natural gas dynamics - mod 2

Gas Exploration,Production and Unconventional Gas

Natural Gas Dynamics Module 2

Vivek Chandravchandra@natgas.infowww.natgas.infowww.naturalgasdynamics.comv1202 Copyright held by author – copying multiple slides prohibited

Natural Gas Dynamics 2

Gas exploration Exploration methods for both gas and oil are very similar Exploration is based on principles of Geology and Geophysics Prior to these methods, oil and gas usually found by surface indications such

as seeps and gas releases Exploration Chronology

Regional geologic surveys Based on gravity and other large scale, low resolution surveys – to

identify large structures Focused mapping and modeling

Based on detailed seismic surveys to model the possible hydrocarbon system and identify source, reservoir, trap and seal

Exploration Drilling To confirm rock and fluid structure by driling and wireline (well-logs)

data

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Focus mapping: Seismic

• Energy waves are sent into the ground and their reflections and strength measured by sensors

• Reflected waves influenced by density and thickness of rock layers allowing calculations of depth of rock layers

• Data collected and processed to produce virtual cross-sections of the earth

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Onshore and offshore seismic

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Seismic data processing

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Seismic technology has improved ..

Onshore field in United States

Better technology and computing power can add potential to old fields

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Well log data

• Wells are drilled to collect subsurface data• Data collected by sophisticated tools lowered

into well, measuring electrical, nuclear, sonic, and pressure data

• Data can be matched with Seismic data to give accurate depth matching

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Gas production at surface

• Gas and other fluids from well (Oil, Water, NGLs, etc) channeled into smaller pipe called tubing. • There may be multiple tubingsin well, producing from different depths• On surface, fluids pass through a valve system (‘Christmas Tree’) and then to surface processing facilities for separation and further processing

Unconventional Gas

Natural Gas Dynamics 9Source: EIA 2011

Unconventional gas

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Growth of unconventional gas has reversed decades of declining gas reserves in North America

Source: Bank of America Merrill Lynch “Shale Gas: Present & Future” presentation February 2009

Magnitude of unconventionals is huge

Natural Gas Dynamics 11Source: ConocoPhillips presentation “Gas Resource Plays – New Frontiers “APPEA June 2009

Unconventional gas will dominate US supply

Natural Gas Dynamics 12Source: FACTS FGE presentation: Unconventional Gas: Implications for the Global LNG Market , LNGA, March 2012

In 2035, ~80% unconventional

In 2008, shale gas accounted for 30% of total US gas discoveries, rising to over 60% in 2011 –predictions of 75% by 2015 and 80% by 2030

Unconventional impact will be global (1)

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Source: ExxonMobil ‘The Outlook For Energy – View to 2040 ; 2012

Global extent of unconventional gas(2)

Natural Gas Dynamics 14Source: Graph from TriZen report “Impact of Unconventional Gas 2011. Text from Bernstein Research “How unconventional gas fits into the gas market” , Finding Petroleum Conference April 2010

Natural Gas Dynamics 15Source: Daiwa Capital Markets report “The New Energy Primer” – September 2011

Global distribution of unconventional gas (3)

Unconventionals will change production rankings

Natural Gas Dynamics 16Source: IEA World Energy Outlook “Golden Rules for a Golden Age of Gas” 2012

Coal seam methane (CSM)• Coal seam methane (also called CBM – coal bed methane or CSG – coal

seam gas) is methane, produced during the creation of coal from peat.• It is mostly methane gas held in place on surface of coal by water

pressure. • Water pressure must be reduce to allow methane to flow from the coal. • The amount of gas present in a coal seam depends on the depth and

thickness of the seam and the coal constituency and flow rates depend on the permeability of the coal.

• Coal seam methane refers to the source of the gas but, once produced, it is otherwise indistinguishable from conventional natural gas methane.

• In contrast with natural gas sources:• Coals seam wells often have lower gas flows;• Wells to extract coal seam gas are generally shallower (300 m - 1,000 m);• Coal seam gas processing plants are less complex since the gas has less

impurities or NGLs or CO2

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Not all coal contains CSM

Natural Gas Dynamics 18Source: NRLC Coalbed Methane Conference April 2002 William T Brown

The coal must have the correct composition to encourage methane production, and must also contain fractures (or cracks) in the coal seam to allow methane to flow to the well bore

CSM production profile

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CSM well diagram : moving water to get gas

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• Large amounts of water are usually produced to release methane molecules from coal face

• Disposal of water is a major issue with CSM development

• Number of wells required for CSM production significantly larger than that for conventional fields, but wells are generally less deep

• For GLNG, a LNG project based on Australian CSM gas, the first 3 MTA train would require gas from 500 wells + further 800 wells over the 20 year life of the field to produce 5 tcf. By contrast, a conventional LNG project such as Pluto needs only 5-6 wells to produce the same amount of gas

Salinity of water from CSM production

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Water must be disposed (by pumping back in ground, or left in surface ponds, or must be treated prior to use

CSM development mindset

Natural Gas Dynamics 22Source: Santos presentation “CSG to LNG – A world first” APPEA June09

CBM to LNG will require enormous number of wells

Natural Gas Dynamics 23Source: APLNG Project Overview, Origin Energy, September 2011

300 to 500 wells required every year !

How do they estimate the future cost of this ?

So far, it seems that the results are not encouraging..

Calorific value of CBM is much lower

Natural Gas Dynamics 24Source: Arrow Energy presentation : Asian LNG : Feb 2010

CSM vs. conventional development Conventional Gas Coal Seam Methane

Reservoir Typically carbonate or sandstone where gas is stored in pores between rock grains. Average depth > 1,500 meters

Methane absorbed on surface of coal, which is both the source and the reservoir for the gas. Typical reservoirs 400 – 900 meters deep

Gas composition

Typically, natural gas will contain methane + NGL + some impurities

Very dry methane with no NGL or impurities

Exploration Expensive, technically sophisticated process based on high risk / high reward

Based primarily on simple drilling and coring, often leveraging on coal mining data

Production Quick ramp-up, high production rates per well possible. Limitedwater production during early phase

Dewatering required prior to production, peak production may take long time to achieve, limited production per well, quick decline possible

Reserves Certification

Usually done during exploration / evaluation phase using data from relatively few wells

Majority of reserves certified during production phase, typically using data from large number of wells.

Natural Gas Dynamics 25Source: Based on Citibank QGC Report September 2008 and author analysis

CSM production to grow worldwide

Natural Gas Dynamics 26Source: ConocoPhillips presentation “Gas Resource Plays – New Frontiers “APPEA June 2009

CSM observations• CSM is already playing a very important role in gas production in certain

regions of the world• In the US, 8% of all onshore gas is produced from CSM and 20% of

Eastern Australian gas is coming from CSM• CSM reserves, if believed, are enormous (100s of tcf in Eastern

Australia) but it is still not clear if production can be low cost• LNG from CSM can be supported as long as LNG prices stay high.

However, challenges remain :• Drilling results are not always consistent• Ongoing well drilling requirement is a ‘wildcard’ as costs - difficult to estimate

over 20 yrs• Water disposal a growing issue• Rising labor costs

• Large LNG companies (Shell, BG, ConocoPhillips. Petronas) are betting that CSM will be a viable feed for future LNG projects and thus partnering with local companies. I am not convinced as yet..

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Shale gas Shale gas is now becoming a true ‘game-changer’ in the

industry, especially in the US Massive reserves – some estimates are 750 – 2000 Tcf in North

America alone Today, shale gas accounts for around 5 bcf/d (out of total around 23

bcf/d). In 2005, the entire industry barely existed! Maybe 50% of production in 10 years as conventional gas reserves decline

Although difficult to extract, the gas may contain significant NGLs

Producing gas from a rock with ultralow permeability significant porosity required new efficient technology Production growth coincided with horizontal well technology, and

improvement in hydraulic fracturing skills & materials – greatest achievements in last decade!

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How the world has changed !

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What we knew 25 years ago

What we now know

Source: ConocoPhillips presentation “Gas Resource Plays – New Frontiers “APPEA June 2009

Permeability Comparisons

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As compared to conventional gas reservoirs, permeability in Shale and Tight gas is very low - Much lower than cement !

Source: Wilson HTM Equities Research – Australian Shale Gas Sector Report July 2011

Shale gas drilling in US

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Source: Citibank report “Shale Gas – a game changer for chemical industry” March 2010

Complicated logistics for shale gas

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Trucks filled with sand

Fracpump trucks

Source: Canadian Energy Research Institute : Shale Gas Plays in North America , February 2011

Total capex for one full crew could be ~$40-50 MM and require 50 crew members

Production per well can decline quickly

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Typically, shale gas wells deliver 25% of ultimate potential in first year, and 50% within four years –but even in a small area, results can vary significantly

Operators are getting more efficient...

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Break even prices keeping in-line with lower gas prices –plentiful supply will keep US prices low for a while

Shale gas can be competitive with conventional gas

Natural Gas Dynamics 35Source: WoodMac Energy Seminar: North America Shale Gas, May2010

Onshore Canada

....especially if the gas has NGLs

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Generally drier gas (with less liquids !)

Source: Credit Suisse Global Gas Report – November 2011

North American shale gas resource is huge

Natural Gas Dynamics 37Source: Wilson HTM Equities Research – Australian Shale Gas Sector Report July 2011

EIA estimates technically recoverable resource = 862 Tcf

(Conventional resource = 2,543 Tcf)

Marcellus could be the 2nd largest gas field in the world !

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According to Chesapeake Energy, US Shale gas fields have recoverable reserves that would rank three of them in the top six gas fields in the world

Source: Wilson HTM Equities Research – Australian Shale Gas Sector Report July 2011

Shale gas in US is truly a ‘game-changer’

Natural Gas Dynamics 39Source: ConocoPhillips :”The Bright Future of Natural Gas” June 2010

Global shale gas numbers from EIA

Natural Gas Dynamics 40Source: FACTS FGE presentation: Unconventional Gas: Implications for the Global LNG Market , LNGA, March 2012

China’s potential could be larger than US

Can the US shale gas experience be repeated globally ?

Five factors that were key influencing elements for shale gas growth in the U.S

Limited gas reserves driving increased prices. Technological advances in horizontal drilling and

fracturing techniques Nimble independent exploration and production

companies, working with service providers to advance conventional technologies into unconventional gas

Availability of capital. Relatively easy access to land, fueled by the private

ownership of surface and mineral rights and industry-friendly regulations.

Natural Gas Dynamics 41Source: Deloitte: Natural Gas Revolution or evolution? - 2011

Shale gas development challenging outside US

Natural Gas Dynamics 42Source: Wood Mac presentation “North American Shale: Global Gas Markets” April 2011

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Source:International Gas Union presentation “The Transformation of Global Gas Markets: New Dynamics and Commercial Drivers”,Oct 2011

Even with challenges, unconventionals can’t beignored

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Questions ?

Vivek Chandravchandra@natgas.infowww.natgas.infowww.naturalgasdynamics.comv1202

Copyright held by author –copying multiple slides prohibited