Panelists at Houston forum say shale enthusiasm must be kept in perspective

Rachael Seeley, Editor

HOUSTON, Tex.—The idea that the US can achieve energy independence through the exploitation of shale resources may make a good talking point for politicians, but industry experts cautioned against buying into the notion at a recent forum in Houston.

Arthur Berman, director of Labyrinth Consulting Services, said that although shale is breathing new life into the most mature petroleum province in the world, demand in the US still outstrips production by far. The country currently produces around 7.5 million b/d and demand is around 15 million b/d.

Speaking to the "TM Talks: Boom" forum hosted by Texas Monthly Magazine and Rice University's Baker Institute, Berman also expressed a cautious view about the long-term sustainability of the shale boom, saying the steep decline rate of wells in their first year online means that operators must drill more wells to maintain production levels — creating a treadmill effect that requires more capital to sustain than conventional reservoirs.

Berman pointed to the Eagle Ford shale as evidence of this. "Seventy-five percent of production in the Eagle Ford shale has come from wells that were drilled in the last 18 months," Berman said.

Panelist Scott Tinker, director of the Bureau of Economic Geology at the Baker Institute, said there is still much to be learned about production from shale and other harder-to-flow reservoirs but expects that producers will continue to improve recovery rates as their understanding of unconventional reservoirs grows and technology improves.

However, Tinker said: "The message that we've got energy coming out of our ears doesn't lend itself to long-term thinking … The reality is that we have to develop shale resources because it's all we have left to meet our needs, but also need to invest in alternative energy sources to plan for the future."

Tinker said shale development started with an initiative led by the US Department of Energy about 30 years ago when most people believed extracting commercial quantities of oil and gas from shale formations was impossible.

Research efforts like this, that may seem unlikely to succeed now, could help ensure that US energy needs are met decades down the road.

Kenneth Medlock, senior director of the Baker Institute's Center for Energy Studies, called energy independence a "feel-good" notion.

While government funding can plant the seeds for groundbreaking research and technology, Medlock does not think it would be advantageous for the government to adopt a new national energy policy.

"Market forces do a pretty good job of determining where resources need to be allocated," he said.

"I have yet to meet anybody in Congress that really has the time to understand the complexity of energy," he added.

Drilling now closer to home

In less than a decade, the exploitation of shale has become an important part of meeting US energy needs.

The trend is evidence of a larger paradigm shift that is a product of resource scarcity and high prices and it has brought oil and gas drilling operations closer to home for many Americans.

Berman said that in the past most people in the US viewed oil and gas as something that was produced "in some far off place" like the Middle East or in the Gulf of Mexico.

Now the largest natural gas play in the US — the Marcellus shale — is being developed in the densely populated Northeast and fear and misunderstanding about the hydraulic fracturing process have prompted some areas, including the State of New York, to enact bans.

Berman said that hydraulic fracturing done correctly does not pose an environmental threat and the more pressing concern is what happens on the surface — such as flowback water management, proper well casing, and the increased truck traffic, accidents, and road damage associated with shale development.

There is an undeniable economic benefit to the development of shale resources, Berman said, "but there is also a very marked change in the way all of us live around these operations."

The Baker Institute's Tinker said the reality is that shale development is the best option for meeting the nation's energy needs. All three panelists agreed that the extraction of hydrocarbons from shale reservoirs is here to stay.

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