So, Where Did All This Gas Come From Suddenly?

November 13, 2011 § Leave a comment

Few will dispute that shale gas has changed the very make up of the petroleum industry.  At every twist and turn new resource estimates appear, each vastly greater than the previous.  The estimate in 2008 exceeded the one from 2006 by 38%.  As with all resource estimates, be they for rare earth metals or gas, disputes abound.  But through all the murk is the inescapable fact:  there certainly is a lot of the stuff.  How could this suddenly be so?  The last such momentous fossil fuel find in North America was the discovery of Alaskan oil.  But a discovery out in the nether regions is understandable.  In this case we were asked to believe that all this was happening literally in our backyard.

To appreciate what happened we first need to understand how oil and gas is formed and recovered.  Millions of years ago marine organisms perished in layers of sediment comprising largely silt and clay.  Over time additional layers were deposited and the organic matter comprising the animals and vegetation was subjected to heat and pressure.  This converted the matter into immature oil known as kerogen.  Further burial continued the transformation to oil and the most mature final form would be methane.  By and large the only real difference between oil and gas is the size of the molecule.  Methane is the smallest with just one carbon atom.  One of the lightest oil components, gasoline, averages about eight carbon atoms.  Diesel averages about twelve.  So, although we refer to them as oil and gas, chemically they are part of a continuum.  So, it is easy to understand that they could come from a single source.

The key word is source.  The rock in which the oil or gas originally formed is known as source rock.  The figure shows a schematic representation of the location of one such source rock.  This is almost always shale, which we told you was some mixture of silt and clay and sometimes some carbonates.  Conventionally, the fluid in this rock will migrate to a more porous body.

This is depicted as the sandstone shown, which is predominantly silica, an oxide of silicon.  It may also be a carbonate, predominantly calcium carbonate.  These two minerals are host to just about every conventional reservoir fluid in the world.  The fluid (and by the way gas is a fluid, although not a liquid) migrates “updip” as shown to the upper right.  This is because the hydrocarbon is less dense than the water saturated rock and essentially floats up, not unlike oily sheens on your cup of coffee.*  This migration continues until stopped by a layer of rock through which fluid does not easily permeate.  This is known as a seal, and more colloquially, a cap rock.  Ironically this is most usually a shale, not unlike where the fluid originated.  The trapped fluid is then tapped for production.

The trap is often a dome as shown in the upper left.  It can also be a fault.  This is when earth movements cause a portion of the formation to break away and either rise or fall relative to the mating part it just separated from.  In some instances a porous fluid filled rock will now butt up against an impermeable one, and a seal is formed laterally.

Source: Wikipedia

In the schematic shown the yellow zone would be the sandstone, and the updip fluid shown in red now finds itself abutting an impermeable zone shown in green.

In the early days of prospecting they looked for surface topography indicative of a dome type trap below.  These days sound waves reflected back produce excellent images of the subsurface.

Unconventional Gas:  We have described how conventional gas, and oil for that matter, are found and produced.  The current flurry of activity in shale gas is concerned with going directly to the source.  This was previously considered impractical, primarily because the rock has very poor permeability, which is the ease with which fluid will flow in the rock.  The permeability of shale is about a million times worse than conventional gas reservoir rock.  In fact, as we observed earlier, shale acts as a seal for conventional reservoirs.  The breakthrough was the use of hydraulic fracturing.  Water is pumped at high pressures, causing a system of fractures.  These are then propped open with some ceramic material to hold the cracks open.  Without this the sheer weight of the thousands of feet of rock above would close the cracks.  The propped open fractures now comprise a network of artificially induced permeability, allowing the gas to be produced.  This is akin to pillars and beams used in underground mines.

The sheer ability to extract gas from source rock is now well understood as feasible.  But some still doubt the magnitude of the estimated resource.  Here is the explanation of why one would expect this resource to be plentiful.  Consider that for a conventional reservoir to be formed one needed a confluence of two events.  First there needed to be a proximal porous and permeable rock and second, a trap mechanism had to exist.  So it would be easy to believe that more source rock did not have these conditions than did.  In other words the probability of source rock without a release mechanism was greater than with.  This is why it is reasonable to conjecture that the total resource trapped in source rock is greater than the resource that escaped into permeable trapped rock.  Further adding to the potential is that this is fresh territory, relatively unexploited.  Decades of exploitation have denuded conventional reserves, while the source rock remains relatively untapped.

A word on the nomenclature of resource estimation.  A resource estimate indicates the quantity of estimated hydrocarbon accumulation, whether economically recoverable or not.  A subset of that is a reserves estimate.  Reserves are the portion of the resource that one could recover economically and bring to market.  Typically in a new play one would expect reserves to keep getting revised upwards.  This is because every new well put on production increases the certainty of the extent and quality of the reservoir, and the reserves can confidently be increased.  In reading the popular literature it would be well to keep the distinctions in mind; they are often confused.

*Darker roasts produce more oil.  One way to minimize oily sheen is to brew with cold water; also results in a “sweeter” coffee.  This is analogous to “sun tea”.

BEYOND GASLAND

October 8, 2011 § 3 Comments

No shale gas production issue may be more fraught with partisan rhetoric than that of water well contamination.  The award winning documentary Gasland  leveled accusations and energized entire communities.  Industry reponse was equally summary in denial.  We need to get beyond all that.  Here is an attempt at clarity.

Well water contamination is very personal and frightening.  Think Erin Brockovich.  Airborne species appear not to get the same reaction.  Certainly, carbon dioxide in the air barely registers on the average personal anxiety scale.  Consequently, assaults on the quality of well water make for avid reading and activism.  In the case of shale gas, industry response has also been sweeping in denial.  Both sides play fast and loose with the English language, as will be shown.

There are two potential ways in which shale gas operations could contaminate aquifers.  One is through leakage of the chemicals used in fracturing.  These then would be liquid contaminants.  The second is the infiltration of aquifers by produced methane.  This is a gaseous contaminant, albeit in the main dissolved in the water.  If present, a portion may be released as a gas, as spectacularly depicted in  Gasland.  Natural occurrences such as the Eternal Flame Waterfall in the Shale Creek Preserve in New York, shown in the picture, demonstrate methane intrusion into a fresh water source.

Natural contamination is either from relatively shallow biogenic methane from decomposing vegetation or from thermogenic gas from deep deposits escaping up along faults and fissures.  The last is generally due to tectonic activity at some time.  The two types of gas have fairly different fingerprints and can often be distinguished on that basis.  Good oil and gas exploitation practitioners will avoid producing in areas with significant vertical leak paths because they vitiate normal sealing mechanisms.

The distinction between potential liquid and gaseous contamination is important because the hazards are different, as are the remedies and safeguards.  Also, because well water could not naturally have the liquid contaminants, any presence at all is evidence of a man made source.  Therefore, simple testing of wells proximal to drilling operations is sufficient, with the only possible complication being some source other than drilling, such as agricultural runoff.  This is easily resolved because of the specificity in the chemicals used for fracturing.

Unfortunately, the two get lumped together in the statements by shale gas opponents and also the genuinely concerned public.  Some see methane intrusion as proof of well leakage as a whole and therefore equate it to chemical contamination as well.  Gasland reports “thousands of toxic chemicals” as the hazard.  In actuality, the mechanisms for possible leakage are quite different.  Methane as gas is much more likely to leak out of a badly constructed well than is a liquid.  Also, the mechanism by which methane could leak is well understood and it is not conducive to leakage of fracturing fluid.  The public cannot be expected to know this and so it is easy to see why the two get banded together.  To them, a leaky well is a leaky well.  Fortunately, this is not the case.

So, do producing gas wells sometimes leak into fresh water aquifers?  The answer is yes.  In all cases this is because of some combination of not locating cement in the right places and of a poor cement job.  Many wells will have intervals above the producing zone that are charged with gas, usually small quantities in coal bodies and the like.  If these are not sealed off with cement, some gas will intrude into the well bore.  This will still be contained unless the cement up near the fresh water aquifers has poor integrity.  In that case the gas will leak.  You will notice nothing in the prior discussion says anything about fracking.  In other words a badly constructed well is just that, no matter how the gas was released from the formation.

This distinction is lost on many.  The recent notable paper by Robert Jackson and others is the most comprehensive work of its kind to date.  It unequivocally shows no fracture chemical intrusion into water wells.  It also shows gas intrusion in disturbingly many cases, although later studies will take care to normalize for possible natural seeps and prior drilling activity.  Yet the title of the paper is Methane contamination of drinking water accompanying gas-well drilling and hydraulic fracturing. (Emphasis added) The last three words infer a causality that is not proven and in fact is contraindicated by the absence of fracturing chemicals in the water wells.

Industry proponents on the other hand make statements such as “hydraulic fracturing has never contaminated ground water”.  Lisa Jackson of the EPA testified recently under oath “I’m not aware of any proven case where the fracking process itself has affected water, although there are investigations ongoing.”  In precise terms this may be right in that fractures have not propagated into ground water.  Take the case of a well associated with fracturing operations that leaks gas but not liquid. One could argue that the poor construction would simply not have occurred but for the desire to fracture the shale reservoir.  So an opponent would take those very data and say “hydraulically fractured wells contaminate ground water”, while the proponent could say “hydraulic fracturing did not contaminate ground water”.  Neither would be wrong.  It is the public that will be confused with this license taken with the language.

Rhetoric aside, proper stewardship of our resources and the environment is possible.  Some possible measures are listed here.  Permits must be given only to oil companies with good track records, thus maximizing the chances of diligence in well construction.  Water wells proximal to intended operations (Jackson suggests 2,000 feet, I believe) be tested prior to drilling at the cost of the operator.  Logs be required to to assure cement integrity.  At a minimum the Cement Bond Log; this famously was not run on the Macondo well that blew up in the Gulf.  Routine testing of the water wells, with a prompt attempt to seal the well, if leaking.  This occurrence should also prompt a severe penalty.  All of this and adherence to sound drilling and completion practice will ensure the sustainable production of a valuable resource.

MAKING A VIRTUE OF BEING LATE

August 12, 2011 § 2 Comments

This statement has the makings of an oxymoron.  In many settings it certainly is.  So, for example there can be no discernible virtue of being late for your own nuptials.  Being late for one’s own funeral, if that could be pulled off, has decided good points.

Source: ACUS.org

Being late is not precisely the same as coming in second.  Nobody knows that Tom Bourdillon and Charles Evans were within 300 feet of the summit of

Everest three days before the second team of Edmund Hillary and Tenzing Norgay got to the top.  Bourdillon and Evans likely did not even make it into Trivial Pursuit.

In the business of innovation there is a body of literature on the value of being first.  “First mover advantage” is firmly in the business lexicon.  But so is the “fast follower” principle.  Indubitably, fast followers could be faced with patents preventing that from happening.  Intel went out in front early and was never materially threatened.  But many businesses have been built on the premise of letting somebody else build the market and make the mistakes.  There is that old adage:  the people in the front get shot.

So, what does all of this have to do with energy?  The history of development of shale gas is instructive.  After the realization that horizontal wells and fracturing enabled gas production from these tight rocks, the early attempts employed methods previously used. In particular, those involved in using sugars as thickening agents to easily fracture the rock.  The sugar residue impaired production.  Newer techniques, in areas such as in the Marcellus, use “slick water”.  The results have been dramatic, albeit at the expense of higher volumes of water.

All of the foregoing is just plain building on the experience of the past.  This post on the virtue of being late keys on the point that if fate has dealt you a hand that causes you to be late to the party, find ways to make that a positive.  This is the opportunity presented to the areas of the east coast that have not yet materially been swept up by the shale gale.  These include Ohio, West Virginia, Maryland and North Carolina.  These states must institute measures whereby the exploitation of the resource is done in an environmentally sound fashion while still maximizing the realization of economic value for the communities affected.

The important measures required fall in the following categories:

  • Ensuring that the water related issues are dealt with from the start.  The foremost is the requirement to re-use all the fracturing water, because improper discharge has plagued parts of Pennsylvania.  Fresh water usage must be replaced, over time, by saline water.   This is technically feasible and simply needs execution.  Water wells proximal to intended drilling should be tested prior to drilling and then routinely thereafter.  The cost of this must be borne by the operator.  Chemicals used must be publicly disclosed with very few exceptions, and even in those cases, full disclosure must be made to the authorities.  The use of toxic chemicals such as the BTEX family and diesel in the fracturing fluid is technically unnecessary and should be expressly disallowed.
  • The latest technologies to minimize environmental impact should be employed.  These include the use of pad drilling to minimize road traffic and measures to prevent fugitive methane emissions.  Enabling rule-making, such as unitization schemes to allow pad drilling and mandatory sensing for emissions and indications of casing leakage, must be instituted.
  • A significant fraction of royalties collected should be ploughed back into giving relief to the affected communities.  This includes hardening of farm roads unsuited to the heavy vehicles associated with the exploitation, and the water handling infrastructure.
  • The public must be educated on all the issues and opportunities for dialog should be created.  A clearing house of information is needed for affected parties such as potential land leasers and homeowners proximal to production activity.

The Secretary of Energy commissioned a study whose findings have just been published for public comment.  This is a balanced report with a very positive attitude that is in keeping with the position we have been taking:  shale gas is a game changer and it is incumbent on us to enable it responsibly.  Produced in a scant 90 days, the report is necessarily short on some detail.  But the message is clear and there is an air of optimism.  For this it will undoubtedly be pilloried by some interest groups.

IS SHALE GAS PRODUCTION PROFITABLE?

July 4, 2011 § Leave a comment

A The New York Times piece on June 26, 2011 discusses this proposition and is very bearish on the prospects.  We acknowledge the principal points: some in the industry worry about the profitability especially given the low prices in the last year or two.  We present here a case for optimism.  These are early days in the exploitation of a completely new type of reservoir.  Continuous improvement, as in any industrial endeavor, can be expected.  In the case of shale gas the learning curve is likely to be steep.  In part this is because of the sheer volume of activity.  Each well will drill and produce in as few as twenty one days.  The setting is almost akin to a factory, which we all know is the type of setting amenable to rapid learning curves.

Production from shale gas wells declines rapidly:  The decline is steep, with a drop of 60% to 80% in the first year. (Conventional reservoirs decline 25% to 40%)  After year two there is a gradual decline.  The mechanism is likely premature closure of the fractures.  This could be due to insufficient penetration of proppant into the formation. (Proppant is sand or other ceramic material injected into the hydraulically created fractures to “prop” them open to allow gas to flow; absent this natural stresses would close the fractures)  Industry is working on materials and techniques to cause improved and more sustained flow.  A Rice University originated product sourced from nanomaterial is in early stages of commercialization.

Refracturing:  This is where new fractures are initiated in existing well bores, often directly on top of the old ones.  In the few cases that it has already been attempted in the Barnett, the results have been dramatic.  Initial production rates have reached and exceeded the original starting production.  And sometimes they decline at the same rate as before.  This is indicative of the possibility that new rock pores are being accessed.  Research, at the University of Texas to name one, is ongoing and one could expect results to be variable for some time.  At present research indicates that the optimal time to refracture is two to three years after initial production.

Somewhat ironically, a shortcoming of the resource, the poor permeability (a measure of the ability of fluids to flow in the rock), may be why this technique works.  Ordinarily, poor permeability means less flow, and hence less production.  Fracturing improves that.  But if the fracture paths are impaired as explained above, the gas does not get fully drained.  But it is available for new fractures, and is for all practical purposes from new rock despite being proximal.  From the standpoint of economics of the prospect, all that matters is that each operation causes enough production to assure a rate of return.  The fast declines are not highly material if this economic threshold is met.  One final point: refracturing is at a fraction of the cost of the original well because no new well bore is drilled.  So the newer gas has a cost basis that could be a third or less of the initial gas.  Does wonders for prospect economics.

Wet Gas:  There is a passing allusion to this in the NY Times piece but it deserves serious attention because of the dramatic effect on profitability.  Wet gas is defined as natural gas with a significant component of hydrocarbon species other than methane.  The economic significance lies in the spread between natural gas and oil prices.  Gas on the basis of energy content is currently priced at about a fourth of oil.  Decades ago these used to be in parity.  Natural gas liquids, the “wet” part of wet gas, are priced in relationship to the price of oil.  Condensate is at or somewhat higher than oil price, butane is definitely higher than oil because it is essentially a drop-in replacement for gasoline.  Propane is at a discount to oil, as is ethane.  Ethane is the least costly, at about half the price of oil.  But all these are vast improvements over the price of methane.  A typical Marcellus wet gas prices out about 70% over dry gas.  Range Resources reports that at a flat $4 per million British Thermal Units (MMBTU) gas price (incidentally the average for 2010 was around this figure), their Internal Rate of Return would be 60%.  That is way more profitable than any conventional gas prospect.

Marcellus, the largest and most prolific of the North American deposits, has a wet character on its western side.  The as-yet not important producing states of West Virginia and Ohio are advantaged in this regard, as is western Pennsylvania.

How things will play out:  Given the facts above, expect the wet gas prospects to be produced first.  Over the next few years, the price of methane will rise because of demand.  Massive switching from coal fired electricity to gas will occur.  This is because even without a price on carbon, the all-in cost of electricity from gas is less than from coal at gas prices below $8 per MMBTU.  In a recent publication we present a model predicting gas prices as having a lid at about $8.  This stability will contribute to switching of oil to gas.  The switches will include methane propulsion of vehicles and gas-to-liquids derived diesel and gasoline.  Over time this plus electric vehicles will make a significant dent in our $400 billion annual imported oil bill, and hence our balance of payments.  Importantly, gas prices will be less subject to the whims of the weather because heating and cooling will be an ever decreasing component of gas usage.

The demand creation will allow a gradual return to dry gas production.  Some of the earlier plays are profitable at $4 already.  But a rise in the floor price will ensure the supply that will be dictated when the trends described above mature.

And one day the NY Times will have a page one above the fold piece on how shale gas transformed the US economy.  Then I will wake up.

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