Understanding Shale Resource Production: What are the Key Variables?

Abstract

Abstract Gradually increasing production of natural gas from shale formations has surpassed the production from all other sources, including conventional, coal-bed, and tight formations in the U.S. (EIA, Monthly Energy Review, Jan. 2016). In fact, thanks to shale, natural gas production in the U.S. increased much faster than demand growth. Lower gas prices since 2010-11 owing to excess supply, has been encouraging more natural gas utilization in power generation and industrial sector, and exports via pipelines to Mexico and the rest of the world via liquefaction facilities. Many of these facilities are still under construction; and demand growth may not be fully felt until 2018 or later. In the meantime, shale drilling has slowed down considerably owing to low oil (and NGL) prices in addition to low natural gas prices. This situation raises concerns about the shale gas resource potential and future production capabilities. To address these concerns, the understanding of the two key resource characteristics is essential: (1) the total resource-in-place, and (2) the extractability of the resource under the given technological and economic conditions. The Marcellus play is the largest shale gas play in the U.S.; gas production from the play continued to increase despite declining prices and drilling activity. In this study, we focus on the Marcellus play to study these two characteristics. The resource base estimate for the Marcellus has been provided by geologic studies (e.g. Smye et al., in review). The recovery remains a subject of discussion in numerous engineering studies (Malpani et al., 2015; Xie and Li, 2014; Arogundade and Sohrabi, 2012). These studies, however, are mostly focused on the best drilling and completion practices, rather than looking at changes in productivity over time or comparison of marginal contribution of different inputs to productivity, which is more relevant for economic studies of the resource extraction. The present paper attempts to fill this gap, preparing the base for further economic viability analyses.