Comparative Economics of Gas Production From Conventional, Tight, and Deep Reservoirs

Abstract

ABSTRACT In the near future, the majority of America's natural gas supply will be produced from three principal resources: conventional, deep (more than 15,000 feet), and tight (less than 0.1 md) gas reservoirs. These differ from one another in terms of: Exploration costs due to finding rates and field sizes;Extraction costs — especially drilling and stimulation;Risks -- especially in technologies for diagnosing and stimulating deep and tight reservoirs; andGas prices -- under NGPA, deep gas is deregulated and tight gas receives an incentive price, but is not deregulated. This paper compares the overall present value economics of the three resources in light of these above factors. The analysis shows that, while extraction costs are lower for conventional gas, larger new field discoveries for "frontier" deep and tight gas may make them competitive when full-field economics is considered. This conclusion is even stronger if either differential incentive prices are continued or the technological risks affecting the deep and tight resources are reduced. To the extent this competition between conventional, deep, and tight gas can be fostered, the productivity of exploration (reserves added per foot) and overall gas reserves will be improved.