The question grows for oil and gas: How much do you need?

June 19, 2017
It’s surplus. It’s abundance. It’s why things seem crazy in the oil and gas business. Get used to it.

It’s surplus. It’s abundance. It’s why things seem crazy in the oil and gas business. Get used to it.

Remember what happened with the Barnett shale?

Massive hydraulic fracturing of horizontal wells allowed natural gas to flow from low-permeability source rock.

Source rock? It seemed implausible at the time. Except under rare conditions, source rock doesn’t produce gas. Not economically.

But the hydraulically fractured Barnett shale did. Drilling boomed.

People wondered if gas could be induced to flow from tight rock different from the Barnett shale.

As it happened, yes. From the Fayetteville shale. From the Haynesville. From the Eagle Ford.

Soon people asked, “Where’d all this gas come from?”

Then they wondered if the new drilling and completion technologies worked as well with oil.

So now, from Midland to Riyadh, they’re asking, “Where’d all this oil come from?” And lately, “How big is this?”

Two words: Marcellus. Utica.

For these disruptively large gas resources, the best response to how-big questions is this: “How much gas do you need?”

That’s a problem if you produce gas, which in North America is cheap.

And thanks to oil’s adoption of innovations applied first to gas, oil has become cheap, too—painfully so for many producers.

Parallels don’t end there.

“The US natural gas market is entering into an intense era of gas-on-gas competition where only the best-positioned will survive,” warns Justin Carlson, a vice-president at East Daley Capital.

His firm, based in Centennial, CO, has published a report saying the US market will have to clear a 11-bcfd surplus by the end of 2019. That’s 15% of current consumption.

The gas market, according to East Daley, needs a price correction “to incentivize 4 bcfd of new demand and rationalize 7 bcfd of supply.”

What then for oil? With exporters limiting supply, US production growing again, and a $50/bbl price starting to feel high, oil-on-oil competition seems well established.

And wisdom about potential supply begins with this: “How much oil do you need?”

(From the subscription area of www.ogj.com, posted June 9, 2017; author’s e-mail: [email protected])

About the Author

Bob Tippee | Editor

Bob Tippee has been chief editor of Oil & Gas Journal since January 1999 and a member of the Journal staff since October 1977. Before joining the magazine, he worked as a reporter at the Tulsa World and served for four years as an officer in the US Air Force. A native of St. Louis, he holds a degree in journalism from the University of Tulsa.