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Friday, November 26, 2010

Musings: Separating Wheat from The Chaff of Unconventionals

Increasingly, petroleum industry executives are speaking out about the significance of the unconventional hydrocarbon resources in this country, although they do not always agree about the longer term outlook for the resources. In some cases we question the extrapolations speakers are making about the importance of unconventional resources in the nation’s long range energy mix and, for that matter, the world’s mix.

Recently, several senior energy executives spoke at industry meetings about their views of these trends. One presentation that received media attention was by Mark Papa, CEO of EOG Resources, Inc. (EOG). His presentation was to a joint meeting of the Houston chapters of the IPAA and TIPRO. With respect to the success of unconventional drilling and production, Mr. Papa called it a “game changer” for the industry, something about which most industry participants would readily agree.

Horizontal drilling and hydraulic fracturing technologies have dramatically altered the near term supply picture and have forced energy prognosticators to recast their forecasting models. Most of them now are calling into question the need for the U.S. to import as many hydrocarbons as previously thought. Optimism is fine, but euphoria can be dangerous as it tends to create blind spots that become our downfall.

According to Mr. Papa, “There is clearly sufficient North American gas supply to last for a bunch of years; 50 years at least. And there is clearly no need for us to import LNG (liquefied natural gas) for multiple years to come.” At the present time, natural gas supplies are swamping the market due to the drop in demand associated with an overall decline in energy consumption due to the lasting effects of the recession and the surge in unconventional supply due to accelerated drilling dictated by the need for producers to hold leased acreage for which they have offered huge bonuses.......Read the entire article.

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