Low Gas Prices Drive Operators To Liquids Shale Plays

By Rita Tubb, Managing Editor | June 2012 Vol. 239 No. 6

Luncheon keynote speaker Mark R. Rosekind, Ph.D. Board Member, National Transportation Safety Board

Pipeline & Gas Journal, in partnership with the Interstate Natural Gas Association of America (INGAA), held its eighth annual Pipeline Opportunities Conference April 4 at the George R. Brown Convention Center in Houston.

Jeff Share, conference founder and organizer, said the single-day event drew 400 attendees, said reaction at the event was reflective of the intense focus on the pipeline industry, both for natural gas and for oil products.

“We’re in a time when natural gas is making news somewhere in America every day. Add the controversy over the Keystone Pipeline project in a crucial election year and there has never been more interest in our business. There is only one certainty today in the oil and gas industry which is that no one is certain about anything that could happen tomorrow,” said the editor of Pipeline & Gas Journal.

In the natural gas perspective session, Adam Bedard, senior director, Energy Analysis, Bentek Energy, provided an overview on how low natural gas prices are driving producers to the nation’s oily shale plays.

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To put this in perspective he shared the accompanying slide showing a comparison of gas, oil and NGL prices on an MMBtu equivalent basis. “If you are a producer and have assets around the country you’re going to go after natural gas liquids or oil because you’re going to get two to three times the value that you would get for dry gas,” he said.

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To push the point further he shared the accompanying slide and told attendees, “You can see the numbers changing dramatically as natural gas prices and the rate of return (ROR) in these dry gas plays decline.”

He was also quick to point out that while the rate of return (ROR) on dry gas plummeted, oil plays are holding up, with the Bakken reporting a 50% ROR; Niobrara, 48% , Permian Basin, 66%, etc.

Bedard said given the low ROR, producers are not going to be drilling as many dry gas wells and that is reflected in the drilling rig count shown in the accompanying slide.

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“One example is the Haynesville where 66 rigs are currently active, 43 less than a year ago. If you look at the hot oily plays, Eagle Ford has 250 active rigs, which is an 85-rig increase from a year ago; Permian Basin, 480 active rigs, up 89 from a year ago; and Anadarko 251, up 16 from a year ago.

“So, the liquids plays are attracting the producers and the rigs.”
In the challenges for oil and natural gas session, Bill Moss, Partner, Mayer Brown LLP, provided a look at the prospect of natural gas becoming a world global market, with particular reference to the U.S. market.

Noting the radical changes in supply and demand of natural gas in the U.S. from the shale revolution, Moss said, “In the last five years the entire situation has changed and we’re looking at a vast oversupply of natural gas. Looking back to 2000, shale gas was 1% of our natural gas supply.

“Future projections by the U. S. Energy Information Administration show shale gas contributing 47% of the nation’s natural gas supply production in 2035. Moreover, North American natural gas reserves are reportedly sufficient to supply current consumption for more than 100 years.”

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Turning to gas prices, Moss used the accompanying slide to show the disparity in natural gas prices in the U.S. vs. select areas of the world.