Economics of Global Shale Gas Development
Shale gas is considered as a “game changer” for the US and global gas markets. Gas production from shale gas in the US has significantly reduced US gas imports in the last five years. Shale gas has become a common discussion topic in the industry as nobody wants to miss the opportunities that are related to the exploitation of gas from these resources.
Policymakers in many countries with shale gas resources are seeking to replicate the success of shale gas in the US. This short write-up provides:
(a) Summary of the global shale gas resources
(b) Estimated economics of shale gas development
Some useful rules of thumb are provided that ...view middle of the document...
In order to appreciate the magnitude of these resources, the current global proved (conventional) gas reserves as of December 31, 2011 are estimated at about 7,361 trillion cubic feet.2 Figure 1 shows a breakdown of the estimated technically recoverable global shale gas resources.
Figure 1. Breakdown of Global Shale Gas Resources1
The US Energy Information Administration (EIA) is forecasting US dependence on imported gas to reduce to 1% by 2035 from the current 11% of the US’s annual gas consumption. As shown in Figure 2, the US shale gas production is estimated to increase from 8.13 trillion cubic feet in 2012 to 15.33 trillion cubic feet by 2035.3
Figure 2. US Gas Production Forecast3
If it is assumed that the current developed shale gas production will decline by about 5% per year then 0.87 TSCF of incremental shale gas has to be developed in 2013 and this incremental requirement will reach 12.83 TSCF in 2035.
Based on the average shale gas production per well as shown in Figure 3, and the planned EIA’s forecast, more than 121,600 wells (average of about 5,300 wells per year) will have to be drilled between 2013 and 2035.
Figure 3. Typical Average Shale Gas Well’s Production
China has also released its first five-year plan for the development of shale gas, setting ambitious production targets and emphasising the need for foreign co-operation and better technology in developing the sector. Companies including BP, ConocoPhillips, Chevron and Royal Dutch Shell are involved in shale gas exploration joint ventures in China. Royal Dutch Shell is planning to spend $1 billion a year developing China’s unconventional gas resources. As shown in
Figure 1, China has the largest technically recoverable shale gas resources. China is also the world’s third largest consumer of gas, currently consuming 12.6 billion cubic feet per day. For the last five years China’s gas consumption has increased at an average rate of 18.5% per year.
China has set a goal to achieve 630 million standard cubic feet per day (MMSCFD) of shale gas production by 2015 and increasing this to 5,800 MMSCFD (60 billion cubic meters per year) by 2020. Based on the average shale gas performance in Figure 3, more than 8,100 production wells will have to be drilled to reach the 5,800 MMSCFD target, i.e. 1,350 wells per year between 2014 and 2019. Some 1,200 wells per year will have to be drilled thereafter in order to maintain the production at the 5,805 MMSCFD level. A total of about 19,000 producing wells will be required to reach the 5,805 MMSCFD level and maintain that level for 10 years.
The shale gas development in US and China will require drilling more than 6,650 wells per year. Such huge drilling commitment will require many additional drilling rigs and capital. At an average cost of $6 million per well, annual drilling capital requirement will be some $40 billion.
The cost of gas development and...