October 11, 2011 Fostering Continuing Innovation in Unconventional Oil and Gas JAF028371.PPT 1 Prepared By: Vello A. Kuuskraa, President ADVANCED RESOURCES INTERNATIONAL, INC. Arlington, VA Prepared for: Plenary Session: Energy Technologies: From Development to Deployment Sponsored by: 30 th USAEE/IAEE North American Conference “Changing Roles of Industry, Government and Research” October 11, 2011, Washington, DC Fostering Continuing Innovation in Fostering Continuing Innovation in Unconventional Oil and Gas Unconventional Oil and Gas
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October 11, 2011
Fostering Continuing Innovation in Unconventional Oil and Gas
JAF028371.PPT1
Prepared By:
Vello A. Kuuskraa, PresidentADVANCED RESOURCES INTERNATIONAL, INC.
Arlington, VA
Prepared for:
Plenary Session: Energy Technologies:From Development to Deployment
Sponsored by:
30th USAEE/IAEE North American Conference“Changing Roles of Industry, Government and Research”
October 11, 2011, Washington, DC
Fostering Continuing Innovation in Fostering Continuing Innovation in
Unconventional Oil and GasUnconventional Oil and Gas
October 11, 2011
Fostering Continuing Innovation in Unconventional Oil and Gas
JAF028371.PPT2
Discussion OutlineDiscussion Outline
1. The Impact of Innovation in Unconventional Gas and Gas Shales
2. How Did the Innovation Occur?
• Model for Innovation
• Key Success Factors
3. Learnings for Other Energy Sources
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1. The Impact of Innovation in 1. The Impact of Innovation in
Unconventional Gas and Gas ShalesUnconventional Gas and Gas Shales
Driven by a new understanding of the massive size, technology
readiness and economic viability of unconventional gas and shales, a
“paradigm shift” is underway for natural gas supplies.
This “paradigm shift” began a decade ago in the U.S. with only
modest fanfare.
• Low cost coalbed methane in the San Juan Basin of Colorado and New
Mexico led the way.
• Next was the introduction of highly productive tight gas development at
Jonah and Pinedale fields in western Wyoming.
• Third was the emergence of the Barnett and now the other deep North
American gas shales.
Now this “paradigm shift” is underway worldwide including Canada, China,
Europe, Indonesia and numerous other areas.
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Year 2000
13 Bcfd
53 Bcfd
24 Bcfd
16 Bcfd
0
10
20
30
40
50
60
70
TOTAL
Conve
ntional
Onsh
ore
Gas
*
Unco
nve
ntional
Gas
Offsh
ore
Gas
Dry
Gas
Pro
duct
ion (Bcf
d)
The Paradigm Shift in U.S. Natural Gas SuppliesThe Paradigm Shift in U.S. Natural Gas Supplies
*Includes onshore associated, non-associated and Alaska.Source: U.S. Energy Information Agency (2010); Advanced Resources Int’l (2010).
JAF2011_028.XLS
The 21 Bcfd growth in unconventional gas production has more than replaced a
decade long decline in U.S conventional onshore and offshore production
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Source: Advanced Resources International (2010)
(e)
Annual Shale Gas Production, Wet (Bcfd)
How Much Does U.S. Shale Gas Contribute?How Much Does U.S. Shale Gas Contribute?
Production of shale gas has grown by ten-fold. It provided 14 Bcfd,
equal to nearly a quarter of U.S. natural gas production, last year.
2000 2009 (p) 2010 (e)
(bcfd) (Bcfd) (bcfd)
Haynesville/Bossier 0.0 1.0 3.5
Marcellus 0.0 0.3 1.2
Woodford 0.0 0.7 1.0
Fayetteville 0.0 1.4 2.1
Barnett 0.2 4.8 5.1Other 0.9 0.8 1.1
Sub-Total 1.1 9.0 14.0
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JAF02052.CDR
How Has Shale Gas How Has Shale Gas
Impacted U.S. Natural Gas Prices?Impacted U.S. Natural Gas Prices?
Prior PerceptionPrior Perception New UnderstandingNew Understanding
Gas Resources Gas Resources
Gas S
upply
Costs
Gas S
upply
Costs Conventional
Gas
UnconventionalGas (Shale Gas)
UnconventionalGas (Shale Gas)
ConventionalGas
Unconventional gas (particularly the higher quality gas shales) is today the low cost portion of the U.S. natural gas price/supply curve.
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2. Shale Gas And Unconventional Gas 2. Shale Gas And Unconventional Gas
Are A R&D And Policy Success StoryAre A R&D And Policy Success Story
Innovation and progress in technology converted an un-producible shale/source rock resource into a large, low cost domestic supply of natural gas plus oil:
• The DOE/NETL helped build the essential resource and science
knowledge base.
• The Gas Research Institute and industry launched the early
technology demos.
• Section 29 tax credits (now expired) helped attract capital and build
economies of scale.
However, we are still in the early, emerging stages of having anoptimum set of technologies, particularly for tight (shale) oil.
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2. How Did the Innovation Occur?2. How Did the Innovation Occur?
Four factors were essential for successful technology innovations in shale gas:
1. Building a foundation of data and science on self-sourcing, low
permeability resources. (1980s U.S. DOE and 1980s/1990s GRI
research built the foundation.)
2. Understanding the true size and potential of the resource. (Mid-1990s
U.S. DOE/EIA-sponsored studies and models.)
3. Capturing insights for optimizing recovery efficiency. (“Innovation
follows insights”.)
4. Providing information and knowledge transfer to help the private
marketplace work. (Supporting capital investment and risk taking.)
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The 30 Year The 30 Year ““Overnight SensationOvernight Sensation””
Much of the popular media tends to calls shale gas an “overnight sensation”. However, 30 years of research and innovation are behind this “overnight sensation”:
• The “innovation pathway” stared in the early 1980s with DOE/NETL
research program in Devonian shales:
− Natural fracture and stress orientation cores (early 1980s)
− Comprehensive resource assessment for Devonian shales (NETL/ARI reports).
− Impact of horizontal wells on shale gas recovery (NETL/ARI technical report
1984).
• Next was the GRI-sponsored field research in the Antrim Shale (late 80s
through early 90s):
− Demonstration of two stage fracturing
− Quantifying the volume of adsorbed gas
− Developing new resources characterization tools
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Key Research InitiativesKey Research Initiatives
Three key research initiatives provided evidence that the Barnett Shale could become an economically-viable resource:
• A rigorous reservoir characterization (supported by GRI) showed
that the resource in-place was nearly twice as rich as previously
assessed.
• The Stella Young #2 intensively stimulated slant well (drilled by
Mitchell Energy and GRI), the best well drilled to date,
demonstrated that increased reservoir contact would lead to
better wells.
• Completing the entire Barnett Shale vertical interval, rather than
a “high graded” interval, was cost-effective.
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Information Disseminated Also Played a RoleInformation Disseminated Also Played a Role
A series of publications and information dissemination activities helped transfer research findings and spur continuing innovation:
• The quarterly GRI publication “Gas Shales Technology Review.”
• The Oil and Gas Journal article on the Barnett Shale (Kuuskraa,
et al., 1998) that argued:
− Vertical wells were draining only 10 to 30 acres.
− Porosity as well as adsorbed gas are key gas storage mechanisms
− The size of the Barnett Shale resource was at least 10 Tcf
recoverable.
• The initial EIA unconventional gas module included the use of
horizontal wells in gas shales in the “high technology” case,
helping define the benefits of utilizing this innovation.
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The Final InsightThe Final Insight
The final “game changer” insight came from refracturing the older, vertically drilled Barnett Shale wells.
• The second (or third refracture) was contacting additional shale
reservoir.
• The refracs significantly increased gas reserves.
• The volume of gas recovery in deep shales is related to how much
of the shale formation one contacts and stimulates.
• Less costly and less damaging “slick water” fracs provided superior
performance to traditional gel fracs.
The key insight was the recognition that one could “create a permeable reservoir” and high rates of gas production by using intensively stimulated horizontal wells in deep gas shales.
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Refracturing Refracturing
Gas Shale WellsGas Shale Wells
Devon Denton Creek Trading Co. No. 1 Well
Fracture Reorientation
(Barnett Shale/Newark East Field)
10
100
1,000
10,00019
92
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Time, Years
Gas
Pro
duct
ion, M
cf/d Initial EUR: 1.0 Bcf
Final EUR = 2.9 Bcf
Johnson No. 2 Well
10
100
1,000
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
Time, Years
Gas
Pro
duct
ion, M
cf/d
Initial EUR: 0.4 Bcf
Final EUR = 2.9 Bcf
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Where Are We Today?Where Are We Today?
Horizontal Well with Multi-Stage Fracturing
Source: EnCana
Stage 3
Early Horizontal Well Completion Practices
Latest Gas Shale Well Completion Practices
Stage 2 Stage 1
5,000’
1,500’
Stage 4
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1. The oil and gas marketplace tends to avoid incurring private costs with
public benefits (R&D market failure).
2. In-depth, credible information on the size and economic viability of
resources is essential for helping the marketplace work.
3. Multiple parallel public and private investigations on high impact
topics will accelerate learnings and technology progress.
4. High impact domestic oil and gas resource innovation opportunities:
• Integrating CO2 storage and enhanced oil recovery
• Accelerating pursuit of tight oil
• Cracking the “technical nut” on lacustrine, clay-rich shale gas (and oil).
3.3. Lessons For Other Unconventional Lessons For Other Unconventional
Oil and Gas ResourcesOil and Gas Resources
Four “lessons learned” have emerged from the successful innovation in unconventional gas and shale gas.
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Integrating COIntegrating CO22 Storage andStorage and
• Major new revenues for Federal, state and local governments and the electric
power industry.
• Market for 18 Gt of anthropogenic CO2, equal to 30 years of CO2 emissions
captured from 100 (1 GW-size) coal-fired power plants.
Additional benefits would accrue from application of CO2-EOR and
storage technology to the large domestic Residual Oil Zone (ROZ) resource.
Credible information, incentives and joint industry/government R&D on
“next generation” technologies would help unlock this resource.
* At an oil price of $85/B, a CO2 market price of $40/mt and a 20% ROR, before tax.
** The U.S. DOE/NETL-sponsored report, “Improving Domestic Energy Security and Lowering CO2 Emissions with “Next Generation” CO2-Enhanced Oil Recovery (CO2-EOR)”, prepared by Advanced Resources Int’l., states that this volume of economically recoverable oil is sufficient to support nearly 4 million barrels of domestic oil production.”
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Accelerating the Pursuit of Tight OilAccelerating the Pursuit of Tight Oil
In addition to natural gas, large volumes of oil are contained in
domestic tight shale and sand formations, such as:
• Eagle Ford Shale
• Granite Wash Tight Gas
• “Oily” portions of the Barnett, Marcellus and Utica shales
The innovations developed for shale gas (such as “sweet spot”
exploration, horizontal drilling and intensive hydraulic stimulation) are
necessary, but are not sufficient, for efficient production of tight oil. Key
new innovations requiring R&D investment include:
* The recent NPC North American Resource Development Study, “Prudent Development”, estimated that up to 3 million barrels per day of oil production would result from application of advanced technologies for tight oil.
• Increased reservoir contact plus identification and/or creation of higher
conductivity natural/induced fractures.
• Deployment of secondary reservoir drive mechanisms.
• Efficient displacement of residual oil.
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Closing CommentsClosing Comments
The U.S. has a bountiful, but complex set of unconventional oil and gas resources, as argued in numerous reports by Advanced Resources and as documented in the recently completed NPC study: “Prudent Development – Realizing the Potential of North America's Abundant Natural Gas and Oil Resources”.
Converting these complex resources into commercially viable domestic oil and gas reserves requires further innovations and technology progress.
The private marketplace can provide much of this innovation once the foundation (data, science, first-generation technologies) is set in-place by high impact public/private R&D initiatives.
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Fostering Continuing Innovation in Unconventional Oil and Gas