--> --> Abstract: Natural Gas Supply: Not as Great or as Inexpensive as Commonly Believed, by Arthur E. Berman; #90124 (2011)

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Making the Next Giant Leap in Geosciences
April 10-13, 2011, Houston, Texas, USA

Natural Gas Supply: Not as Great or as Inexpensive as Commonly Believed

Arthur E. Berman1

(1) Exploration & Production Services, Labyrinth Consulting Services, Inc., Sugar Land, TX.

It is widely believed that shale plays will provide an abundant and inexpensive supply of natural gas that can also be produced at a great profit to operators. While shale gas has added significantly to U.S. supply, the plays are marginally commercial at best and the resources and reserves are considerably less than commonly believed. Shale plays will probably add 7-10 years of supply but much of that will be non-commercial unless gas prices increase dramatically. The marginal cost of shale production for most operators is about $8/Mcf so prices must increase above that level to sustain these plays without corresponding increases in drilling, completion, land and operating costs.

Current levels of drilling and over-supply of gas are likely to persist at least into mid-2011, which implies that prices will remain near current levels for a while. The present emphasis on liquid-rich plays does little to mitigate low gas prices because most of these plays produce considerable volumes of gas.

Because most operators are spending beyond cash flow and have high debt loads, some may run out of capital and experience financial distress if loan covenants are triggered. If this happens, the myth of abundant, cheap gas supply from shale will be exposed and gas prices will increase. The U.S. has ample natural gas resources for at least the next 25 years but it will probably cost more than is generally assumed today.