Tuesday, January 12, 2010

We Don't Know How Steep the Natural Gas Production Decline Curve will be for Non-Traditional production;

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
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executive Karl W. Miller raised the point that current natural gas storage models being utilized in the U.S. were outdated and underestimate true natural gas usage and over-estimated deliverability of gas from storage when needed.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
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