|
Category: Investment, Natural Gas
We Don't Know How Steep the Natural Gas Production Decline Curve will be for Non-Traditional production; Leading to Higher Volatility and Prices for Natural Gas Going Forward
January 13, 2010 Edition
Energy Commentary from Karl Miller - Read Bio and More info
Recently, senior energy industry executive Karl W. Miller raised the point that current natural gas storage models being utilized in the U.S. were outdated and underestimate true natural gas usage and over-estimated deliverability of gas from storage when needed.
Mr. Miller pointed out that traditional storage models are grossly underestimating the true injections, withdrawals and deliverability of natural gas in the U.S. leading to substantial standard deviations in analyst estimates and reported withdrawals by the U.S. Government, through the EIA.
The net result is that in Mr. Miller's opinion natural gas withdrawals have been understated and the in climate weather forecast for the first quarter of 2010, peak winter and summer demand, and broader U.S. industrial demand will drive oil and natural gas prices up substantially higher in 2010.The natural gas production decline curve for shale and tight sands natural gas production is the wild card.
The decline trend in natural gas well production is dictated by natural geologic formations, rock and fluid properties among other factors. Thus, a major advantage of decline trend analysis is inclusion of all production and operating conditions that would influence the performance of natural gas wells.
For illustrative purposes, the standard declines (observed in field cases and whose mathematical forms are derived empirically) are:
- Exponential decline
- Harmonic decline
- Hyperbolic decline
As an example a study was done on a few specific wells for production histories of fractured low permeability gas wells in the Piceance Basin in Northern Colorado, which are characterized by a sharp initial decline followed by a long transition into exponential decline.
These two decline periods correspond to linear and pseudo steady-state flow, respectively. Predicting rates and reserves based on test data or short production Predicting decline rates and reserves based on test data or short production histories is difficult using conventional decline curve analysis, thus making shale gas and tight sands production curves difficult to forecast.
The usual approach to predicting reserves by decline curve analysis, in this type of well, is to arbitrarily assign a high exponential decline rate for the first two or three years, followed by a lower decline. Another approach is to find a hyperbolic decline curve to fit the early tine data and extrapolate to estimate future rates. Both of these approaches can result in large errors in calculated reserves.
Simply put, we don't know how steep the production decline curve will be for non-traditional natural gas production will be. There is no quantitative evidence that analyst can use today to support excess supply of natural gas in the future, further pressuring prices to the upside.
Mr. Millers Office
Disclaimer:
This column, Energy Commentary from Karl Miller, is the opinion of Karl Miller.
Content found in the articles is subject to the terms found in the InvestorIdeas.com disclaimer and does not represent a recommendation of investment advice. Investors should seek the advice of a qualified investment professional prior to making any investment decisions.
Published at the Investor Ideas Newswire
Investors: Sign up for free newsletter, stock and sector news alerts at Investorideas.com - Or publish your own stock picks and share your investing and trading ideas with other investors. Publish your investor ideas today!
Investorideas.com goal for 2010: 'One Million Members Stronger', empowering one million investors to invest in innovation and technology for a better world. Join us today!
Disclaimer: The following news is paid for and /or published as information only for our readers. Investorideas.com is a third party publisher of news and research .Our sites do not make recommendations, but offer information portals to research news, articles, stock lists and recent research. Nothing on our sites should be construed as an offer or solicitation to buy or sell products or securities. This site is currently compensated by featured companies, news submissions and online advertising.
|
