Draining America First—The Beginning of the End for Shale Gas

The United States is the biggest producer of natural gas in the world and recently became the largest exporter of LNG. The industry is scrambling to build LNG (liquefied natural gas) export terminals as fast as permitting and funding will allow.

This couldn’t come at a worse time. Instead of having an almost infinite amount of natural gas as many believe, we may be witnessing hard limits to that supply.

Figure 1 shows that shale gas plays have reached an apparent peak and may be starting to decline. It’s not a good sign although some of this may be related to seasonal effects or regulatory matters. At the very least, the rate of production growth is slowing.

Any decrease in the growth of shale gas could become an acute problem because it accounts for 82% of U.S. dry gas production (Figure 2).

I am frankly less concerned about whether or not shale gas production is currently in decline as I am about what will happen to supply in five or ten years.

That concern is based on plans for increased LNG and pipeline exports. Net LNG exports are expected to increase +6.4 bcf/d by 2030 & another +7.1 bcf/d by 2035 (Figure 3). Total net exports are projected to increase +15 bcf/d by 2035 from 13 to 29 bcf/d.

Let’s take a quick look at production from the three biggest pure shale gas plays (Figure 4).

The Marcellus play in Pennsylvania and West Virginia is currently producing about 26 bcf/d but output appears to have stopped growing despite plenty of new wells being added every month (Figure 5).

Figure 5. Marcellus Shale gas production has stopped increasing despite more producing wells. Source:  Enverus & Labyrinth Consulting Services, Inc                                      

Production from the Utica Shale play in Ohio and adjacent counties in Pennsylvania has fallen from 7.7 bcf/d in 2019 to 3.7 bcf/d (Figure 6). It appears to be in terminal decline.

The Haynesville Shale in Louisiana and parts of east Texas is producing about 15 bcf/d. Output may have stopped increasing despite adding more producing wells each month as in the Marcellus (Figure 7). At the same time, this could just be a temporary dip.

Figure 7. Haynesville Shale gas production has stopped increasing despite more producing wells. Source:  Enverus & Labyrinth Consulting Services, Inc.

Because of this uncertainty, I decided to look a little deeper at the play. What I found is disturbing.

Haynesville Shale production rates for 2021-2023 horizontal wells are already lower than for wells with first production in 2018-2020 (Figure 8). Initial rates for 2022 wells were the highest ever but monthly output levels are already far below all other years. Initial rates for 2023 wells were lower than for 2021 and 2022 and later rates have declined more rapidly.

Estimated ultimate recoveries (EUR) for the Haynesville Shale confirm the bleak picture from Figure 7. EUR for Haynesville wells drilled in 2021 was -3.6 bcf (-17%) less than for wells in 2019 and EUR for wells drilled in 2022 was -6.7 bcf (-31%) less than for wells in 2019 (Figure 9).

Shale gas plays are beginning to look like a graveyard. The once world-class Barnett and Fayetteville are no longer included in discussions of U.S. shale plays. The Utica looks like it is headed for the same zombie status.

This study suggests that expectations for future U.S. shale gas production may be too high and that reserves may be overstated. Plans to increase exports by 15 bcf/d will put serious pressure on future supply regardless of whether or not production has started to decline.

I noted in a recent post that signals are flashing yellow if not red about the future of tight oil production. It now appears that there are similar danger signs for shale gas plays.

I hope that the U.S. Department of Energy reviews and updates its evaluations of future gas supply before approving any more export applications. Draining America first is a terrible idea.