Natural gas resource optimism is now at the highest level in the history of the US (and Canadian) natural gas industry. Four simultaneous frontier natural gas plays, at different stages of development, have emerged and are rapidly unfolding in the US and to a much lesser but still important extent, in Canada. The US, written off as a mature natural gas province 30 years ago is, in fact, a young, vigorous and potentially gigantic natural gas province. The US natural gas industry is not senescent, as thought by many self anointed experts even in the 1990s but barely in its adolescence. Its greatest growth period, again potentially, is still ahead. The US is turning into one of the world’s premier natural gas resource domiciles, largely because of the pioneering efforts of independent oil and gas E&P companies.

The 4 frontier plays are coal bed methane, shale gas, ultra deep water and tight sands (TS) gas. Together these plays account for nearly half of all gas produced in the US and it is expected that they will account for the decisive majority of US gas production as the next decade begins. The first three were discussed in previous articles by the author. This short essay focuses on TS gas, which is gas contained in sandstone, siltstone and carbonate reservoirs of such low permeability that it will not naturally flow when a well is drilled. TS gas production is already close to 6 Tcf/year.

There are about 20 TS gas basins in the US. There is an overlap but no coincidence of TS and shale gas basins. Much of the resource delineation work has been concentrated in the Great Plains, Rocky Mountains, the Four Corners region, onshore Gulf Coast and Arkansas/Oklahoma (i.e. the usual gas provinces). However, with the dramatic growth in the knowledge about the vast Marcellus shale basin in Appalachia, resource delineation for TS gas in Appalachia has also begun.

Resource delineation is still in its early stages, even though TS gas production in the US, at low levels, has been undertaken for 40 years (in Colorado, for example). Even so, the DOE, USGS and various other organizations estimate that the in-place resource base is about 6,000 Trillion cubic feet (Tcf). Doubtless, this number will increase as resource mapping proceeds apace over the next 10 years. If, over the next 30 to 40 years, about 20% of this resource in place is converted into reserves, it would mean a reserve base of 1,200 Tcf. In comparison, the shale gas resource in-place estimate (also rising sharply with each new assessment) is about 1,700 Tcf. The current US proven natural gas reserve base is close to 250 Tcf with annual production of about 20 Tcf. incidentally, at the end of the 1990s, when natural gas resource pessimism was again the intellectual fashion in the US, the proven reserve base was under 170 Tcf.

The astonishing success of the energy industry in turning natural gas into a major National strategic advantage is unknown to maybe 90% of Americans because it has been ignored by the MSM, which would much rather peddle the narrative of global energy crisis, fossil energy resource exhaustion and, therefore, the need for socializing the US energy industry and appeasing despots in the Middle East, Eurasia and Latin America. Geostrategically transforming methane abundance in North America and the remarkable success of American energy technology and entrepreneurship would shatter this narrative.

TS gas is difficult to produce. The technology suite is broad and sophisticated. The front end costs are high. Project and compliance management must be skillful. Wells usually have complex geometries because of reservoir features and have to be close spaced. Once a field is developed, initial production and hence first cash throw off is high but within 18 months, well productivity drops dramatically. However, after that TS gas production turns into a manufacturing operation. Wells will produce reliably and steadily for 30 to 40 years, which justifies large investments in field services and take away infrastructure and creates post production annuity financing opportunities and financing structures.

The technological challenges arise from the fact that TS reservoir rocks are around 250 million years old: typically much older than the “conventional” gas reservoir rocks which, being younger, are far more permeable. TS rocks have subject to tremendous compaction, cementation, recrystallization and chemical changes over the ages. The initial technologies for detecting, predicting and stimulating reservoir fracture systems were largely developed with considerable skill and ingenuity over many years by independents, who continue to important and valuable participants (as well as avenues for the deployment of sizable amounts of private equity and special purpose fund money). In a conventional gas field, fracturing to optimize production may involve only 4 or 5 hydrocarbon zones. With a TS gas field up to 50 zones may have to be fractured. TS gas production is both a quantitatively and qualitatively different business from conventional gas production.

Now, however, it is the majors who are becoming the loci of technological and management excellence. This is the usual lifecycle of pioneering plays. The independents lead and prove the attractiveness of the resource. Then, the majors, mini majors and the largest independents establish large and rapidly growing business positions in basins so reserve development and production capacity can be scaled using the money( billions of dollars), organizational capacity , technology R&D and strategic horizons that only large to very large E&P companies possess. The strategic horizon is particularly important when developing fields that may produce over decades and face volatile tax, regulatory, price, interest rate and cost environments. By definition, individual investors, independent E&P companies and energy or natural gas funds have considerably shorter strategic horizons.

The majors are now rapidly building on the technological foundations established by the independents and creating and deploying the next generation of technology families and project management processes. The majors have two drivers: first, the North American resource is vast and worthy of their attention. Second, the global potential is also enormous and the technologies and skills developed in the US can be migrated and adapted to operations in several parts of the world. Indeed, TS rocks are found pretty much in all petroleum provinces in the planet where conventional gas is found. Advanced proprietary TS gas technologies and project management and financing capabilities may thus bestow a formidable new global competitive advantage on the majors in the emerging era of Big Gas, which is likely to eclipse Big Oil within 2 decades

Some of the key areas where the majors are leading is in seismic mapping (4-D seismic surveys), reservoir “illumination to identify, with considerable precision, “sweet spots” to optimize drilling productivity, remote reservoir resistivity mapping (R3M) using low frequency electromagnetic waves, directional drilling, water detection and prediction, new fracing fluids and proppant materials and advanced fracing techniques. While any one part of the technology chain is in itself important, it is excellence and dominance over the entire technology value chain and management system that the majors are counting on for a sustainable and potent competitive edge.

The TS gas resource base is so large and resource delineation is progressing so well that a quadrupling or quintupling of TS gas reserves in the US is a distinct prospect by the end of the next decade. Unfortunately, it is highly unlikely (virtually impossible) for the US to even triple the production capacity of TS gas in the 10 to 12 years given the current political, regulatory and business environment.

The four frontier plays noted in this essay have the potential certainly to add another 15 to 20 Tcf/year to US gas production by 2020, when the frontier plays of 2009 could account for 80 to 90 % of all US gas production, if the US had the national will to foster this tremendous growth. Today it manifestly does not. The resource prospects for US natural gas have never been better: the public policy hostility at the Federal level to natural gas E&P has never been greater. The rest of the world finds this not merely bizarre but pathologically self destructive. The capital formation and price environment is also deeply constraining for independents and regulatory caprice and volatility deters independents and majors alike from notably expanding production capacity

Over the next 20 to 30 years, US natural gas could be a major force in reordering, for the better, world energy markets, US trade imbalances and domestic wealth and job creating capacity. American citizens seem oblivious to this and the US Government, at present, is the biggest obstacle to natural gas delivering on its manifold promises. It is within the grasp and ability of our country to enter the age of Methane Superabundance in the 21st century. In 2009 we have no will or even desire to do so.