Only 2 years ago, the conventional wisdom was that oily or liquids-rich plays were the only place to put capital. Gas assets, especially conventional gas, were for true contrarians. While worldwide oil prices have fallen 60% since their 2014 peak, diverse natural gas prices swing between USD 2 and 4/million Btu in the US, USD 8/million Btu in central Europe, and USD 15/million Btu for delivered liquefied natural gas (LNG) in Asia. Depending on your timing and cost structure, gas assets may be a rare highlight in your business in 2015.
Conventional wisdom implies that natural-gas demand will continue to grow, especially in locations where coal is being phased out, nuclear growth has slowed/reversed, and renewables remain a small and intermittent energy source for the foreseeable future.
The underlying fundamentals may tell another story: LNG plants in progress will increase supply by 122 million t/a by 2020, while LNG demand is expected to grow much slower. Even though more LNG import terminals will be completed in the next several years, global regas-facility utilization is only 33% of capacity. Because markets need to balance eventually, will demand grow to soak up the excess supply or will the new volumes be slow to come online?
In free and unregulated markets, the “invisible hand” first described by Adam Smith ultimately guides producers and consumers to a price and quantity that satisfy both parties. Unfortunately, oil and gas markets are far from free and unregulated, so investment time lag, regulations, and politics tend to delay and distort the inevitable balance that must exist in markets. Opinions on the outcome of all these competing factors tend to converge to a group consensus, which is usually just an extrapolation of “more of the same.” In 1986, we were all convinced there would never be another boom and the then-current bust would last forever. Thirty years, and several boom-and-bust cycles later, we are still making straight-line projections, even though it is clear that the only thing that stays the same … is change.
Recommended Additional Reading
IPTC 18050 Real-Time Blending Optimization in Upstrea—Operating on the Edge by Claudia Zuluaga, Sarawak Shell, et al.
SPE 172528 Use of Technology To Enhance Gas Production in Saudi Arabian Carbonate Reservoirs—Key Enablers by Zillur Rahim, Saudi Aramco, et al.
SPE 173606 Post-Fracturing Gas Production Through Shale Capillary Application by A. Hayatdavoudi, University of Louisiana at Lafayette, et al.
Scott J. Wilson, SPE, is a senior vice president in the Denver office of Ryder Scott Company. He specializes in well-performance prediction and optimization, reserves appraisals, simulation studies, software development, and training. Wilson has worked in all major producing regions in his 25-year career as an engineer and consultant with Arco and Ryder Scott. He has served as cochairperson of the SPE Reserves and Economics Technology Interest Group and as chairperson of the Denver Section of the Society of Petroleum Evaluation Engineers, and he currently serves on the JPT Editorial Committee. Wilson holds a BS degree in petroleum engineering from the Colorado School of Mines and an MBA degree from the University of Colorado. He holds three patents and is a registered professional engineer in Alaska, Colorado, Texas, and Wyoming.
