Barnett Shale Production

The Barnett Shale in northern Texas has some of the largest reserves of natural gas in the country. According to an article by CNBC, there could be as much as 44 trillion cubic feet (Tcf) of recoverable gas reserves.

This information is based on data from the Austin-based Bureau of Economic Geology, which outlines that production of Barnett shale gas could decline by the year 2030. The study was funded by the Alfred P. Sloan Foundation, with researchers from the University of Texas leading the study.

According to Futurity, production will continue at a rate of 2 Tcf annually, followed by 900 billion per year by 2030. The study examines past drilling of up to 16,000 wells until the middle of 2011. Past drilling is compared to average production and future drilling. The study also used “10 production quality tiers” in order to project drilling trends.

From Rig Zone:

“The BEG team’s calculations show 86 Tcf of technically recoverable free gas in 8,000 square miles that the play covers, of which 12 Tcf has been produced and 7 Tcf is proven. Of the 67 remaining, 45 Tcf is in drilled blocks and 22 Tcf is in undrilled acreage.”

The study has set the price of shale gas at $4, with wiggle room for price variations. Outside factors include gas processing, technology, and how much shale gas is located in each well.

Technology may play the greatest role in raising the $4 mark, due to how much investment and heavy machinery will be required in order to extract from hard-to-reach areas.

Even though there is 44 Tcf of shale gas reserves, breaking through Barnett Shale ground for the remaining gas and oil reserves will be expensive and difficult.

Companies do not have the necessary equipment to reach more shale gas, and this could be one of the primary factors in slowing down production. Even though there have been advances in drilling technology, shale gas in the region is still hard to reach.

Still, the study does not account for further possible advancements in drilling technology—advancements that might even have the potential to bring the price down.

The United States has enough recoverable gas to last for decades and a total land mass of natural gas that could sustain the nation for centuries if higher forms of drilling technology are developed in the future.

Companies such as EOG Resources (NYSE: EOG), EnerVest, and Devon Energy Corporation (NYSE: DVN) are currently drilling in the region, according to Star Telegram, and it will be their research and investment into drilling equipment that will play a major factor, should they decide to remain in Barnett Shale, along with any other company that may come on the scene in the future.

Above all, the amount of future production may depend on investment into engineering practices—an unknown variable that could either offset or support the BEG study.

There is plenty of shale gas ready for potential production, but unknown regions could be a determinant factor in the future of production. As drilling ceases to be lucrative in fertile areas, production costs may go up as companies drill into less hospitable regions.

The study highlights the positive and negative aspects of Barnett Shale drilling, but the declining production is a wet blanket on the overall gas market, and the study could offer insight into future drilling.

Even though the study paints a rosy yet realistic picture of the Barnett Shale, there are detractors. An army of observers, including “members from government, industry and academia,” congregated to review the findings, according to Futurity.

The primary critique behind the BEG’s findings is the methodology associated with the study. Director of BEG Scott Tinker prided his organization’s conclusions by analyzing Barnett Shale from a bottom-up viewpoint, starting research with past drilling operations, while many other studies have used a top-down system, beginning with future trends and working their way back to production history, according to Rig Zone.

There is more than enough critique with the study but no agency, scientist, or professor could refute the projections.

This chart from the BEG shows the slight decent in drilling within the next few years.

Source: Futurity.org

This drilling stems from lucrative areas.

What happens to the shale gas during these prosperous years all depends on the company that has drilling rights.

There is legitimate concern among locals and experts that the shale gas would be exported to foreign markets, depriving the country of a precious resource. Once gas in the fertile areas are gone, the coming years will be a difficult one as companies venture into unknown territory.

Other factors, such as environmental and local concerns, could support the BEC’s statement of decline.

According to Dallas’ own WFAA, air quality has been tainted with high doses benzene near drilling sites. Benzene is a chemical that is linked with cancer and certain blood diseases in the form of leukemia. State officials may get involved when “1.4 parts per billion of benzene” is found in the air, but the showings near Barnett Shale drilling revealed “1,100 parts per billion of benzene,” with some drilling sites showing higher measurements.

So far, there has been no major action taken on the part of state and federal officials, but the high levels of benzene in the air could become a potential liability in the future as environmental concerns are becoming a top priority for the White House.

The Barnett Shale region may not only face state regulation, but also federal oversight from the EPA. Such oversight will also play a role in price determination. If companies face regulations, they would be forced to invest in alternative forms of technology in order to stifle air toxins. While this is good for nearby residents, this does not negate the reality that such investments could heighten shale gas prices, possibly forestalling drilling practices in the future.

Many people are also concerned about the damage done to their town through gas production, and the number of fatal accidents associated with drilling operations in the region. Any company or government agency could open a Pandora’s Box of litigation, which would slow down production and could possibly raise shale gas prices.

There is no doubt regarding Barnett Shale’s capacity for shale gas, but the BEG did not take into account other factors such as investment in technology, environmental regulation, and private property issues. They are unknown elements, which could slow down or speed up the amount of production operations; however, these are things that no one can determine, so it makes sense that the BEG only stuck with hard data.

If companies want to prove the BEG wrong, they have plenty of work to do in the realm of technology and business dealings.

Good Luck Investing,

Jon Carter