Unconventional Gas

By Stephen Holditch

Applying North American experience to the rest of the world

Stephen A. Holditch, head of Texas A&M’s Harold Vance Department of Petroleum Engineering; Noble Chair of Petroleum Engineering; member of the National Academy of Engineering; and an internationally known expert in gas reservoirs, well completion, and well stimulation, discusses how current gas field development in the United States may be showing the way to a worldwide renaissance in natural gas development.

The U.S. Energy Information Administration currently ranks the Barnett Shale in north Texas and southwest Oklahoma as the most productive gas field in the United States, with almost 14,000 wells producing more than 5 billion cubic feet a day in 2009. All these shales have one thing in common — until recently, they were all thought of as source rocks. Now, this shale play is being developed as a reservoir.

It appears that much source rock still has large volumes of gas and liquids that have not been expelled and migrated elsewhere. It is also clear that the Haynesville Shale in northern Louisiana and northeast Texas and the Marcellus Shale underlying parts of Pennsylvania, New York, Ohio and West Virginia eventually will be more productive than the Barnett.

Two breakthrough technologies have reshaped the economic potential of developing gas shale: horizontal drilling and multistage hydraulic fracturing. These developments date to the introduction of horizontal drilling and water fracturing techniques during the pioneering efforts of Union Pacific Resources Co. in Texas’ Austin Chalk in the early 1990s. In fact, the Austin Chalk is the model for modern shale development methods.

It is clear that there is an abundant volume of oil and gas in unconventional reservoirs.

The entire concept of hydrocarbon resource distribution can be captured in the resource triangle (Fig. 1), which implies that all natural resources are distributed log-normally in nature.

Estimating economically recoverable resource

An abundant volume of oil and gas exists in unconventional reservoirs. This spectrum of hydrocarbons can be produced as long as the economics and technologies are in place to allow the industry to develop them profitably. Three values are critical to estimating the feasibility of developing these resources.

One is referred to simply as resources, the value of gas in place. A second is the technically recoverable resource (TRR), which means we know where the gas is located and we have the technology to drill and produce the gas. Only part of the TRR is economically viable at given drilling costs and a given gas price. The third value is the economically recoverable resource (ERR), the amount of gas that can be developed and produced at a profit. We need to understand all three values of a given resource to determine how to proceed with investment and development.

A substantial volume of TRR is unquestionably present in gas shales in the United States. The two main questions, however, are (1) how can the industry reduce the finding and development costs to be able to classify more of the TRR as ERR at any given gas price and (2) at any given finding and development cost, how much money will the market pay for the gas? At the right price, we can produce essentially all the TRR gas in any formation, as long as the market and pipeline system exists.

Global opportunity

About 15 years ago, a series of papers were published that estimated global resources in unconventional reservoirs. These values are estimates of gas in place. These estimates were made without the knowledge we now have on many successful developments of tight sands, coal seams and gas shales in North America and elsewhere. Undoubtedly, unconventional reservoirs worldwide have enormous volumes of natural gas. These resources are in the tight reservoirs, the coal seams and the shales (source rocks). In the coming decades, the unconventional gas reservoir technology developed in the United States in the last 30 years will be exported to every oil and gas basin in the world to develop unconventional gas.

In the coming decades, the unconventional gas reservoir technology developed in the United States in the last 30 years will be exported to every oil and gas basin in the world to develop unconventional gas.

Even though we expect to find a large volume of gas in unconventional gas reservoirs in virtually every oil and gas basin in the world (Figure 2), little will be produced unless a gas market exists and the technology originally developed in North America can be successfully transferred to these markets. The other problem is a familiar one for oil and gas companies that do business overseas: making certain the right team is in place to do the work. Technology can be exported anywhere, but it takes a special crew with the proper training to operate the rig and downhole equipment needed to drill a 5,000-foot lateral 12,000 feet under the ground. It also takes a special group of people with specific skills to set up a fracturing spread and spend four or more days on location working around the clock to stimulate a well in multiple stages. A company can do everything else right, and still lose money if the fracture treatment is not executed flawlessly.

For now, the global opportunity in shale gas is limited to select areas where markets and service company expertise exist, but one day there will be Barnett, Haynesville and Marcellus look-alikes all over the world. From Europe to the Middle East, Asia and South America, shale gas is going to become as big a deal around the globe over the next 20 to 30 years as it has become in North America over the past 10 years.