Shale boom leaves industry considering US gas exports

February 1, 2010 2:10pm

When the US independents (oil and gas producers without refining operations) began growing US natural gas production, nobody thought they would flood the market. But in recent years, new technology and expertise has grown production to the extent that the industry has worried in recent months that there would be no more room to store it in the US. Indeed, companies have started to contemplate exporting natural gas from the US.

This is an about-face from expectations of even a few years ago. In 2003, Alan Greenspan, then chairman of the Federal Reserve, noted the alarming rise in natural gas prices in the face of growing US demand and decreasing access to US supplies. That led to a concerted drive to build LNG facilities. In 2006, Wood Mackenzie, the energy consultancy, predicted North America would be the world’s biggest importer of liquefied natural gas (LNG) by 2010.

But that is not the way it turned out. The US now has enough of its own supply to last 100 years at current usage rates, according to the industry. And Mark Whitley, a senior vice president at Range Resources, an independent producer, says the US has the potential to develop fields as big as any in the Middle East. He notes that the Marcellus Shale field, estimated at about 100,000 square miles - is about the size of Greece - and could turn out to be a bigger boom than the Haynesville Shale field or the Barnett Shale field - now the biggest producer of US gas.

Indeed, production has grown to such an extent that the major oil companies, which once focused their efforts internationally, are moving back into the US. In December, ExxonMobil, the US’ biggest oil company, signalled a significant shift in strategy with a deal to pay $31bn (£19bn) in stock for XTO Energy, which will give it a big position on domestic natural gas. The deal, which includes a further $10bn in XTO debt, gives Exxon an increased foothold in difficult-to-tap gas reserves trapped in shale rock and greater access to a cleaner-burning alternative to coal. But Exxon was not the first major to move into the area. Russ Ford, Royal Dutch Shell’s executive vice president for onshore gas, says:

I consider the Haynesville one of our core areas. Shell has placed a big emphasis on north American gas; it’s an area of growth for us. We’ve invested, something like $15bn since 2004 in the onshore. What you develop here, you’d like to export to the rest of the world.

Indeed, BP and BG Group of the UK; StatoilHydro, the Norwegian energy company; and Eni, the Italian oil company, have bought into the US gas industry in the past year or two to gain access to the boom and learn from the independents. Chesapeake Energy has formed a global partnership with Statoil to prospect for new shale opportunities in 14 different areas around the world. In the words of Kevin Shaw, a partner focusing on energy for Mayer Brown, the law firm:

They’re looking around in all the dark corners, where nobody thought they could profitably exploit the resource.

Shale exists throughout the world, in many geologic basins, and the industry should be able to exploit it. John Curtis, director of the Potential Gas Agency at the Colorado School of Mines, which is affiliated with the Potential Gas Committee - a group considered by industry and government for expert information on the gas resource base - notes there is nothing magical about the shale in the US. That said, the US does have an edge in that it is well suited for rapid development, with much gas in lightly populated areas and a web of existing infrastructure to bring it to market. And the world experts at getting to this resource are in the US - something nobody in the industry is downplaying. In the words of John Pinkerton, chief executive of Range Resources:

The technology used to access natural gas from shales is as complex and sophisticated as that used in the Apollo Space Programme. Each shale play is like children - totally different. Not only the thickness, but in per centage of gas trapped in the rock, what pressure is required to fracture it, and so on, forcing changes on each play with drilling, which runs $3m-$5m a well. But the industry is always improving the process. Every six months or so there is some tweak that makes the wells incrementally better, incrementally cheaper. And that opens new areas to production.

At this rate, the industry would do well to convert the natural gas import terminals into export terminals to get ready for the next stage in this boom.

 

Buck

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Good article, Mr. Buckner. Here's another one that mentions exporting NG.

http://www.upi.com/Top_News/Analysis/2010/02/01/Walkers-World-Russi...
Great post WB & Jffree. I also read that Alaska is considering exporting natgas as well. They had/have plans for a natgas pipeline to the states but the massive discoveries in the lower 48 have made them think twice. I believe there is a $5 billion dollar LNG import terminal in Louisiana that took in only 5 or so shipments last year due in part to poor pricing, excess storage, and the HA discovery. Transitioning the LNG import terminals to export terminals would be fantastic. The question would be is there a market and who is the market for our natgas? The U.S. has a wonderful oportunity to export natgas so why share, give, or sell our technology to countries we could be selling to? I read the other day that Obama had a pact with China to aid them in shale gas recovery technology.
That's right, Parkota. The President has "generously" offered this tecnology to China and told them this on his visit there. But when Mr President is within the US, the words "natural gas" will not come out of his mouth.
He is anti-NG for the US but all pro for foreign countries. When someone makes some sense out of that, please let us know.
Yeah, I don't understand either. I know China and Japan are already fighting over fossel fuel reserves in between the countries. Maybe they want to help Japan. China would more than likely import from Russia so maybe they're doing it to hurt Russia as they're our biggest threat natgas wise. I know the US just made a 6+billion dollar arms deal to Taiwan that really irritated China so maybe it's a kiss rear move. There are countless possibilities but I'd love to know for sure. Natgas export along with a heightened use in this country would lower emissions, create countless jobs, increase exports, etc. To me, it would be a massive win for the US. We've pledge to cut emissions 17% by 2020, or 17% below 2005 standards. So, maybe around 20%+/- that we have to cut. There is noooooo way wind, water, and solar are going to account for that.
Parkdota, LNG import terminals cost ~ $0.6 to $1.0 billion. It is highly unlikely that any currently operating LNG import terminal would ever be converted to an LNG supply plant for export.
Parkdota - My apologies for resuscitating a dying topic, but it took awhile to go through what I had read & saved to find this. Beginning about doc page 19 is where you'll find information regarding the export of ng.

This is found on p. 23 ...

"Liquefaction represents by far the most significant cost along the value chain. Figure 3.2 estimates costs for liquefaction ranging between $0.8-$1.20/MMBtu, but those figures correspond to existing plants, those which have already come online or are in advanced stages of construction. The reality facing new plant proposals approaching final
investment decision is of costs which will likely have risen by a factor of two."
Attachments:
Ah, I see. I may be wrong but I'm guessing with low prices and the natgas glut due in part to HBP that there won't be much activity anywhere other than the conventional and unconventional plays that are already in go mode. That being said, I guess there won't be much to do with LNG exports either. Price seems to control everything and I guess while existing plays will not reap the benefit of high prices they at least will get plenty of attention with regards to production. It's funny how excess storage would make a need for LNG exports but the glut in turn drops prices thus making the LNG export impractical. That's a typical darned if you do, darned if you don't. lol
Parkdota - You're a little vague re. "won't be much activity anywhere." Where else are you thinking?

Historically, activity, production and prices SHOULD pick up as gas in storage is depleted. Also, as infrastructure/pipeline is completed.

Demand for gas in storage is affected by the economy, too. Since transportation is but a small part of the demand pie, it seems to me we need an increase in demand in one of the 3 larger pieces of the pie (residential, industrial or electric generation). Even at that, if gas prices spike too high, it will discourage use of ng unless the playing field is leveled and stabilized in terms of costs to consumers.

Yes, it would be good to get in on the export game, especially in the Pacific Basin (maybe even in the Atlantic as consumers across the Big Pond look for ways to offset Russian imports and their control), but the longer it's delayed (as in the case of Valdez), the more expensive it becomes to build such plants. And who has that kind of money to spare????

Maybe if the XOM deal falls through they'll use their spare change to build us a nice export terminal??? lol

80)

PS - And that's just my humble opinion as IANAE about anything in the O&G professions.
Parkdota - Alaska isn't CONSIDERING, it IS exporting to Japan.

http://www.ferc.gov/industries/lng/indus-act/terminals/exist-term/k...

80)
Sesport,
Also, the new Valdez LNG export plant has been under consideration for at least the past 6-8 years.

By the way, the existing Kenai LNG Plant will probably shut down in 2-3 years due to lack of adequate feed gas supply.
Les - From what I've read, Valdez (or a similar facility) has been dreamed of even longer than that. Now I see that EIA is more in favor of a pipeline to the lower 48 than to LNG export? Tell me it ain't so!!!! From what I can discern, but my impressions may stand correction, the LNG prices in Japan alone are more favorable than supplying to the lower 48. And, Russia/Gazprom doesn't seem to have had as good of a Q1 & Q2 exporting in '09 as they have in the past, which might help lower prices for their LNG, I'm thinking, thus lowering cost to consumers here.

And lower prices to consumers may ... MAY ... convince more businesses & industries to go with co-generation using ng, hopefully (said with audacity).

Then again, I may just have a squirrel problem in my research. lol

80)
Sesport, you noticed that I used the phrase "at least" because I thought the concept went back further in time. There continues to be heavy resistance to any new LNG export plant from Alaska even though it could potentially be the best course of action. The economics for either Alaska gas export approach (LNG or pipeline) is very challenging due to the massive capital required.

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