US shale gas: The new industrial revolution

Theodore Michael's picture
Theodore Michael, LNG Analyst, Genscape
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The shale gas revolution has not yet completed its first decade as increasing yields and production now join a bipartisan consensus in Washington. Push US exports. US cost structure and LNG sendout mean the shale gas cost curve will stay connected to European gas markets. Against continental pipe gas or Australian LNG, the US shale gas revolution will drive the cost curve for global production.

“Its not a supply story it’s a cost story”, said a speaker at the European Autumn Gas Conference (EAGC).

Marcellus productivity, a four-fold increase in 6 years: Natural gas fracking rigs in the Marcellus have seen a huge jump in productivity. Rigs averaged 8-10 wells and 4-5000 feet in 2010. Now in 2016 laterals average 8000 feet and rigs average 20-25 lateral drills. Giving rig productivity a four-fold increase in 6 years.

At the European Autumn Gas Conference, Jeff Nanna, VP - Upstream Investment Banking at Tudor, Pickering, Holt & Co. cited as example: The world’s longest lateral drill of 5880 feet took 50 days in 2013. This record was eclipsed in 2106 in the Ohio Utica with an 18,554-foot lateral taking only 18 days to drill. Sand used to prop open fractured pay zones has risen from 3 million lbs. per well to 9 million lbs. per well, greatly enhancing yield.

Another speaker at the EAGC cited some equally amazing Marcellus productivity data. In 2010 a 1000 feet of lateral drilling cost $1800 a foot and produced 1.7 bcf of gas. In 2016 a similar 1000-foot lateral cost $1000 a foot and produced 2.2 bcf of gas, a 40 % drop in costs. Such growth in productivity allows a producer to make the same returns at $2 he once made at $3.50.

The Golden Age of gas is only at the dawn: In Washington bipartisan support is building not only to expand the current soft ceiling of 120 bcma (12 bcf/d), but to expedite the review process and move towards a new ceiling of 20 bcf/d.

Tapping into this fortuitous confluence: Falling feed gas costs, global low cost per ton liquefaction plants and a political push to expand current gas exports. The Golden Age of gas is only at the dawn.

The European Autumn Gas Conference (EAGC) – Connecting European gas markets with new global opportunities.

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The views expressed are the author’s own, and do not reflect any position on behalf of dmg:: events Global Energy.

Image source: Genscape, Inc. Methane Princess and Ribera del Duero Knutsen loading shale gas at Sabine 11/11/2016 at 11:15.