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Scientists Find Cheaper Way Of Tapping Shale Gas Resources

Irina Slav

Amid a persistent glut of natural gas in the United States and globally, researchers from Penn State University said they had found a more cost-effective way of finding shale gas reserves.

Unlike the usual way of exploring for new reserves, which relies on existing production data along with geological tests, the Penn State method leans on historical production data, and from a lot more wells than usual.

As per the news release from Penn State, “Researchers used only wells with more than two years of production logs and assigned a decline curve analysis — the amount of production loss over time — for each well. They then applied these decline curves over the entire region of the Marcellus Shale. That allowed researchers to forecast the amount of gas that would be generated over time if a new well were created. Researchers then validated their findings using geological maps, which were created from core samples.”

The reason for the cost-effectiveness of the method developed by the Penn State researchers is that well production data is a lot easier—hence cheaper—to obtain than geological data. At the same time, it is reliable, according to the authors: the combination of production data and mapping yielded a margin of error of no more than 20 percent when compared with decline curve analysis alone. The addition of geological data from core samples is still more reliable, but it is also more expensive.

The new method of exploration comes at the right time. Demand for natural gas in the United States is growing, but prices have been depressed because supply from the shale patch is growing faster than demand. As a result, in April this year, the benchmark natural gas contract at the Waha Hub slipped into negative territory, at  -$9 per million British thermal units. Just a month later, the benchmark slipped into negative territory once again, at -$4.28 per mmBtu. The average price for the first five months of the year was $0.92 per mmBtu.

Related: World’s Top Oil Trader Sees Oil Prices Weakening This Year

At the end of August, natural gas was trading above US$2 per mmBtu, but analysts warned that soon they could slip lower than this as summer ends and temperatures fall, undermining demand, which spiked during the heat waves. Now, there will likely be a lull in demand before it picks up during the winter.

Despite the lower prices, U.S. natural gas production continued to increase in August and set a new daily production record of 92.1 billion cubic feet per day on August 5, the EIA said, citing data from OPIS PointLogic Energy. Between May and August, gas production rose by 2.5 percent, mainly driven by the Northeast.

In this price and supply context, the new exploration method, if applied on a larger scale, could have implications for U.S. LNG exports as well. The LNG market is even more competitive than the market for pipeline gas, where competition is geographically constrained. As LNG competition intensifies, every penny counts. If the method lives up to its promise, it could save quite a lot of pennies, making U.S. LNG more competitive to its Australian, Qatari, Russian, and African rivals.

By Irina Slav for Oilprice.com

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