Selected writings by David Fiderer
First published in OpEdNews on June 28, 2011
“The first bit of context worth noting is that the story relies heavily on geologists’ concerns about shale gas economics. That should be a red flag. There are very few emails from industry accountants or economists in the story. The geologists’ critiques follow an irritating pattern: most of them basically say that projected levels of gas production are implausible at current natural gas prices. This, of course, is beside the point: no one serious think that today’s gas prices are going to hold forever. (If this technique sounds familiar, that’s because it is: it’s the way that some of the more simplistic arguments for peak oil operate.) The question is whether production can continue at large volumes at reasonable prices.”
“There’s a great deal of gas available in the Middle East, Nigeria, and Central Asia that is VERY cheap to produce. If the world had a moderately efficient global market for gas, what would the price of LNG become? In some ways, the current price may be propped up by the successful anti-competitive global markets (I saw at one point that Qatar was delivering gas to Kuwait for $0.10). I’m not holding my breath on international markets changing – but I would say a couple of things:
“a. Other things being equal, it will eventually be a lot harder to hold a gas cartel together than to hold OPEC together, just because there are so many places to get the gas.
“b. While oil looks intrinsically scarce around the world, gas does not. That means, at the very least, that competitively priced gas will remain far cheaper than oil (except during financial crashes) for as far as the eye can see. That’s one of the reasons that gas prices don’t correlate with oil prices these days, even though I think many other commodity prices do. So – yes, the raw material need to drill gas wells may well go up in price. But it’s not clear that signals much more than a general inflationary force that applies to much of the economy.”
The slides leading up to that conclusion make a very compelling case that current estimates of shale reserves should not be presumed to be reliable. Make a slight change in assumptions, here or there, and the reserve estimates could easily be slashed.
In a funny way, it’s reminiscent of the financial models used for mortgage securitizations five years ago. People in the industry knew that only product that had stood the test of time over several cycles was the 30-year fixed rate fully underwritten mortgage loan. But there was a rush to justify ARMs and liar loans by extrapolating a few years of questionable data far into the future.
It’s safe to say that any shale gas “expert” who glosses over the issues set forth in slide presentation doesn’t know what he’s talking about. They include:
Considerable shale play/formation heterogeneity
Shale productive capability is largely untested
Long-term decline and recovery rates are unknown
Re-fracturing potential is unknown
Excerpts from these slides, below, may be too “inside baseball,” for a lot of people. But for those somewhat familiar with the energy business, the slides go a long way to explain why people are nervous about Chesapeake’s lack of candor.
* * *
From “Uncertainties in shale gas resources & production”:
Considerable shale formation heterogeneity
“Serving as source, trap and seal, shale beds have characteristics that vary not only from region to region but also within specific plays and fields. In fact, there often are significant well-to-well variations in gas production within a single field…. Where there is large variability in production from well to well, it clearly tends to challenge any assumption that shales and their indigenous hydrocarbons are simple and consistent.” Source: American Association of Petroleum Geologists
Initial shale gas well production rates can vary by as much as a factor of 10 across a formation.
Adjacent gas well productivity can vary by as much as a factor of 2 or 3.
Each well produces like a “field” that is independent of the productivity of the adjacent wells (“fields”). (Only one chance to get it “right.”)
Shale productive capability is largely untested
Well productivity data are largely confined to known “sweet spots.”
Many shale formations are so large that only a small portion of the entire formation has been extensively production tested, e.g., the Marcellus Shale.
Long-term decline and recovery rates are unknown
Even in the relatively “mature” portions of the Barnett shale most of the wells are only five years old, with about 50 percent of the total wells drilled in the last 3 or 4 years.
Other basins are much less mature with most of the wells were drilled in the last 3 years.
So there is not much production history for most of the basins or subregions within a basin.
Re-fracturing potential is unknown
Little re-fracturing has been done because most shale gas wells are relatively new.
Initial production rates and total cumulative production of re-fractured wells are unknown.
So re-fracturing economics (cash flow vs. costs) are unknown.
Do other party resource estimates assume re-fracturing? (Don’t know.)