American Oil and Gas Reporter - January 2016 - 40

Outlook 2016
output. What do you anticipate in 2016 for U.S. shale gas
production? How about Canadian unconventional production?
BILL GWOZD: In one word, I anticipate growth! The reality is that demand within many North American natural gas consuming sectors is increasing now and will continue in the future. For example, industrial gas demand should exceed 27
billion cubic feet a day in 2025, up from 19 Bcf/d in 2010, an
average growth of nearly 500 million cubic feet a day each year.
Moreover, society is encouraging all governments to phase
out coal-fired generators and switch to natural gas as one of the
preferred fuels, thereby growing gas demand in power generation. Finally, savvy gas producers are aligning with liquefied
natural gas operators to export gas to energy-deficient countries, boosting gas supply requirements. Consequently, to meet
this increasing gas demand, U.S. and Canadian gas supply is
poised for strong growth. The really good news for gas producers is that this supply growth will be ongoing each year for
many years.
With respect to the type of natural gas supply, producers
have ranked their portfolios and will produce their lowest-cost
supplies first. Unfortunately, some of the established shale gas
basins were being developed, in part, for the entrained natural
gas liquids. The oil price collapse has caused NGL prices to
tumble as well, thereby shattering the production economics
of many shale gas plays. This is one reason I believe EIA is
forecasting a decline in shale gas production.
To understand which type of gas supply and which location
will grow requires economically ranking each U.S. and Canadian gas basin. This critical exercise determines which gas
basins will decline and which will grow, and is an assessment
Solomon undertakes every two years.

The increases in average shale gas well productivities have been nothing short of remarkable. Do you
expect those gains to continue in plays such as the Marcellus and Utica? U.S. natural gas rig counts are about 80 percent lower than they were five years ago. Given the per-well
productivities, at what rig count level is production sustained,
and at what levels does it begin to grow or decline? What
are the gas supply implications of dramatically reduced well
completions in "oil" shale plays such as the Eagle Ford,
Bakken, and Niobrara?
GWOZD: The key to expanding gas supply in the United
States and Canada is ongoing technology advancements. The
industry continues to capture the value added by geophysicists,
geologists, engineers, and other operating support personnel
advancing their knowledge in regard to growing gas production per well. From the days of drilling vertical wells, to the
painstaking trials of the first horizontal wells, to the advancements made with multistage hydraulic fractures, to gas well expansion with multiple short horizontal legs, and then to multiple long horizontal legs, the operating knowledge put forth by
industry specialists is correlated to the growth in gas well productivity.
Enhancements by the industry have lengthened horizontal
40 THE AMERICAN OIL & GAS REPORTER

well legs along with the number of fractures to the point where
a single horizontal gas well in the future may become equivalent to more than 100 vertical wells drilled five years ago.
U.S. operators are well aware of the dramatic productivity
improvements in the Marcellus Shale play. But another example is Western Canada, where initial gas well productivity has
tripled since 2012. It now averages 2.1 million cubic feet a day,
and it is expected to double again by 2025.
This will have a profound impact on the number of gas wells
drilled in the future to achieve the same level of new gas production. The Solomon gas supply models for Western Canada
show that we expect fewer than 50,000 new gas wells will be
drilled between 2015 and 2025, compared with more than
100,000 during 2004-14.
Concurrently, these advancements, along with improved efficiencies, will require fewer drilling rigs and personnel, although more highly customized gas well services. With less
tight oil production expected from some regions, associated
gas production will tilt downward as well.

Natural gas achieved another milestone in 2015. For
the first time, more gas than coal was consumed
in U.S. electric power generation last April. Building on a consistent growth trend in electricity markets, EIA reports that
natural gas use in power generation increased 17 percent last
year. Will similar growth be sustained in 2016 and beyond?
Looking at regulatory, economic and emissions factors, what
is likely to be the main driver of North American fuel switching? How much new gas-fired capacity is scheduled to enter service over the next 12-24 months, and how does that
compare with past years? Are there any other sectors
where demand growth could surprise going forward?
GWOZD: I believe consumers' perspectives align to a greener future. Therefore, natural gas will become one of the preferred fuel choices. Consequently, coal-fired power plants will
continue to be slowly phased out of service over the next two
to four decades. This is being accelerated by U.S Environmental Protection Agency regulations, but would happen nonetheless.
The shutdown of a specific coal-fired power plant aligns
very well with the two years it takes to construct a new gasfired power plant. Solomon's integrated natural gas power generation models show that while the growth of power will be 1.2
percent annually, the growth of natural gas-fired power will be
3.2 percent a year through 2025.
Furthermore, Solomon's detailed regional provincial and
U.S. analytical forecasting models show the Southwest and
Southeast regions will have the dominant amount of new gas
needs for power generation, although gas growth for new power requirements is evident across all regions.
Longer term, there are several unconventional gas demand
opportunities that could materialize in North America. Some
include:
* More natural gas will be consumed in commercial truck,
automobile and stationary engines. Trials are being established
already and some fleet conversions have occurred. Results

American Oil and Gas Reporter - January 2016

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