Speakers say innovation to sustain North American gas boom

Innovation will sustain the North American boom in natural gas production from unconventional resources despite an extended period of low prices.

Speakers at the Decision Strategies Oilfield Breakfast Forum in Houston on Oct. 9 emphasized continuing improvements in unconventional work.

Steven Mueller, president and chief executive officer of Southwestern Energy, noted that in one of his company’s unconventional plays during 2007-12, the number of days required to drill a well has declined 62%, lateral length has increased 82%, and well cost has fallen 14%.

But he said the industry remains in “early stages of learning.”

With unconventional gas, he said, the US “has a national treasure with long-term, low-price implications.”

Gas projects in the US are larger than they’ve been in 100 years and are improving rapidly in quality and efficiency, he said. And industry strategies are lowering gas prices and price volatility.

He disputed the view of gas as a bridge fuel to a market dominated by energy from renewable sources, saying, “Natural gas is not just a transition.”

But Mueller said he worries about issues related to the environment, such as fracture stimulation, water, and emissions of greenhouse gases; community relations, especially problems related to truck traffic and noise; and regulatory issues, including threatened tax code revisions and the federal government’s urge to pick energy winners.

Those issues, he said, represents threats to natural gas supply.

Improving economics

James W. Wicklund, managing director, energy research, at Credit Suisse LLC, also noted how innovation is improving the economics of unconventional resource development and sustaining production momentum but issued a warning: “It’s hard to get a whole lot better when you’re this busy.”

Like Mueller, Wicklund expects gas prices to remain low as production of gas associated with oil increases and until new chemical plants come on stream and boost demand.

“We are not only awash in gas; we are awash in cheap gas,” he said.

Unlike some analysts, Wicklund doesn’t expect a surge in US oil supply to crush crude oil prices because it will be offset by declines elsewhere in the world.

Another speaker, Matt Fox, ConocoPhillips executive vice-president, exploration and production, described his company’s approach to setting strategy, which uses grids for strategic decisions, strategic uncertainties, and scenario dimensions, leading to three questions:

• What reasonable scenario combinations could play out, and what are the scenario probabilities?

• What would the implications of each scenario be for the strategic uncertainties?

• If you knew how the strategic uncertainties turned out, what strategy would you adopt?

Then, Fox advised: “Pick a core strategy, carry contingent elements for strategic flexibility, and monitor scenario signposts.”

A fourth speaker, Joop Roodenburg, chief executive officer of Huisman, called for collaboration among offshore operators, drilling contractors, and key suppliers to overcome what he described as a divergence in priorities that suppresses risk-taking and innovation in the development of offshore equipment.

Contact Bob Tippee at bobt@ogjonline.com.

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