Oil has joined the Past… NG is the Future!

Jack H Barnes's picture


natural gas cartel, a dream of Russia’s just a few years ago, is dead.
It died when a natural gas revolution broke out and Gazprom lost. 
Energy importing nations around the world are evaluating their own
geology, currently, to see if they have shale reserves that can be
tapped.  Nations like Argentina, Germany, Poland, France, and Sweden are
looking into their national shale reserves.

The shale gas revolution is changing the world we live in, and the
power structures of the past.  It is also quickly changing the politics
of future energy relationships.  Nations that had to be nice to an
exporter, due to energy supplies, will be freed of their need for

Shale gas is quite simply changing the whole energy paradigm in real
time.  The unlocking of source rock, has altered the future history of
mankind.  The world has discovered and unlocked its newest true world
changing source of stored energy.

  • In the 1700’s, the world used wood for its energy source. The great mansions were heated with wood.
  • In the 1800’s, coal provided the go-to source of transportable
    fuel.   It allowed railroads to rapidly move people at a pace faster
    than a horse. Coal powered the Industrial Revolution.
  • In the 1900’s, crude oil became the primary fuel.  It was refined
    into fuel for aircraft, for ships at sea and into gasoline and diesel. 
    Crude oil provided the necessary cheap energy to fuel the rapid
    expansion of civilization to the rest of the world.
  • The 2000’s arrived with the onset of peak light sweet crude oil. 
    The US had peaked in overall oil production decades before, and as the
    new century started its reserves in both oil and conventional natural
    gas where shrinking.

It was in this situation, that a group of small O&G companies,
starting with Mitchell and working separately to start, but building on
knowledge learned in the field, figured out how to unlock the natural
gas in the Barrett shale formation in Texas.

The technology was soon adapted to oil shale wells in the Bakken
formation along the Montana/North Dakota border.  These two events have
changed how the oil & gas industry looks at resources today.  Shale,
depending on type, can be a provider of long life high flowing oil
wells, or it can produce as much natural as from one shale well, as a
small conventional field would produce.  The dynamics of on-shore energy
production has been the biggest change in the underlying economy
unnoticed by most people.

simple terms, a natural gas or oil well is engineered to have an
extremely long horizontal leg.  The idea is to provide as large of a
circular surface as possible in the productive zone.  They are drilling
these legs a mile long or more now. The long horizontal leg is
stimulated with extremely high pressured water, sand and proprietary
particles into the zone around the pipe.

This process opens up crevices in the rock, opening up cavities with
larger surface areas than you would get normally around the pipe.  This
allows the hydrocarbons to be pulled into the well at higher than normal
flow rates for the type of rock.  The combining of long legs with
extremely high pressure multi stage fracturing unlocked the hydrocarbons
bound in the rock itself.  Normally, fields are traps with
accumulations in a sandy area.  That is the oil or gas can be trapped in
a location that allows it to move.  The shale rock is called a source
rock because the hydrocarbons found in those other pools may have leaked
out of it and moved hundreds of miles laterally.

The world has shale fields spread around the globe in locations
famous for oil production, and some not so famous.  The new technology
will change the basic political power structures that exist today.  The
era of Russia controlling Europe’s natural gas future is drawing to a

“The size of reserves is mind boggling,” he said. “It makes a huge argument for a gas economy going forward.”Annop Poddar, Partner, Energy Ventures

the shale fields in Poland and Germany can be brought online at the
same level of production seen in the US, Europe on shore will be energy
independent via their own production.  France has shale oil and shale
gas locations.

The good news about the geology of shale is that a zone is productive
typically over extremely large area’s covering tens or hundreds of
miles in different directions.  This means that wells are almost never
dud’s.  The actual hit rate on the new shale wells is extremely high. 
This is because the horizontal leg allows the whole length to be
produced as a whole.

Exxon realized this technology had the capacity to change the world. 
They purchased the largest player in the new techno revolution.   XTO
has given Exxon a significant new position in the US, the new
technology, and view towards changing the world’s energy view.

The current strangle hold on hydrocarbons by national oil companies
is coming to an end.  New large pools of hydrocarbons are being released
in the middle of western nations with hydrocarbon reserve ownership
available for commercial exploitation.

The US has grown its own internal natural gas supplies to the point
that it is now the largest producer of natural gas in the world.  The
renaissance in production shows no signs of slowing down. In fact, the
US is trading the same BTU content as a barrel of oil, for less than the
equivalent of $30 per barrel.

In natural gas terms, 1 MCF of NG is worth less than $5.00 in the
US.  That same MCF is worth $14 or so on the world market.  This is a
price differential caused by a surplus of NG in the US, without the
capacity to export it easily.  We’ve built a number of LNG importing
facilities, but the only exporting location for LNG is Alaska.

The US is now growing its overall hydrocarbon production profile
again.  This is after many years of “experts” pontificating that the US
was always going to be an importer of energy.  The US was supposed to be
trapped importing larger levels of energy from abroad forever.  No one
expected the US to quickly become the largest producer of natural gas in
the world.

companies like LNG are looking to spend billions of dollars converting
LNG import plants into export plants.  The US could, once again, become a
major exporter of hydrocarbons.  This is not a joke.  The era of the US
being dependent on Middle East oil, is also ending.

Exxon is quietly buying up shale rights in Germany, as is Shell in
Poland.  Australia and Argentina both have massive potential new
reserves.  In short, there appears to be the equivalent of new Saudi
Arabia’s in BTU totals now popping up in western nations.  The US
natural gas reserves are thought to be equal to 2x new Saudi Arabia’s. 
It will take decades to unlock this gas, and make it commercially viable
in the market place.

The EIA, a US Government organization that tracks energy statistics,
reports that the US total reserves of oil increased by 8.6% in 2009. 
The natural gas reserves of the US increased by 11.3% in 2009.  The
official natural gas reserves of the US as of Dec 31st, 2009 were 283 TCF.

Shale gas development in Louisiana, Arkansas, Texas,
Oklahoma, and Pennsylvania drove the increase in proved reserves of
natural gas. Louisiana led the nation in wet natural gas proved reserves
additions with a 77  percent net increase of 9.2 Tcf owing primarily to
development of the Haynesville shale. Both Arkansas (Fayetteville
shale) and Pennsylvania (Marcellus shale) nearly doubled their reserves
with net increases of 5.2 Tcf and 3.4 Tcf respectively. Shale
development in Texas and Oklahoma wasn’t far behind, giving these two
States proved reserves increases of 3.2 Tcf and 2.1 Tcf. These increases
occurred despite a decline in natural gas prices relative to those used
in assessing reserves at the end of 2008. This underscores the role of
more efficient and effective shale gas exploration and productive
technologies such as horizontal drilling and hydraulic fracturing.

The US currently consumes about 23 TCF per year for context of total
US demand.  The above 283 TCF includes the very first of the new shale
gas, helping to increase total national reserves.

The increase in total potential reserves based on shale development
is expected to be upwards of 1500 – 2000 TCF, once the shale basins have
been fully developed.This gives the US a century at current energy
consumption levels.

In locations like Argentina, mature developed basins are now being
relooked at as a possible source for cheap NG to be exported for
industrial use.  While the world is watching Egypt, and the Suez Canal,
the era of oil fears from the Middle East is drawing to a close.

Natural gas is significantly cleaner, and now that it is about to be
available in very significant quantities in the developed world, the
emerging markets will be impacted too.

  • WSJ

Listening to the Shale Revolution

  • The Fletcher School, Tufts University

The Impact of Shale Gas Technology on Geopoltics

  • EIA (Energy Information Agency)

Summary: US Crude Oil, Natural Gas Liquids Proved Reserves 2009

US Crude Oil Supply & Disposition

  • Natural Gas for Europe

Shale Gas

Wonders Cease


Confessions of a Macro Contrarian