Shale isn’t coming to Europe anytime soon, although the indirect impact of US production in places like the Marcellus shale in Pennsylvania means that we get the benefit of the prices even today. So the question of whether we will see shale in Europe, next year, 2015 or 2020 is not pressing. But for those who think the European experience is going to be so slow, let’s look at the Marcellus experience.

The history of the Marcellus shale is interesting. Five years ago, back when many expert European studies yet to even be published today were just starting out, the Marcellus wasn’t even on the radar. But the ramp up in both reserves and actual production is startling. Next time you hear about shale gas being “hype”, consider the reality of the Marcellus, where hype understated the facts on the ground, or is that flowing out of the ground?

Natural gas production from the Marcellus Shale in Pennsylvania is expected to more than double in 2011 to 2.5 Bcf/d from 1 Bcf/d in 2010, the Pennsylvania State University’s College of Earth and Mineral Sciences said in a study Tuesday. By 2015, the Pennsylvania Marcellus could be producing more than 7 Bcf/d,substantially exceeding all gas output from offshore federal waters, the report noted. Marcellus natural gas production could nearly double again by 2020, with more than 13.5 Bcf/d, “which would make Pennsylvania second only to Texas in natural gas production.”

A major takeaway here from something thrown away in the above, so I’ll repeat it.

By 2015, the Pennsylvania Marcellus could be producing more than 7 Bcf/d, substantially exceeding all gas output from offshore federal waters.

This should really make US (and European) energy traders sick. Traders will no longer be able to rely on scenarios like this old favourite although it was published only yesterday:

It’s a very difficult period of time to be short natural gas with hurricane season right ahead of us,” said Michael Rose, director of trading at Angus Jackson Inc. in Fort Lauderdale, Florida.

Sorry, that one doesn’t really matter anymore, which I pointed out one year and one day ago channeling Peter Tertzakian yet again:

In the past, waiting for the first hurricanes in the Gulf of Mexico has been a highly anticipated time for onshore natural gas producers, like waiting for the park warden to open the campgrounds in spring. The mere threat of a hurricane barreling over Cuba and into the Gulf toward the Texas or Louisiana coast – trashing production platforms and creating enough of a surge to uproot shallow pipelines and disrupt supply lines to the continent – was enough to elevate natural gas prices, allow producers to boost their Q3 cash flows and use the opportunity to lock in higher priced forward contracts.

Everyone in the business is now well aware of the shale gas boom, which is an ongoing mega trend that is redefining the sources and costs of supplying natural gas in North America. One less-realized consequence of this shakeup is that hurricane season in the gas markets has effectively been neutered. There isn’t a lot of production coming from the Gulf of Mexico anymore, so there isn’t much left to be trashed by the occasional Category 4 storm. In effect, hurricane season in natural gas markets has been obsolesced with a human activity that’s been around ever since the time of Stonehenge – innovation.

Evidently, the news didn’t travel from Calgary to Florida in the past year. But the traders’ job is to talk up their book. Mine, unlike the energy experts who never saw shale coming, and now are in denial stage, is to question conventional wisdom, not blindly accept it.

Back to Pennsylvania. Is there any hope for the pathological pessimists? In a world of good news that that keeps on getting better, they clutch at this straw.

The future is not without some challenges, the report noted.

The habitually cautious breathe a sigh of relief. Not for long.

“Currently,there are at least five other major shale gas plays competing with the Marcellus, including the Barnett, Haynesville, Fayetteville, Woodford and Eagle Ford formations as well as several shale formations in Canada. As production from these plays expands, prices for natural gas are likely to remain relatively low and pressures for cost containment will be intense.”

SOURCE:
No Hot Air: “More, and more, and more gas from the Marcellus shale”

China Investment Corporation and Korea Investment Corp are in advanced negotiations to join a consortium planning to acquire convertible preferred stock in New York-listed Chesapeake Energy, according to people familiar with the matter. The talks follow last week’s disclosure that Temasek, the Singapore state investment fund, and Hopu Investment Management, a Beijing-based group, had acquired $600m of its convertible preferred stock.

Chesapeake signaled last week that it would issue a further $500m of preferred stock by mid-June, but this second tranche has swollen to about $900m amid strong investor demand in Asia, people familiar with the situation said.

CIC and KIC are each expected to acquire about $300m worth of preferred stock, with the remainder purchased by Hopu, Seatown, an affiliate of Temasek, and a Japanese industrial group. CIC and KIC could not be reached for comment.

The Asian funds believe the price of natural gas, trading at less than a third of the price of oil on an equivalent basis, is at a cyclical low point and that demand will climb for environmental reasons.

The investment also underscores how Asia’s SWFs are turning to natural resources, seen as more tangible than sectors such as financial services.

Gas is about 30 per cent less carbon-intensive than oil and about 50 per cent less than coal. New drilling technology has also led to higher estimates for US gas reserves, of 100 years’ worth at current usage rates, up from 30 years’ worth.

The investments form part of steps by Chesapeake to raise up to $5bn over the next two years, to reduce debt and attain an investment-grade rating.

The convertible preferred stock carries a coupon of 5.75 per cent. The combined $1.5bn investment in preferred stock would eventually translate into an equity holding in Chesapeake of about 10 per cent.

Chesapeake is either the number one or number two in the four biggest US shale fields: Haynesville, Marcellus, Barnett and Fayetteville.

By Sundeep Tucker for The Financial Times. May 20, 2010.

SOURCE:
Financial Times: “Asian Sovereign Wealth Targets US Shale Gas”

The area where the industry first unlocked natural gas from shale by using horizontal drilling techniques and hydraulic fracturing, a process that shoots chemical-laced water into the deposit to crack the rock. Early indicators of potential production in 2015: four billion cubic feet (bcf) a day.

Haynesville (Northwest Louisiana, East Texas, Arkansas)

This deposit rivals the Barnett as one of the biggest plays in North America. It has attracted investment from international oil companies, including Exxon Mobil Corp., Royal Dutch Shell PLC and Calgary’s Encana Corp. Early indicators for production in 2015: four bcf a day.

Fayetteville (Central Arkansas)

Chesapeake Energy Corp., the largest shale gas producer in the U.S., is heavily involved with this play, which could generate 20 trillion cubic feet of gas over its lifetime. Early indications of production in 2015: less than four bcf a day.

Horn River/Montney (British Columbia)

Two neighbouring plays in northeastern British Columbia have become the Canadian hot spots for natural gas producers. Apache Energy and Talisman Energy Inc. of Calgary are among the leading investors in the plays. Early indicators of production in 2015: up to three bcf a day.

Eagle Ford (South Texas)

One of the newer plays to attract investment following an announcement in April by EOG Resources Inc. of a major discovery in the area. Talisman has expanded its acreage in the deposit, where the gas is rich in liquids like butane and propane that are used by the petrochemical industry. Early indicators of production in 2015: up to three bcf a day.

Utica (south shore of St. Lawrence River, Quebec)

Talisman’s partner, Questerre Energy Corp., has announced a significant result in this region. The two companies have embarked on a more extensive drilling program to determine the extent of commercial viability. Early indications of production in 2015: less that 0.5 bcf a day.

Collingwood (Michigan)

The Michigan basin is being explored by companies that include Encana. The formation extends into Ontario, where companies are examining its potential, but have not yet announced drilling programs. Early indications of production in 2015: Not available.

SOURCE:
The Globe and Mail: “North America’s Other Shale Plays”

The article contributes the record levels of natural gas to U.S. natural gas shale plays in Haynesville, Barnett and Marcellus.

On June 18, the Potential Gas Committee (PGC) released the results of its latest assessment of the nation’s natural gas resources. The report indicates that the U.S. possesses a total resource base of 1,836 trillion cubic feet (Tcf). In 44 years they have done evaluations- this is their highest resource evaluation to date!

” When the committee’s results are combined with the U.S. Department of Energy’s latest available determination of proved gas reserves, 238 Tcf as of year-end 2007, the U.S. has a total available future supply of 2,074 Tcf, an increase of 542 Tcf over the previous evaluation”, according to the report.

“Our knowledge of the geological endowment of technically recoverable gas continues to improve with each assessment. Furthermore, new and advanced exploration, well drilling and completion technologies are allowing us increasingly better access to domestic gas resources—especially ‘unconventional’ gas—which, not all that long ago, were considered impractical or uneconomical to pursue,” said Curtis.

Of the 1,836 Tcf of total potential resources, shale gas accounts for 616 Tcf or 33 percent.

For more informaiton on the report: www.mines.edu

Posted by: c. Keddy