Shale gas

The latest Drilling Productivity Report from the EIA, released yesterday (February 13, 2017), shows that while the combined rig count in the seven major U.S. shale plays rose about 25% in the fourth quarter of 2016 versus the previous quarter, and the number of wells drilled was up 29%, well completions were up a paltry 1%, leading to an increase in the inventory of drilled-but-uncompleted wells (DUCs). Completions accelerated a bit in January 2017, but DUCs still continued to rise. That certainly seems counterintuitive.  With crude oil prices stable in the low $50’s over the past few months you might think that producers would be pulling DUCs out of inventory, and in fact there have been statements to that effect in several producer investor calls. This is not just an exercise in energy fundamentals numerology. If the DUC inventory is increasing, then production will not be ramping up as fast as the growing rig count would imply. But what if, as some early signs indicate, the historical relationships are out of whack and the DUC inventory isn’t growing but rather declining? In that case, forecast models could be understating the outlook for production growth, and the market could be in for a more rapid and steeper rebound in oil and gas production than many expect. In today’s blog, we delve into the DUC inventory data and its potential upside risk to production forecasts.

Mexico has emerged as an important and growing market for U.S. natural gas producers, and for U.S. midstream companies scrambling to develop gas pipelines to serve Mexico’s gas consumers. Meanwhile, U.S. gasoline, diesel and liquefied petroleum gas (LPG) exports to Mexico are also up. Petróleos Mexicanos (Pemex)—the state-owned hydrocarbon giant, now in the midst of a major reboot—is on the hunt for private-sector partners to help revive Mexico’s sagging oil and gas production, and U.S. oil producers and Pemex are planning their first swaps of crude. Today we highlight RBN Energy’s latest Drill Down report examining the changing yins and yangs of cross-border energy relations.

The large and growing surplus of U.S. ethane is leading producers and shippers to step up efforts to export ethane to Europe and eventually to Asia. But there are several hurdles, including the need to construct specialized dock and loading facilities, special ships required to move ethane in overseas trade, unloading and storage facilities at the receiving end, and the need for ethylene crackers in the global market —most of which now use naphtha as their feedstock—to make costly modifications before they can switch to ethane. It may be costly, but it could happen.  There are those that hang on to the belief (a mistaken one, we think) that the ethane surplus will disappear later this decade as planned U.S. crackers come online and use increasing amounts of ethane.   It is true that those plants will use a lot of ethane.  But not nearly enough. Today in the first episode of this blog series we begin to explore the ethane-export issue.

Low natural gas prices are expected to fuel a revolution in US manufacturing industry over the coming years. This new industrial revolution affects not only gas and power intensive industries but downstream products produced from petrochemicals. Manufacturing industries that left the US decades ago are returning to take advantage of lower costs.  Today Taylor Robinson from PLG Consulting details three phases to this industrial renaissance.

The promise of vast quantities of shale gas at low and stable prices is sparking a U.S. industrial revival no one could have envisioned only a few years ago. Most of the big-dollar industrial expansion projects planned for later this decade are chemical facilities and gas-to-liquids (GTL) plants; many of the rest are steel mills and other energy-intensive industrial facilities. If all—or even most—of these projects become a reality over the next five to 10 years, gas producers in the big shale plays would benefit from sharply higher demand and  the likelihood of higher prices as well. But how many industrial projects will actually be built? Will the forecasted industrial boom turn out to be more of a boomlet?  That could happen if several factors converge, like the approval of a few more LNG export terminals, environmental regulations that result in big growth in gas fired generation, and higher natural gas exports to Mexico.  Any combination of these factors could result in significant upward pressure on domestic gas prices. In this two-part series we explore the potential for a shale-driven industrial revival.

The shale gas revolution has transformed the economics of oil and gas production in the U.S. and  its effects have been far reaching ,including reduced dependence on imported oil and gas  supplies and strengthening domestic manufacturing through lower energy costs. Much of the credit for the technological innovation that allowed this revolution to take place is owed to the late George Mitchell (1919 – 2013) and the members of the Mitchell Energy shale gas team who persevered with the technology. Today we begin a series describing the technology and economics behind the shale drilling boom.

Canada enjoys vast natural gas resources and domestic demand for its gas is growing. But Canadian gas exports to the U.S. are plummeting, and it seems the only way to avoid a major gas glut north of the border will be to export large volumes of LNG to the Pacific Rim. The catch is, there’s a lot of competition out there, both from reigning LNG export giants like Australia and prospective players like the U.S. And Canada has its own issues with environmental concerns and permitting for natural gas pipelines and LNG terminals.  What happens if Canada’s LNG export initiatives don’t happen? 

US natural gas pipeline exports to Mexico increased by 45 percent in the 9 months to September 2012. This dramatic increase in flows across the US/Mexico border was caused by the need to fill a widening gap between Mexico’s dwindling supplies of gas from domestic production and higher demand for gas to generate electricity. Current low US natural gas prices have made increased pipeline imports an attractive option for Mexican State Energy Company PEMEX but not without complications. Today we take a look at Mexico’s rising gas imports from the US.

China has got a lot of shale gas.   To the tune of 1,275 Tcf of technically recoverable shale reserves, by some estimates.   But today it is all still sitting in the ground.  If that potential is tapped in any significant way, it will have a huge impact on global gas balances, with implications for LNG markets, economic competitiveness and geopolitical clout.  But a lot of obstacles must be removed before the promise of Chinese shale gas can be realized.  Last week I spoke at the Global Unconventional Gas Summit, held in Beijing.  After listening to two days of presentations on the issues, I came away with the view that while some of these barriers are inherent in the Chinese system, probably the biggest barrier is a general misunderstanding of why shale gas developed the way it did in the U.S. in the first place.  So today we will provide a small window into the Chinese shale gas initiative and in the process learn something about the real drivers of shale gas development here in the U.S.