LOGA Industry Report - Fall 2008 - (Page 36)

Natural Gas Production Surges: A Free Market at Work by Steve Maley, Badger Oil Corporation Natural gas currently accounts for about 23 percent of the nation’s total energy consumption, about the same amount as coal. Unlike oil, we must be (mostly) self-sufficient in natural gas. It can be difficult and expensive to import in tankers and our only external sources are Canada and Mexico. Canada’s internal demand for gas is growing, due in large part to tar sands extraction. The U.S. is finding more internal use for gas in the tar sand extraction process, and we actually export a minor amount of gas to Mexico. From the EIA Report Energy in Brief 1 “[M]ore than half of the increase in natural gas production between the ﬁrst quarter of 2007 and the ﬁrst quarter of 2008 came from Texas, where supplies grew by an exceptionally high 15%. Other contributing regions included Wyoming with growth of 9%, Oklahoma with 6% growth, and Louisiana with 4% growth.” Natural gas production had been ﬂat, around 52 BCF per day, through 2006. However, the last couple of years have seen an impressive surge in natural gas production, driven by several factors: strong gas prices, aggressive operators and new technologies that enable gas production from rocks that have never before been considered commercially productive, the dense sedimentary rock known as shale. The conventional view was that shales were the “source rocks,” the incubators of the hydrocarbons that eventually ﬁnd their way into conventional reservoirs in sandstones and limestones. Shales have poor permeability, the measure of a porous medium’s ability to sustain ﬂuid ﬂow. From the EIA report: development of unconventional resources in the United States. An article in the June 14 edition of the Baton Rouge Morning Advocate2 tells of a new/old play in Northwest Louisiana, the Haynesville Shale. Wells have been drilled through the Haynesville Shale for 50 or 60 years; gas in the shale was considered (rightly) an incidental nuisance. Now, with the advent of horizontal drilling and hydraulic fracturing technology (which induces cracks - pathways - in the otherwise impermeable rock), it is possible to produce gas at commercial rates from the shale. Who are the players? Not Big Oil. According to the Advocate: “Chesapeake … expects to have 30 rigs running in the Shreveport area by the end of 2009. It now has ﬁve there. No one truly knows where the Haynesville Shale trend will lead, not even Chesapeake. But the company is incredibly bullish on the region. It already has locked up 500,000 acres in lease commitments. Other companies negotiating leases in the area include Petrohawk Energy Corp., Goodrich Petroleum Corp., EnCana Corp., Devon Energy Corp. and Anadarko Petroleum Corp. Chesapeake, though, began working the natural gas play more than two years ago and got a head start.” Big Oil may eventually buy their way in, but the frontier is being pushed by the smaller, more innovative, non-integrated independents. Sources: 1 http://tonto.eia.doe.gov/energy_in_brief/natural_gas_production.cfm?featureclicked=1& 2 http://www.2theadvocate. com/news/19937139. html?showAll=y&c=y This piece appeared in its original form on the website www. RedState.com. Why is Natural Gas Production Increasing Now? Improved technology, developed over many years, now allows economic production of resources in deep water and large “unconventional” resources, which are difﬁcult to produce. High and increasing natural gas prices have spurred more natural gas drilling and the trend to move from drilling simpler vertical wells to horizontal wells. One indicator of the transition from conventional to unconventional production is the number of rigs drilling “horizontal wells.” In the late 1990s, about 40 drilling rigs, or 6%, were drilling horizontally. As of May 2008, the number of rigs drilling horizontal wells has grown to 519 rigs, or 28% of the total. Horizontal wells don’t simply go straight down, but also have one or more horizontal sections. In the Barnett Shale, the wells go down about a mile and a half, make a turn and go horizontally about a mile, running through the rocks that hold natural gas. Horizontal drilling is fast becoming the primary method used to produce gas from geologic formations like shale. Drilling and completing a horizontal well through shale has required improved technology, but these wells have become essential to the rapid economic 36 | LOGA INDUSTRY REPORT | FALL 2008 http://tonto.eia.doe.gov/energy_in_brief/natural_gas_production.cfm?featureclicked=1&2 http://tonto.eia.doe.gov/energy_in_brief/natural_gas_production.cfm?featureclicked=1&2 http://tonto.eia.doe.gov/energy_in_brief/natural_gas_production.cfm?featureclicked=1&2 http://www.2theadvocate.com/news/19937139.html?showAll=y&c=y http://tonto.eia.doe.gov/energy_in_brief/natural_gas_production.cfm?featureclicked=1&2 http://www.2theadvocate.com/news/19937139.html?showAll=y&c=y http://www.2theadvocate.com/news/19937139.html?showAll=y&c=y http://www.RedState.com http://www.RedState.com

Table of Contents Feed for the Digital Edition of LOGA Industry Report - Fall 2008

LOGA Industry Report - Fall 2008 Contents Chairman's Corner President's Perspective Commissioner's Comments From the Pipeline... Supreme Court Upholds Act 312 LOGA Challenges Commission's Ad Valorem Tax Rules The Haynesville Shale - Waiting for the Gas to Come In 2008 Legislative Recap Gulf Coast Prospect Expo 2008 2nd Annual LAGCOE Open Golf Tournament Conservationist by Trade Katrina Relief Fund Update DNR Intent Natural Gas Production Surges: A Free Market At Work IPAA Washington Report Legal Updates New Members Index to Advertisers

LOGA Industry Report - Fall 2008

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