Utica Shale Play (Just Below Marcellus) Shale Gas Expansion

As the federal government prepares to gut key programs to protect water and other natural resources through this week’s debt agreement, the Department of Energy (DOE) has announced plans to invest $12.4 million on programs to support shale gas development. Yet new analysis released by the national consumer advocacy group Food & Water Watch casts additional doubt on the viability of natural gas obtained through hydraulic fracturing. “Pipe Dreams: What the Gas Industry Doesn’t Want you to Know about Fracking and U.S. Energy Independence” shows that gas leases are not only generating less energy than once forecast, but also a significant portion of U.S. fracked gas will be exported overseas and the industry’s revenues will benefit foreign economies.

According to recent trade publication accounts, DOE will invest $1.6 million, outspending General Electric 4 to 1, on a project designed to remove radioactive material from wastewater from fracking operations in New York State. It will spend additional funds on projects to improve natural gas well performance in Colorado, Texas, California and New Mexico.

“For the past several weeks Americans have been bombarded by news of our government’s apparent financial struggles, yet the federal government is spending money to prop up the inherently unprofitable natural gas industry,” said Food & Water Watch Executive Director Wenonah Hauter. “Why cut money from resources to protect the environment while spending money in other places to support an industry that notoriously compromises the integrity of essential water resources? Meanwhile, a substantial portion of the gas and industry profits will actually flow overseas — blowing holes in the myth that gas will make the U.S. economically and energy secure.”

While U.S. natural gas consumption is actually expected to decline through 2015, it is expected to increase overseas-as much as 44 percent by 2035, with China and India leading that demand. Liquefied natural gas (LNG) facilities once conceptualized for importing gas are now being converted to export terminals to feed the Chinese and Indian markets; Chesapeake Energy is exploring selling some of its natural gas to the India-based Cheniere Energy. Included in this plan is a liquefaction plant in the Gulf of Mexico. Natural gas from the U.S. is attractive to foreign markets because it is less expensive than that from Asia.

As U.S. companies sell or lease their own holdings, many international players are increasing their share of the U.S. natural gas market:

Reliance Industries (India): In 2010 announced the purchase of a 40 percent stake in Atlas Energy’s Marcellus Shale operation for $1.7 billion; also acquired a 45 percent stake in Eagle Ford shale from Pioneer Natural Resources for $1.36 billion, including $210 million to Pioneer’s other partner Newpek LLC, a subsidiary of Mexican company ALFA SAB de CV.

China National Offshore Oil Corp (China, government-owned): Agreed to pay $2.2 billion for access to a shale play in south Texas in October 2010; agreed to pay $570 million in cash for a third of Chesapeake’s Niobrara shale basin in Colorado and Wyoming in January 2011.

BP (United Kingdom): In 2008, invested more than $3.6 billion in U.S. shale, including $1.9 billion for 25 percent of Chesapeake’s Fayetteville shale operations and $1.75 billion for all of Chesapeake’s Woodford Shale operations in Oklahoma.

Royal Dutch Shell (Netherla

Wed Aug 3, 2011 9:42am EDT

By Robert Campbell

Aug 3 (Reuters) - One of the big surprises in recent years for the oil market has been the reversion of the steady decline in U.S. crude output and the emergence of its shale sector as a nontrivial source of global supply growth.

New unconventional shale oil plays, such as the Eagle Ford Shale in Texas, have transformed within a few short years from highly speculative exploration projects to potentially major oil producers.

Eagle Ford, which as recently as 2009 was still often described as a new frontier in natural gas production, is now seen becoming a major crude oil production center.

Already the area is smashing through output forecasts as companies lever strong cash flows due to high oil prices to develop the technical expertise to drill more quickly and productively into the seemingly prolific play.

Most significantly for the global oil market, the shale plays have emerged as a source of non-OPEC production capacity growth. While these crudes will not enter into global trade flows, they will chip away at North America's crude oil import requirements.

Moreover, forecasters are only just getting a grip on the significance of shale oil. Projections for 2012 output are being ripped up as productivity in the sector exceeds all but the most aggressive forecasts.

The International Energy Agency forecast in mid-July that the United States would produce approximately 7.9 million barrels per day in 2012, with shale oil driving a modest increase in production from 2011.

But between June and July the U.S. Energy Information Administration boosted its own forecast for 2012 liquids production by a startling 170,000 bpd.

Further revisions may be in the offing. Consultancy Bentek said last week Eagle Ford output had more than doubled in the last two months to 160,000 barrels per day and was on track to grow fivefold by 2015. [ID:nN1E76Q250]

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Shale oil shreds US output forecasts [ID:nN1E76R0TI]

Chesapeake adding Utica shale acres [ID:nN1E76S0LU]

Chesapeake presentation: r.reuters.com/syj92s

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THE NEXT EAGLE FORD?

Not surprisingly, the bounty at Eagle Ford has set the industry on the hunt for the next find. Chesapeake Energy (CHK.N), one of the most aggressive shale developers in the United States, claims to have it.

The company said its land position in the Utica Shale, a huge formation in Ohio that extends into Pennsylvania and north into Canada, could be worth up to $20 billion to shareholders.

To put that into perspective, that's roughly equivalent to Chesapeake's current market capitalization.

The company describes the Utica shale as being "analogous" to the Eagle Ford. Of course, one firm's claims, particularly those of a company with a substantial interest in the area, have to be taken with a grain of salt.

But if Chesapeake is the loudest player in the Utica shale, it is not the only one. Supermajor Chevron (CVX.N) holds acreage through its $3.8 billion takeover of Atlas Energy.

ExxonMobil (XOM.N) may also have gained exposure through its recent takeovers of companies with land holdings in the gas-rich Marcellus Shale in Pennsylvania as the Utica lies beneath the Marcellus in places.

Other industry players are looking closely as well, as evidenced by the conference on the Utica Shale organized by the Society of Petroleum Engineers earlier this year.

One of the attractions to operators could well be cost savings that may be found by sharing resources with gas drillers in the Marcellus.

Oil output from the Utica shale is also well positioned to be fed into refineries in the eastern portion of the Midwest. Marathon Petroleum (MPC.N), in particular, has indicated publicly it is interested in buying Utica crude.

Nearby river systems, such as the Ohio river, may also offer logistical flexibility that could help move Utica crude south to the Gulf down the Mississippi River by barge.

But substantial risks remain. Shale well productivity has not been observed on a mass scale for a long period of time. Output tends to drop off quickly from individual wells meaning operators must keep up the pace of drilling to maintain output.

Shale oil development may also face more resistance from communities in the more heavily populated northeast of the United States, where opposition to shale drilling and the associated hydraulic fracturing techniques needed to make wells productive is strongest.

But given the rapid rise at the Eagle Ford shale, the Utica, if indeed it is analogous, has the potential to upset the apple cart once again. (Editing by Alden Bentley)