Unconventional oil and gas resource development – Let’s do it right

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  • Journal of Unconventional Oil and Gas Resources 12 (2013) 28Contents lists available at SciVerse ScienceDirect

    Journal of Unconventional Oil and Gas Resources

    journal homepage: www.elsevier .com/ locate / juogrRegular Article

    Unconventional oil and gas resource development Lets do it right

    Stephen A. HolditchProfessor Emeritus at Texas A&M University, College Station, TX 77843, United Statesa r t i c l e i n f o a b s t r a c tArticle history:Received 27 March 2013Accepted 17 April 2013Available online 10 June 2013

    Keywords:Shale gasHydraulic fracturingUnconventional resourcesEnvironmental responsibility2213-3976/$ - see front matter 2013 Elsevier Ltd. Ahttp://dx.doi.org/10.1016/j.juogr.2013.05.001

    E-mail addresses: steve@holditch.com, holditch@taThe resource triangle can be used to describe the distribution of natural gas resources in all basins in theworld. We have studied 25 basins in North America and conclude that over 90% of the technically recover-able resources (TRR) in natural gas formations can be found in unconventional reservoirs. We believe thesestatistics canbe extrapolated to every basin in theworld that produces substantial volumes of oil and gas. Infact, we have estimated that the world has over 57,000 Tcf of TRR in these basins. Not all of the TRR is eco-nomically recoverable because of gas prices, costs andother issues, such as lack of infrastructure, but the gasis there and can be produced in the future. However, the oil and gas industrymust followbasic guidelines toensure safety and environmental awareness as it develops these resources over the coming decades.

    2013 Elsevier Ltd. All rights reserved.The resource triangle

    In this paper, I want to first define the difference between a con-ventional reservoir and an unconventional reservoir. My definition ofa conventional reservoir is a high quality, high permeability reser-voir where all you have to do is drill a vertical hole, perforate theproductive interval, then the well will flow at commercial flowrates and recover commercial volumes of hydrocarbons withoutrequiring significant stimulation. My definition of an unconven-tional reservoir is a low quality reservoir that must be stimulatedto produce at commercial flow rates and recover commercial vol-umes of hydrocarbons (Holditch, 2006). The low quality can bedue to low permeability or high oil viscosity. For the low perme-ability reservoirs, like tight oil, tight gas, gas shales or coalbedmethane reservoirs, we have learned that long horizontal boreholes and multistage hydraulic fracturing can effectively stimulatethe formation in most cases. For heavy oil or oil shale, we need heatto reduce the viscosity of the oil. For gas hydrates, we are still on asteep learning curve concerning the technology required to eco-nomically develop a gas hydrate reservoir.

    These unconventional reservoirs are best described using theResource Triangle (Fig. 1).

    The Resource Triangle (Masters, 1979) illustrates that the highquality reservoirs are at top of the triangle and as you go deeperin to this triangle you find the low quality reservoirs. The Basic pre-mise of the Resource Triangle can be summarized as follows:

    All natural resources are distributed log normally in nature. The high grade deposits are small and difficult to find but easyto extract.ll rights reserved.

    mu.edu As you get deeper in to the resource triangle, the resourcebecomes larger but you need higher product prices andimproved technology to extract the resource.

    All natural resources, such as gold, silver, copper, uranium, oil,gas, etc. are distributed log normally in nature. The high qualitydeposits are small they are difficult to find but when you find themthey are easy to develop and likely, quite profitable. For example, itis difficult to find a pure vein of gold; but once it is found, it is easyto extract. However, as you go deeper in to that Resource Triangle,you need better technology and higher product prices to developthe resource. Even though these low quality oil and gas reservoirsare difficult to develop, the upside is these reservoirs will containorders of magnitude more hydrocarbons than we find in conven-tional oil and gas reservoirs.

    According to the Resource Triangle concept, we should expect alog normal distribution of resource quality in every oil and gas ba-sin we have produced. Thus, in the major oil and gas provinces inthe world, like the Middle East, there should be extremely largevolumes of oil and gas in low quality reservoirs. As such, any oiland gas basin in the world that has produced large volumes ofoil and gas from conventional reservoirs over the last 100+ yearsshould have orders of magnitude more oil and gas in unconven-tional reservoirs waiting to be discovered and developed.North America as a model

    To verify the concept of the Resource Triangle, we have beenanalyzing data from North America. For the past 10 years, we havehad a number of graduate students in the Harold Vance Depart-ment of Petroleum Engineering at Texas A&M University collectingand analyzing data on over 25 basins in North America where

    http://dx.doi.org/10.1016/j.juogr.2013.05.001mailto:steve@holditch.commailto:holditch@tamu.eduhttp://dx.doi.org/10.1016/j.juogr.2013.05.001http://www.sciencedirect.com/science/journal/22133976http://www.elsevier.com/locate/juogr

  • Resource Triangle

    Conventional ReservoirsSmall volumes that areeasy to develop

    Unconventional Large volumes difficult to develop

    Impr

    oved

    tech

    nolo

    gy

    Incr

    ease

    d pr

    icin

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    Fig. 1. The resource triangle (after Holditch, 2006).

    S.A. Holditch / Journal of Unconventional Oil and Gas Resources 12 (2013) 28 3unconventional reservoirs have been under development for sev-eral decades.

    Fig. 2 is a map from the EIA showing the basins in the UnitedStates producing shale gas as of 2010. In the past 3 years the num-ber of plays has expanded in the US and Canada and the industry isnow producing tight oil formations in many of these same basins.Fig. 3 shows the production of natural gas in the United States andwhat is expected in the near future. The data in Fig. 3 are from theEIA and shows current gas consumption is about 24 Tcf/year. By2030, gas from unconventional sources will make up around 75%of the total gas consumption. However, the overall growth in gasdemand may increase much faster than predicted by EIA in 2011,as momentum is building for using more natural gas in transporta-tion, electric power generation and the petrochemical industry.

    In the early years of our study, we compared ultimate gas recov-ery from conventional oil and gas reservoirs to expected recoveryfrom unconventional reservoirs seven basins where significantFig. 2. Map of shale gas plays in theproduction and evaluation data were available (Martin et al.,2010). The results of that work are shown in Fig 4. Martin foundthat in seven prominent basins that had produced significant vol-umes of unconventional gas, the ratio of Technically RecoverableResource (TRR) in unconventional gas to Ultimate Recovery of bothoil and gas in conventional reservoirs was about 91. What thatmeans is that for every 1 Mcfe of ultimate recovery from conven-tional oil and gas reservoirs in those basins, we can expect 9 Mcfrecovery of conventional gas in those same basins. The readershould understand that Martin did not study oil production fromtight formations, only dry gas production.

    Cheng et al. (2010) extended the work of Maritn et al. to look atall 25 basins in the United States that have produced significantvolumes of unconventional gas. The results of his work have beensummarized in Fig. 5 and Table 1. Chung also looked at the ratio ofTechnically Recoverable Resource (TRR) in unconventional gas toUltimate Recovery of both oil and gas in conventional reservoirs.In Fig. 5, one can see the range varied from greater than 90% inthe Ft. Worth Basin, the Arkoma Basin, Appalachian Basin, RatonBasin, Illinois Basin and San Juan Basin to around 65% in the WindRiver Basin and the Permian Basin. We believe all the basins willeventually converge to the 8090% ratio of unconventional to con-ventional as more data are collected on the unconventionalresources.

    Dr. Zhenzhen Dong has published our latest results where shetook the work from the prior graduates and extended the resultsto look at values of global gas in place and technically recoverableresources in dry gas formations (Dong et al., 2012, 2013). She useddata from the same 25 basins to develop correlations for shale gas,tight gas, and coalbed methane for estimating both original gas inplace and how much of that is technically recoverable. Her workwas fascinating and one should review her papers and her disser-United States (from EIA, 2010).

  • Fig. 3. Estimate of US dry gas production through 2035 (from EIA, 2011).

    Fig. 4. Estimate of conventional vs. unconventional recoverable resource in seven basins in the United States (after Martin et al., 2010).

    4 S.A. Holditch / Journal of Unconventional Oil and Gas Resources 12 (2013) 28tation for the details. However, Tables 2 and 3 summarize the sig-nificance of her work.

    Table 2 shows the results of Rogner (1997). Rogner estimatedthe volume of gas in place in unconventional gas reservoirs forthe world. His work is excellent for the data available at the time,but we have found it to be conservative. Rogner estimated the glo-bal gas in place to be around 32,500 Tcf, with 8200 in NorthAmerica.

    Dong thoroughly reviewed the work of Rogner and then devel-oped new estimates using statistical correlations. It is obvious weknow so much more about unconventional gas reservoirs now thatwhat Rogner would have had available to him 15 years ago. Table 3presents the results of Dongs analyses. Dong has a P50 estimate ofOriginal Gas in Place in unconventional gas reservoirs for the worldat 125,700 Tcf, which is almost four times the estimate of Rogner.In North America, the estimate is 18,300 Tcf, which is over twicethe estimate of Rogner.

    Dong went on and computed estimates of Technically Recover-able Resource (TRR). TRR is gas that we know exists and we havethe technology to produce it, so we can recover it if we wish. How-ever, not all TRR gas can be produced economically. We only con-vert TRR to Economically Recoverable Resource (ERR) when thecosts to develop and the product price is such that the resourcecan be developed economically. We also need to have a marketfor the gas. For the world, the P50 estimate of TRR is 57,600 Tcf.For North America, TRR is estimated to be 8600 Tcf. Obviously,these values represent several hundred years of gas supply, assum-ing the public wants to pay for development.Source rocks

    For shale gas, tight oil and coalbed methane, one commontheme is that the reservoirs we are now developing are really whatwe have thought of for years as the source rocks. Virtually every oiland gas professional who has worked in the Austin Chalk develop-ment in Texas has known for years that the source rock for the Aus-

  • Fig. 5. Estimate of conventional vs. unconventional recoverable resource in 25 basins in the United States (after Cheng et al., 2010).

    S.A. Holditch / Journal of Unconventional Oil and Gas Resources 12 (2013) 28 5tin Chalk is the Eagle Ford. Now the Eagle Ford is one of the mostactive reservoirs that is currently being developed.

    Extending what we have learned about (1) the distribution ofglobal unconventional gas resources, (2) the development of reser-voirs that have been historically thought of as source rocks and (3)the theory of the Resource Triangle, it is logical to conclude thatevery oil and gas basin in the world will eventually deplete its con-ventional oil and gas reserves and the operators will need to devel-op the unconventional reserves. Actually, this is already happeningis some basins in regions outside of the United States.

    One main recommendation of this paper is that operatorsaround the world should be shooting seismic, drilling wells andcutting cores to start learning more about the shales and sourcerocks in the primary oil and gas basins. The size of the unconven-tional oil and gas resource will be proportional to the size of theconventional oil and gas resources.Enabling technologies

    It is clear that the shale gas revolution has been facilitated bynew technologies. The combination of horizontal drilling and mul-tistage hydraulic fracturing are given most of the credit. However,there are many enabling technologies, such as improvements inbits, rotary-steerable drilling and better down hole electronics thathave been part of the drilling technology that has improved hori-zontal drilling. Likewise, better isolation tools for staging fracturetreatments, better propping agents and fluids have improved thesuccess of fracture treatments.

    Other technologies, such as improved micro-seismic imaginghas allowed operators to see where the rock is cracking and insome cases, has lead to improved fracture treatment designs. Also,improved 3-Dimensional Seismic measurements and processinghas allowed many operators to find the formation sweet spotsand has minimized drilling wells in poor geologic areas.

    It is clear that improvements in technology, cost reduction, bet-ter supply chain management and better operating practices areneeded to continue reducing the Finding and Development Costsin unconventional resource plays. However, cost cutting must betempered with the need to maintain maximum well productivityand reserve development. Cutting the cost of a fracture treatmentis not smart if it also reduces reserves and flow rates.Hydraulic fracturing doing it right

    A few years ago, a small group of citizens decided they did notwant oil and gas development in their backyard and began a mis-guided assault on hydraulic fracturing. Claims were first made thathydraulic fracturing poisons the fresh water aquifers. Also, claimswere made about air emissions, truck traffic problems, and qualityof life issues. Although some of the issues are valid and should beaddressed by the oil and gas industry, most of the claims are out-landish and most have been proved to be false. The protestinggroup has been aided by several groups of university professorspublishing reports and the willing press who print what they hearas truth, whether it is or not.

    To the credit of the US Department of Energy, a few individualsrealized that the shale gas revolution was real and could substan-tially benefit the economy and the energy security of the UnitedStates. As such, the US Secretary of Energy authorized the estab-lishment of the Secretary of Energy Advisory Board Subcommitteeon Shale Gas Production. The committee first met in May 2011 andissued two reports, one in August 2011 and the second in Novem-ber 2011. The recommendations in that report are important to thedevelopment of Shale Gas in both the United States and around theworld (Fig. 6).

  • Table 1Data used to construct Fig. 5 (after Cheng et al., 2010).

    Abbreviation Name TRRconventionalresources(Tcfe)

    TRRunconventiona...

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