American Oil and Gas Reporter - January 2020 - 104

a Philadelphia terminal repurposed for
NGL exports, GEI says.
All of Pennsylvania is enjoying the
benefits of gas development, the analysis
points out, with an assessed per well impact fee generating $1.7 billion for community projects, environmental programs
and public safety initiatives.
GEI says the disposable income of
Pennsylvania households has increased
because of reduced energy bills, while
state real GDP has jumped $100 billion
while unemployment has fallen to almost
half the peak in 2010. The study predicts
Pennsylvania consumers will be hit hard
by a fracturing ban, paying $4,654 cumulatively per capita through 2025, while
nearly 609,000 jobs would be lost if a
ban were imposed.
Global Impacts
For many years, the price of natural
gas in the United States was closely
linked to crude oil prices, as it was in
other parts of the world, GEI recalls. The
abundance of gas unlocked by hydraulic
fracturing has severed that link, and gas
prices now respond more to supply and
demand fundamentals, it says.
"Should hydraulic fracturing be
banned, it is likely that the linkage between oil and natural gas prices would
be re-established, potentially putting the
price of natural gas in the hands of
OPEC and Russia," the analysis predicts.
Moreover, shale gas production from
existing wells would decline, meaning
limited domestic supplies would quickly
force the United States to reverse the
trajectory of becoming a major global
LNG exporter and once again become
an importing nation."
Shale gas production now is 50.5 Bcf
a day, or 62% of U.S. production, GEI
says. Under a fracturing ban, production
from existing sources would drop significantly because of field production decline rates. Similarly, production from
tight gas formations would fall quickly
as well, since they rely on fracturing to
generate production.
"In a future where hydraulic fracturing
is banned, the systemic shocks to the
global oil and gas markets would be immense," GEI concludes. "Oil and gas
prices would be based on scarcity pricing,
as supply would be significantly reduced
and demand would be inelastic in the
short term. As we can see, by 2023 Henry
Hub natural gas prices under the hydraulic
fracturing-is-banned scenario rise to levels
not experienced since 2008. Prices rise
further from there, to more than $12.30
an MMBtu in 2025. These price points
are comparable to where international
LNG prices were between 2010 and 2014,

when supply was tight and demand was
growing rapidly."
The Chamber's 71-page report is available

at https://www.globalenergyinstitute.org/newchamber-analysis-quantifies-economic-risksproposed-fracking-ban.
❒

Report: Targeted Royalty Relief
Could Boost Shallow-Water Gulf
WASHINGTON-Targeted royalty relief may be the best way to avoid stranding
oil and natural gas resources in the shallow-water Gulf of Mexico, suggests a
late 2019 report released jointly by the
U.S. Bureau of Safety and Environmental
Enforcement and the Bureau of Ocean
Energy Management.
Gulf of Mexico Data and Analysis/Leasing, Drilling and Production, Gulf of Mexico Shallow Water Potential Stranded
Assets chronicles the decline in oil and
gas production as well as industry activity
on the Gulf of Mexico Shelf, and suggests
"a path forward for the nation regarding
special case royalty relief to avoid waste,
accomplish conservation of resources (and)
stimulate production as contemplated by
the Outer Continental Shelf Lands Act.
The report defines the Gulf of Mexico Shelf as portions of the Outer Continental Shelf in water depths less than
200 meters.
National Ocean Industry Association
President Erik Milito praises the report,
saying, "The federal government should
be an advocate for American-produced
energy (since) the far-too-common alternative is outsourcing energy production
to foreign governments that do not share
American values.
"We should embrace policies that ensure U.S. offshore production remains a
vital source of the energy that builds our
modern lives," Milito says.
Tale Of Two Provinces
That shallow-water Gulf production
and industry activity are declining are
not news, BSEE and BOEM acknowledge
in their report, pointing out that their
predecessor Minerals Management Service
"identified as early as two decades ago
the decline associated with Shelf leasing,
discoveries, reserves, average field sizes
and production."
The report notes that while the first
Shelf well was drilled and production
established in 1947, the first well was
not drilled in waters deeper than 200 meters until 1974 and production established
in 1977. Today, the report contends, "It
is apparent the Gulf of Mexico is functioning as two distinct provinces: one
active and one in sharp decline."

104 THE AMERICAN OIL & GAS REPORTER

Among the statistics cited in Gulf of
Mexico Data and Analysis:
· Shelf crude oil production has declined 77% in the past 20 years while
production in deeper waters has grown
198%.
· Shelf natural gas production has
dropped 92% in the past two decades
while deeper-water gas production is unchanged.
· Reservoir discoveries on the Shelf
have averaged 830,000 barrels of oil
equivalent during the past 10 years,
compared with 9.0 million boe in deeper
waters.
· The number of producing Shelf wells
has dropped 61% in the past 20 years
while the number of new wells drilled between 2008 and 2018 dropped 89%.
· The Shelf accounted for 33% of
total Gulf of Mexico leases in 2017, 33%
of total Gulf gas production and 11% of
Gulf oil production.
· During the past five years, four
platforms have been removed from the
Shelf for every one constructed, including
zero platforms constructed in calendar
2018 while 97 were removed.
Gulf of Mexico Data and Analysis
identifies reserves, which it defines as discovered hydrocarbon accumulations that
are expected to be produced, as well as
"contingent resources," which it says are
known and potentially recoverable hydrocarbons at risk of not being produced.
The report places Shelf reserves at
254 MMbbl oil and 1.875 Tcf of natural
gas, and contingent resources at 179
MMbbl oil and 4.567 Tcf of natural gas.
Of those, the report adds, 56% (100
MMbbl) of crude oil contingent resources
are on unleased blocks along with 64%
(1.916 Tcf) of the natural gas contingent
resources.
Using New York Mercantile Exchange
pricing as of Oct. 1, 2019, the report calculates the Shelf has $20 billion worth of
potential stranded value in water shallower
than 200 meters.
Targeted Incentives
While reversing natural decline may
not be possible, Gulf of Mexico Data
and Analysis observes, promoting recovery
of remaining Shelf resources is consistent

https://www.globalenergyinstitute.org/new-chamber-analysis-quantifies-economic-risks-proposed-fracking-ban https://www.globalenergyinstitute.org/new-chamber-analysis-quantifies-economic-risks-proposed-fracking-ban https://www.globalenergyinstitute.org/new-chamber-analysis-quantifies-economic-risks-proposed-fracking-ban

American Oil and Gas Reporter - January 2020

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