# Presentation: 237413

## A Long Term View for Unconventional Gas(Tight Gas, Coalbed Methane, Gas Shales)

***Presented at:***
**National Energy Modeling System/Annual Energy Outlook Conference 2001**
***The Natural Gas Frontier:  2015 and Beyond***
**March 27, 2001**
**Washington, DC**
***Presented by:***
**Vello A. Kuuskraa**
**Brian T. Kuck**
**Advanced Resources International, Inc.**

## Outline

**1.****	****Growing Importance of Unconventional Gas **
**Significant New Unconventional Gas Plays**
**MUGS *****(Model of the Unconventional Gas Supply)***
**Outlook for Technology Progress**
**Outlook for Unconventional Gas****	**
** **

**  ****Tight Gas**
**  ****Coalbed Methane**
**  ****Gas Shales**

## Importance of Tight Gas, Gas Shales and Coalbed Methane

**Tight Gas, Gas Shales and Coalbed Methane are the fastest growing areas of domestic natural gas supply:**
***25% of gas production***
***32% of proved gas reserves***
**Six of top ten natural gas fields produce “unconventional gas”.**
**Large undeveloped resource base whose economic production depends on continued strong progress in E&P technology.**

## Sources of Domestic Production of Natural Gas (1999)

**Sources of Domestic Production of Natural Gas (1999)**

**0**

**20**

**Domestic Production (Tcf in Yr 1999)**

**5**

**18.7**

**5.1**

**4.6**

**Federal**
**Offshore**

**Unconventional**
**Gas**

**Total**
**Domestic**
**Production**

**Onshore**
**Conventional/**
**Other**

**9.0**

**10**

**15**

*Source:*
*Total – EIA Monthly Energy Review, Feb 2001. *
*Offshore – EIA 1999 Annual Reserve Report, includes state waters.*
*Unconventional – ARI data base.*

**2.9**

**1.3**

**0.4**

**0.0**

**0.5**

**1.0**

**1.5**

**2.0**

**2.5**

**3.0**

**3.5**

**4.0**

**Tight Gas**

**Coalbed **
**Methane**

**Gas Shales**

**Domestic Production (Tcf in 1999)**

*Source: EIA 1999 Annual Reserve Report and ARI data base.*

## Growth in Coalbed Methane Production (1980 – 1999)

## Largest Domestic Fields ProducingTight Gas, Gas Shales and Coalbed Methane

**	****1.****	****Blanco/****	****San Juan, NM/CO****	****CBM/T. Gas****	****714****	****Ignacio-Blanco**
**	****2.****	****Basin****	****San Juan, NM****	****CBM/T. Gas****	****674**
**	****4.****	****Giddings****	****Austin Chalk, TX****	****Tight Gas****	****240**
**	****5.****	****Carthage****	****East Texas, TX****	****Tight Gas****	****204**
**	****9.****	****Antrim****	****Michigan, MI****	****Gas Shale****	****126**
** ****10.****	****Wattenberg****	****Denver, CO****	****Tight Gas****	****126****	**

**Field**

**Basin/State**

**Resource**

**1999 Gas**
**Production**
**(Bcf)**

## Unconventional Gas Reserves and Resources (1999)

**Proved Reserves**
**(Tcf)**

**Undeveloped Resources**
**(Tcf)**

**Tight Gas****	****35****	****287**
**Coalbed Methane****	****12****	****60**
**Gas Shales****	****  5****	****55**
**                     ****TOTAL****	****52****	****402**

**	****Unconventional gas accounts for 52 Tcf of proved reserves and holds over 400 Tcf of undeveloped resources.**

## Growth of Unconventional Gas Resources

**2000 – 2050**

**“****Ultimate” Recoverable**
**Resource Base**
**(Increasing with **
**Advancing Technology)**

**Proved **
**Reserves**

**Cumulative**
**Production**

**450**

**90**

**200**

## Tight Gas

**	****The Jonah Field (Green River Basin) is a large new tight gas play in the Rockies:**

** ****Gas production of nearly 400 MMcfd,**
** ****Over 240 recently drilled wells.**

**	****High well productivity and reserves have made Jonah an economically attractive play:**

** ****2 Tcf estimated reserves,**
** ****3 Bcf per well (range 1 Bcf to 10 Bcf),**
** ****D&C costs of $1.0 to $1.5 million per well. **

**	****Technology progress in pay definition, well stimulation and cost control have been keys to this gas play.**

## Coalbed Methane

**	****Shallow, low rank Powder River Basin coal is currently the most active gas play in the Rockies:**

** ****Gas production of 500 MMcfd,**
** ****Over 5,000 recently drilled wells.  **

**	****The Powder River gas play is large and low cost:**

** ****12 Tcf of technically recoverable gas,**
** ****0.4 Bcf/well (range 0.2 Bcf to 1.0 Bcf),**
** ****D&C costs of less than $100,000 per well.**

**	****The key technology advances include:**

** ****Establishing mechanisms controlling production,**
** ****Low cost drilling,**
** ****Non damaging well completions.**

## Gas Shales

**	****The Barnett Shale in the Fort Worth Basin is a recent gas shales play:**

** ****Gas production of nearly 300 MMcfd,**
** ****Over 600 recently drilled wells, **

**	****The Barnett  gas play is large and moderate in cost:**

** ****10 Tcf of technically recoverable gas,**
** ****1 Bcf per well (range 0.5 Bcf to 2 Bcf),**
** ****D&C costs of $500,000 to $800,000 per well. **

**	****Technology advances have improved economics:**

** ****Upper zone completions/recompletions (+25% recovery/well),**
** ****Lower cost, light sand frac (saving $ 300,000/well),**
** ****Intensive development (20 to 40 acres/well spacing).  **

## The MUGS Supply and Technology Model

**Resource Base**
**and Productivity Module**

** ****Activity,**
**Production and**
**Reserves Module**

** ****Costs and**
**Economic Module**

**Technology Impacts **
**and Timing Module**

** ****Drilling and**
**Capital Allocation**
**Module**

**Production, Reserve Additions and Reserves Accounting Module**

**INTEGRATED**
**FORECASTS OF SUPPLY,**
**PRICES AND **
**BENEFITS**

*Note:  See Attachment 1 for details.*

## Technology Outcomes Modeledby MUGS 

**Increased Technically Recoverable and Available Resource Base**
**More Efficient Exploration and Exploitation of Sweet Spots**
**Improved Recovery of Resources In Place**
**Lower Cost Development and Operations**
**Breakthrough Technologies**

**	****The outlook for unconventional gas depends greatly on technology advances in five broad areas (see Attachment 1 for details):**

## Progress In E&P Technology Has Declined in Recent Years

**33.3%**

**32.7%**

**32.6%**

**0**

**30**

**35**

**1994-97**
**Avg.**

**1998**

**1999-2000**
**Avg.**

**% Successful Exploration Wells**

**Oil and Gas **
_**Exploration Success**_
**(1994-2000)**

*Source: EIA Monthly Energy Review, Feb 2001.*

**Footage Drilled per Rig-Yr (000s)**

_**Drilling Efficiency**_
**(1994-2000)**

**164**

**181**

**178**

**160**

**170**

**180**

**190**

**1994-97**
**(Avg.)**

**1998**

**1999-2000**
**(Avg.)**

*Source: EIA Monthly Energy Review, Feb  2001.*

## R&D Expenditures by Major Producers for Oil and Gas Recovery Have Fallen by More Than 50% Since 1992

*Source: EIA, Performance Profiles of Major Energy Producers, 1999.*
**Additional companies added to Survey of Major Energy Producers.*

## Outlook for Tight Gas Sands

**1.****	**_**Current Status**_**.  In 1999, 2,920 Bcf of natural gas was produced from 42 significant tight gas plays:**

**Rocky Mountain (25 plays)****	****--****	****1,130**
**East/South Texas (4 plays)****	****--****	****910**
**Appalachia (7 plays)****	****--****	****330**
**Other (6 plays)****	****--****	****550**
**	****TOTAL****	****	****2,920**

**2.****	**_**Impact of Technology**_**.  In the Reference Case, tight gas increases to 7 Tcf by 2030.  With Low Technology, the decline in resource quality exceeds technology progress, limiting the economic contribution of tight gas.**

**	****	**_**2000**__**	**__**2020**__**	**__**2030**__**	**__**2050**_
**      ****Reference Case* (Tcf)****	****	****3.0****	****5.7****	****7.0****	****5.5**
**      ****Low Technology (Tcf)****	****	****3.0****	****3.5****	****3.6****	****2.8**

**Assumes wellhead natural gas prices rise to $3.13/Mcf (real $1999) by 2020 and increase by 1% per year (real) to 2050.*

**Bcf**

**Bcf**

## Outlook for Coalbed Methane

**1.****	**_**Current Status**_**. In 1999, 1,250 Bcf of natural gas was produced from 28 significant coalbed methane plays:**

**San Juan (5 plays)****	****--****	****980**
**Rocky Mountain (14 plays)****	****--****	****80**
**Warrior (3 plays)****	****--****	****110**
**Other (6 plays)****	****--****	****80**
**	****	****	****1,250**

**2.****	**_**Impact of Technology**_**. In the Reference Case, CBM increases modestly and plateaus. Only High Technology Progress enables this technology sensitive resource to make a substantial long term contribution.**

**	****	**_**2000**__**	**__**2020**__**	**__**2030**__**	**__**2050**_
**     ****Reference Case (Tcf)****	****	****1.3****	****1.7****	****1.7****	****1.3**
**     ****Low Technology (Tcf)****	****	****1.3****	****0.9****	****0.7****	****0.6**
**     ****High Technology (Tcf)****	****	****1.3****	****3.1****	****2.8****	****3.6**

**Bcf**

**Bcf**

**Assumes wellhead natural gas prices rise to $3.13/Mcf (real $1999) by 2020 and increase by 1% per year (real) to 2050.*

## Outlook for Coalbed Methane

**1.****	**_**Current Status**_**. In 1999, 1,250 Bcf of natural gas was produced from 28 significant coalbed methane plays:**

**San Juan (5 plays)****	****--****	****980**
**Rocky Mountain (14 plays)****	****--****	****80**
**Warrior (3 plays)****	****--****	****110**
**Other (6 plays)****	****--****	****80**
**	****	****	****1,250**

**2.****	**_**Impact of Technology**_**. In the Reference Case, CBM increases modestly and plateaus. Only High Technology Progress enables this technology sensitive resource to make a substantial long term contribution.**

**	****	**_**2000**__**	**__**2020**__**	**__**2030**__**	**__**2050**_
**     ****Reference Case (Tcf)****	****	****1.3****	****1.7****	****1.7****	****1.3**
**     ****Low Technology (Tcf)****	****	****1.3****	****0.9****	****0.7****	****0.6**
**     ****High Technology (Tcf)****	****	****1.3****	****3.1****	****2.8****	****3.6**

**Bcf**

**Bcf**

**Assumes wellhead natural gas prices rise to $3.13/Mcf (real $1999) by 2020 and increase by 1% per year (real) to 2050.*

## Gas Shales

**1.****	**_**Current Status**_**. In 1999, 360 Bcf of natural gas was produced from gas shales: **

**Appalachia (5 plays) ****	****	****	****--****	****	****	****	****120****	**
**Michigan (2 plays)****	**** ****	****	****--****	****	****	****	****190**
**Fort Worth (1 play)****	****	****	****--****	****  ****	****	****	****  40**
**Other (2 plays)****	****	****	****	****--****	****  ****	****	****	****  10**
**	****TOTAL****	****	****	****	****	****	****	****	****	****	****360**

**2.****	**_**Impact of Technology**_**.  In the Reference Case, gas shales production grows steadily until 2030. With Low Technology, gas shales remain a minor contributor to domestic natural gas supplies. **

**	****	**_**2000**__**	**__**2020**__**	**__**2030**__**	**__**2050**_
**       ****Reference Case* (Tcf)****	****	****0.4****	****1.1****	****1.5****	****0.9**
**       ****Low Technology (Tcf)****	****	****0.4****	****0.5****	****0.5****	****0.7**

**Bcf**

**Bcf**

**Assumes wellhead natural gas prices rise to $3.13/Mcf (real $1999) by 2020 and increase by 1% per year (real) to 2050.*

## Summary

**1.****	**_**Long Term Contribution of Unconventional Gas.**_**  Strong progress in technology can stimulate continued near term growth of unconventional gas production and sustain its long term contribution at about 8 to 10 Tcf per year:**

**	**_**2000**__**	**__**2020**__**	**__**2030**__**	**__**2050**_
**Tight Gas****	****3.0****	****5.7****	****7.0****	****5.5****	**** CBM ****	****1.3****	****1.7****	****1.7****	****1.3**
**Gas Shales****	****0.4****	****1.1****	****1.4****	****0.9**
**   ****TOTAL****	****4.7****	****8.5****	****10.2****	****7.7**

**Reference Case* (Tcf)**

**Assumes wellhead natural gas prices rise to $3.13/Mcf (real $1999) by 2020 and increase by 1% per year (real) to 2050.*

## Long-Term Unconventional Gas Production, 2000 - 2050

**Long-Term Unconventional Gas Production, 2000 - 2050**

**TGS**

**CBM**

**Gas Shales**

## Summary (cont.)

_**Importance of Technology Progress.**_** However, should technology progress falter, the long term contribution from unconventional gas will be much less. Increasing gas prices maintain production at today’s levels: **

**	**_**2000**__**	**__**2020**__**	**__**2030**__**	**__**2050**_
**Tight Gas****	****3.0****	****3.5****	****3.6****	****2.8****	**** CBM ****	****1.3****	****0.9****	****0.7****	****0.6**
**Gas Shales****	****0.4****	****0.5****	****0.5****	****0.7**
**   ****TOTAL****	****4.7****	****4.9****	****4.8****	****4.1**

**Low Technology Case* (Tcf)**

**Assumes wellhead natural gas prices rise to $3.13/Mcf (real $1999) by 2020 and increase by 1% per year (real) to 2050.*

## Unconventional Gas Production -- Two Technology Cases

**Unconventional Gas Production -- ****Two Technology Cases**

**Reference **
**Technology **
**Case**

**Low **
**Technology **
**Case**

## Summary (cont.)

***	******The Benefits to Domestic Gas Consumers of Technology Progress will be $1.6 Trillion, equal to the currently proposed Tax Cut.***

**Assumptions:**
**35 Tcf annual consumption, 2020 – 2050.**
**$1.10 to $2.00/Mcf lower wellhead gas prices, due to technology progress**
**35 Tcf/yr x 30 yrs. x $1.55 = $1.6 Trillion**

_**Benefits of Technology Progress.**_** Technology progress, sufficient to assure Reference Case results, has value to industry and even more to consumers.**

## Attachment 1Model of Unconventional Gas System (MUGS)

**  ****Analytic Modules**
**  ****Technologies**

## Overview of MUGS Modules

**1.****	**_**Resource Base**_** -- Derived from the recent USGS National Assessment, the NPC Study, Advanced Resources’ work for the USGS National Assessment, internal ARI basin and play level evaluations, and reservoir simulation and history matching based well performance.**
**2.****	**_**Current and Expected Activity, Production and Reserves**_** -- Based on state survey data, industry inputs, Dwights/PI completion and production files, and EIA’s annual reserve reports.  Linked to NEMS historic accounting module.**
**3.****	**_**Costs and Economics**_** -- Developed by Advanced Resources from extensive work with industry and producers in tight gas, CBM and gas shale basins, plus JAS/API drilling cost surveys.  Linked to main NEMS basin specific price module.**

**The Supply and Technology Model contains six modules:**

## Overview of MUGS Modules (cont.)

**4.****	**_**Technology Impacts, Timing and EV Constraints**_** -- Developed by Advanced Resources to incorporate DOE’s and industry’s R&D programs and technology progress. Includes environmental and other constraints to unconventional gas development. Linked to NEMS Reference, High and Low Technology Cases.**
**5.****	**_**Drilling and Capital Allocation**_** -- Establishes pace of well drilling and capital allocation for economically feasible gas plays based on relative profitability.  Linked to NEMS drilling and capital allocation assumptions.**
**6.****	**_**Production, Reserve Additions and Reserves Accounting **_**-- Tracks gas production, reserve additions and reserve status by plays, basins and NEMS regions.  Linked to NEMS integrating module and output reports.**

## Technology Outcomes Modeled by MUGS (cont.)

**1.****	**_**Increased Technically Recoverable and Available Resource Base**_

**Hypothetical plays become available**
**Play probabilities increase**

**Technology #1.  Basin Assessment**

**Technology #2.  Well Performance Diagnostics and Remediation**

**Technology #3.  Environmental Mitigation/Access**

**Restricted areas become available for development**

**Reserve growth improves**

**2*****.******	***_***More Efficient Exploration and Exploitation of Sweet Spots***_

**Emerging resource characterization**

**Technology #4. Extended Resource Characterization**

**Technology #5.  Natural Fracture Detection Technology**

**Exploration success rates improve**
**Development of unconventional reservoirs becomes more efficient**

## Technology Outcomes Modeled by MUGS (cont.)

**3*****.******	***_***Improved Recovery of Resource In Place***_

**Reserves per well increase**

**Technology #6. Matching of Geology with “Appropriate” Technology**

**Technology #7.  Lower Damage, More Effective D&C Technology**

**Technology #8.  Horizontal Wells/Multi-Laterals**

**Recovery efficiency and reserves per well increase**

**Reserves per well increase**

**4*****.******	***_***Lower Cost Development and Operations***_

**Lower capital costs per well**

**Technology #9.  Optimized Drilling and Completion Practices**

**Technology #10.  Advanced Gas and Water Treating **

**Lower O&M costs per Mcf**