hydrocarbons in place?
•
Hydrocarbon Index HI = 1.0 (S2*100)/TOC Geomechanical interpretation – can be it be T Max 450+ Deg C effectively Inorganicdrilled mineralogyand stimulated? Understanding ability to induce fracturing 400 nanodarcy permeability
Petrophysical interpretation (including core / sample analysis) Petrophysical interpretation (including core / sample analysis)
>> Young’s Modulus and lower Poisson’s Ratio improves likelihood of productive fractures
Petrophysical interpretation (including core / sample analysis)
Most productive wells drilled at 90° to Shmax and therefore dominant natural fracture trend (in extensional or s-s regimes)
Natural fractures, Stoneley Wave analysis, seismic anisotropy, upscaling from 1D rock mechanical model
Porosity 3-6+%,
potentially present and producible
understand the shale – de-risking...
Geomechanics
Ro 0.6-1.1 for oil (higher risk of ductile rock)
Orientation of laterals and subsequent stimulation planning
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Source: JOA / GMI
Poland – Gas Production and Consumption Production bcf/y 700
Consumption bcf/y
600 500
2011 Imports: ~380 bcf/y
400 300 200
(~320 bcf/y from Russian Federation)
100
Source: US EIA / BP
16
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2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
1999
2000
1998
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
0
Spain – Gas Production and Consumption Spanish gas imports in 2011: ~ 1,293 bcf
1600 1400
Other USA 2% 1%
1200 1000
Nigeria 18%
800 600
Norway 10%
Egypt 6%
400
Trinidad & Tobago Peru 7% 5% Belgium 1%*
200 Qatar 13%
0
Algeria 36% Production bcf/y Consumption bcf/y
2/3 of this is LNG
Source: US EIA / BP 17
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Oman 1%
UK – Gas Production, Consumption & Imports UK gas imports in 2012 > 1,800 bcf
4000 3500 3000
Algeria 1%
2500
Yemen 1%
Nigeria 3%
Trinidad & Tobago 1%
2000 1500 1000
Qatar 41%
500
Norway 41%
0
Netherla nds 12% Imports bcf/y Production bcf/y Consumption bcf/y
Source: US EIA / BP 18
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Gas Market in Poland and Elsewhere… • Current gas prices in Poland are set at around $11 per MMbtu and
•
•
•
• •
driven by the long-term high oil-indexed ‘take-or-pay’ contract with Gazprom. Following an arbitration settlement (PGNIG, E.On and RWE against Gazprom overpricing; settlement announced July 3, 2012), a renegotiated weighting of 85% indexed to oil and 15% to spot gas will be applied forward. The weight of oil-indexation is expected to slowly be replaced by spotindexed prices over the long-run: increasing differential between Russian largely oil-indexed and European natural gas spot prices. Planned liberalisation of the Polish gas market in 2013 will give independent suppliers third party access to the transportation and distribution infrastructure. Dutch TTF $10.34 / mmbtu and German NCG $10.48 / MMbtu Going forward European gas price corridor to be $10 – 12 / MMbtu?
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The European Gas Market Polskies LNG at Swinoujscie (3.6 million tonnes per year of import capacity) due in 2014
Overall, Europe is dependent on natural gas imports for 42.7% of its consumption, predicted to rise to 54% by 2015 (source: Natural Gas Market Review OECD, 2008). © 2013 Gaffney, Cline & Associates. All Rights Reserved.
European Shale - Reserves & Resources Resources Resources
European Shale Gas Discovered Discovered
Commercially Recoverable Recoverable
Cumulative Cumulative Production Production Proved Proved
Undiscovered
Non Non--Commercial Commercial
Reserves Reserves
Probable Probable
Possible Possible
To book reserves a producing well is required… Plus a few other things!
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European Shale Gas reserves likely start 2015 + …Poland?
Resources Reporting Standards (SPE PRMS) Project Maturity sub-classes
DISCOVERED COMMERCIAL
Proved
Proved
Proved plus Probable
Proved plus Probable plus Possible
CONTINGENT RESOURCES DISCOVERED SUB-COMMERCIAL
1C
2C
Lower Risk
Approved for Development
Justified for Development
Possible
Probable
On Production
3C
Development Pending Development Unclarified or On Hold
Project Maturity
Development not Viable
Unrecoverable
PROSPECTIVE RESOURCES UNDISCOVERED PETROLEUM INITIALLYIN-PLACE
Prospect Lead
Low
Best
High
Unrecoverable Range of Uncertainty
Categorise according to uncertainty © 2013 Gaffney, Cline & Associates. All Rights Reserved.
Play
Classify according to Risk
RESERVES INITIALLY-IN-PLACE
DISCOVERED PETROLEUM
TOTAL PETROLEUM INITIALLY-IN-PLACE
Production
Higher Risk
After: Petroleum Resources Management System (PRMS), March 2007 Prepared by Oil and Gas Reserves Committee of the SPE, Sponsored by WPC, AAPG, SPEE
Basics of Resource Classification Edge of Play
Proved
Blocks represent about 12.5% of Play on Block
Proved Undeveloped Probable
1 well – Proved by pilot Possible and/or Contingent Resources
8 wells – Proved undeveloped 16 wells – Probable (inner ring) (24 wells if technically supported (outer ring)) 1 well (just 2% of pink/blue area) could categorise 49 locations as 2P (i.e. about 12.5% of Play on Block)
Block Boundary
24
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Basics of Resource Classification Edge of Play
Proved Proved Undeveloped Probable
Possible and/or Contingent Resources
9Blocks wells –represent Proved byabout pilot 12.5% of Play on Block 16 wells – Further PUDS 1 well – Proved by pilot 24(+32) wells if technically 8 wells – Proved undeveloped supported - Probable wellscould – Probable (inner81 916wells, categorise ring) locations as 2P (24 wells if technically supported (outer ring)) 1 well (just 2% of pink/blue area) could categorise 49 locations as 2P (i.e. about 12.5% of Play on Block)
Block Boundary
25
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Basics Drillingthe of a second Resource Classification as shown Once 8 PUDswell are drilled andincreases tested by2P pilot Edge of Play
Proved Proved Undeveloped Probable
Possible and/or Contingent Resources
Could be Probable
2 wells wells ––represent Proved byabout 9Blocks Proved pilot 12.5% of Play on Block Could mean approximately 16 wells – Further PUDS 125% well(?30+% – Proved by pilot if including 24(+32) wells if technically space between) reported as 8 wells – Proved undeveloped supported - Probable 2P reserves wellscould – Probable (inner81 916wells, categorise Use Seismic as a means to ring) locations as 2P “fill the gap” (24 wells if technically supported (outer ring)) 1 well (just 2% of pink/blue area) could categorise 49 locations as 2P (i.e. about 12.5% of Play on Block)
Block Boundary
26
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Careful planning of wells (boreholes) can Basics Drillingthe of a second Resource Classification as shown Once 8 PUDswell are drilled andincreases tested by2P pilot increase 2P significantly Proved
Edge of Play
6 drilled wells allow about 70% of area to be called 2P reserves even after 1 pilot project demonstrating commerciality
Proved Undeveloped Probable
However: •Does this unit approach give a
true reflection of Reserves? •Is the 2P area too great when
geology is considered as the drilling pattern can lead to large areas being categorised as 2P? •If the 2P is valid, is this tied to Block Boundary
27
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the development plan; the development needs 229 wells!!
Basicsthe of Estimation Drilling a second well as shown Alternatives – Statistical Methods Once 8Reserves PUDs are drilled andincreases tested by2P pilot • Statistical methods
based on EUR (or other production index) • Require a lot of
data (typically > 100 wells!)
• Can be applied on
DSU or concentric radial basis
SPEE Monograph 3 28
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What Forecasting Techniques Are Used? • Extrapolation of decline curves – Basic – e.g., Arps model – Advanced – e.g., Fetkovich, Blasingame models
• Analytical well or reservoir simulators
• Numerical well or reservoir simulators • Analogy with similar wells or reservoirs – Type curves with distinguishing parameters
• Cross-check with in place volumes! – OGIP reality check – Measure of recovery efficiency 29
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Decline Curve Analysis in Unconventional Reservoirs Fit based on 5-yr production history
After 5 years
b= 1.2, di=11%, qf = 20 Mscf/D
EUR = 22 Bcf EUR = 8.6 Bcf EUR = 6.7 Bcf
EUR = 7.9 Bcf
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Plots from Stephanie Curie Rate time relation spreadsheet
EUR = 10 Bcf
EUR = 11 Bcf
Volumetric Estimation of Gas in Place • Shale resource estimates need to account for: – Free gas in pores and fractures – Adsorbed gas on the surfaces of organic matter – Gas dissolved in liquids GIIP = Gfree + Gsorbed + Gdissolved
• All of these are difficult to quantify in shales • Often dissolved gas is disregarded entirely • Free gas is difficult to estimate because of the difficulty in calculating accurate porosity and SW in low permeability formations
• Sorbed gas requires an understanding of sorption isotherms by analysing samples
Ambrose et al, 2010 . SPE 131772
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Recovery Factors • Calculating recoverable reserves requires understanding of recovery factors • How can we quantify a recovery factor? • The EIA’s World Shale Gas Report divides plays into:
35%
30%
25%
20%
15%
Exceptional
Favourable
Average
Less Favourable
Least Favourable
Established high rates of well performance
Low clay content; low to moderate geologic complexity; overpressured shale formation; high gasfilled porosity
Medium clay content; moderate geologic complexity; average reservoir pressure and properties
Medium to high clay content; moderate to high geologic complexity; below average reservoir properties
Severe underpressure and reservoir complexity
• Higher RFs may be achievable, but realistic estimates must be based on what is being achieved with current technology • But what about NGLs and changing yield? • Quantitative contribution and timing of adsorbed gas in shales?
33
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Points to Consider – Shale Gas Reserves • Should Reserves and Resources be defined the same way in • • • • •
•
unconventional reservoirs as for conventional ones? What specific criteria must be met in order for a discovery to be declared? What are the potential problems with a US-style project approach using well offset locations? Given lack of production history, what is the most appropriate method of predicting EUR? Can we accurately measure reservoir parameters? Can reservoir simulation assist? Are enough data available? How do we estimate recovery factors?
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Planning a European Shale Gas Project • Since there isn’t enough production history to predict EURs for shale
gas wells in Europe we might start by selecting an analogue play
Source: MIT 35
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Planning a European Shale Gas Project • Once production is
established, a pilot project will be required to establish commerciality • This will also facilitate moving up the learning curve – optimum well length, spacing, no. of stages, etc. • From this it will be possible to build a development plan and drilling schedule… • And so forecast production, CAPEX, OPEX, etc. 36
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Henry Hub †
Gas Spot Prices
Canada (Alberta) ‡ OECD Crude Equivalent Price
18.00 16.00
$US per MMbtu
14.00 12.00
10.00 8.00 6.00 4.00 2.00 0.00
Shale Gas Bubble
* Source: 1984-1990 German Federal Statistical Office 1991-2009 German Federal Office of Economics and Export Control (BAFA). † Source: Heren Energy Ltd. ‡ Source: Energy Intelligence Group, Natural Gas Week. Note: btu = British thermal units.
© 2013 Gaffney, Cline & Associates. All Rights Reserved.
Source: BP Statistical Review of World Energy 2010
Price Sensitivity Gas Price Scenario $10
$9
Gas Price Scenarios
Historical Gas Price
$8
High
US$/mcf
$7 $6 $5
Mid
$4 $3 $2
Low
$1 $0
Time
• Is it possible to be sure what spot prices are going to do in the future? • There is a possibility that reduction in prices will render some opportunities in a
shale gas project commercially unviable… • …In which case these volumes drop out of Reserves and into Contingent Resources © 2013 Gaffney, Cline & Associates. All Rights Reserved.
Breakeven Gas Prices - US 22 21 20 19 18 17 16 15
• Weijermaars’ study shows that many US shale operators failed to reach break-even in 2009 • So what? European spot prices are much higher, right? • Yes, but CAPEX and OPEX likely to be higher… • …and we’ve yet to see shale gas production rates comparable with the US
$/Mcf
14 13 12 11 10
Median $ 8.03
9 8 7 6 5 4 3
Source: Break-even analysis by Bank of America for 32 major US unconventional gas operators, as discussed by Ruud Weijermars, First Break, Sept. 2010
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Possible Barriers to Development: Surface Footprint
Jonah Gas Field, Pinedale, WY
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Frac Spread Surface Footprint
Image: Halliburton 42
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Environmental Considerations: Fresh water and Hazardous Chemicals • Fracture treatments require make-up water
• • •
• •
– 1,100-2,000 m3 / stage – 9,000-29,000 m3 for 9 stages Potentially hazardous chemicals –
