Whither natural gas?

October 26, 2010

Worries about the future of natural gas dominated proceedings as the SPE’s Annual Technical Conference & Exhibition made its international debut in Florence last month. Speakers focused on what the industry must do to meet burgeoning global energy demand. Jennifer Pallanich reports.

While gas seems to have nearly everything going for it – abundance, affordability, and it’s clean-burning – speakers at SPE’s ATCE opening session said policy could still threaten the hydrocarbon’s future. Michael Stoppard, managing director at IHS Cera, said: ‘It’s important that natural gas raises its voice and makes its case . . . as we plan the de-carbonized economy.’

How natural gas presents itself in the policy debate is vital to its future, he said. ‘The challenge for the natural gas industry is not just a technical one, a managerial one, but a policy one,’ he said. ‘We are concerned at IHS Cera that natural gas is being outcompeted,’ Stoppard said.

Howard Paver, SVP global new business development at Hess, said a lot is ‘already happening in the world inunconventional gas’. He noted the very different business models of conventional deepwater developments and unconventional gas developments. ‘There’s virtually no exploration risk in unconventionals,’ he said. Unconventional gas also requires far more drilling and completion activity, accounting for up to 90% of development capex, as opposed to the roughly 50% chunk drilling and completions requires for deepwater developments, he said.

And the five-year decline rates for unconventional gas wells far exceed the rates of deepwater wells, he added. Based on such differences, it’s ‘blindingly obvious’ that the two types of reserves demand different business models. ‘In this business [unconventional gas], it’s all about doing it all over and over again.’

There are barriers, he noted, such as access to acreage and the permitting process, climate change policy, economics and the public’s views about the industry. ‘There is currently fear of the fracturing process in the US.We are experiencing this in the Marcellus [shale],’ Paver said.

Several speakers addressed the industry’s image, and Paver said there is some concern, when it comes to natural gas, that ‘we might be classed as part of the dirty past. Gas is part of a cleaner future.’

While ‘conventional gas will continue to play a dominant role’, said Sara Ortwein, president at ExxonMobil Upstream Research, unconventional resources will play an increasing role. Developing unconventional resources will require new technologies, she noted. ‘R&D efforts need to be broad-based.’ In addition, the industry ‘must also address growth in associated emissions . . . and reduce water usage and minimize the footprints of our developments’.

In short, she said, meeting the energy needs of almost 8 billion people will require trillions of dollars of investment and a continuous focus on innovation.

Demand is expected to grow, noted ATCE 2010 general chairman Claudio Descalzi, COO of E&P at Eni. ‘Worldwide demand for natural gas is expected to increase by 1.5% per year through 2030,’ he said. Most of the demand increases will come from developing countries.

In China, where demand is increasing at unprecedented rates, ‘shale gas has been the hottest topic of the energy industry in recent years,’ said Yan Cunzhang, president of PetroChina. ‘We are quite confident that shale gas will play a big role in our future.’

Descalzi said the industry will have to increase the pace of development and focus on emerging technologies.

The gas needed to meet demand exists, speakers agreed. Stoppard pointed out that Russia, with 47tcm of 2P reserves, holds 23% of the world’s gas reserves, followed by Iran (15%) and Qatar (13%). ‘The world’s endowment of natural gas resources is very large,’ Paver said.

Schlumberger CEO Andrew Gould said natural gas has finally come of age. ‘It’s rapidly become a transition fuel and possibly the fuel of the future,’ he added.

Reserves reporting
Elsewhere at ATCE, recent changes in the US Securities & Exchange Commission’s reserves reporting requirements took center stage. According to the SEC’s John Lee, the changes that went into effect at the beginning of 2010 seem to have had ‘little effect’ on the reporting because few companies have elected to make the additional disclosures.

‘The effect has been very minimal,’ with the bulk of the first year’s reports filed, said Lee, SEC academic engineering fellow who is an unconventional reserves estimation specialist. ‘I think people are being very, very cautious’ because of concerns about liability.

The SEC recently rolled out new disclosure requirements(OE November 2008) for oil and gas reserves reporting to replace the regulation created in 1978 with Rule 4-10, required for all filings from 1 January 2010. ‘The system was over 30 years old,’ Lee said, ‘increasingly dated.’ It referred to older technologies and didn’t take into account new means of recovery or the rapid expansion of the spot market for oil and gas.

The previous requirement would only allow reporting of proved reserves, but the ‘modernized’ regulation permits probable and possible reserves to be reported as well, as long as they are listed as such. OE

• The first ATCE held outside the US drew 4700 attendees.

Categories: Energy Shale Regulations


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