Haynesville Shale Resurgence
Originally published on Forbes.com on August 24, 2021
In 2021 the Haynesville shale in Texas and Louisiana has taken off. We look into what has changed, whether this surge will continue, and for how long.
Haynesville and other shale resources.
Between 2005 and 2017, shale gas (including tight gas) became the overwhelmingly dominant source of natural gas in the US (Figure 1). The US eventually produced more natural gas than any other country in the world. In 2016 the US started exporting liquefied natural gas (LNG).
Figure 1. Shale gas in blue is the overwhelmingly dominant resource of natural gas in US. Source: EIA
New LNG facilities started sending out enormous tankers of LNG to markets in Southeast Asia. Countries there wanted the gas and were willing to pay a premium price. In 2020, the USA became third in LNG exports, after Australia and Qatar (practically tied between number 1 and 2).
Because of the success of the shale revolution, in 2009 the price of gas dropped from $7/Mcf (Million cubic feet) to below $3/Mcf and has remained there since 2015. This dampened shale gas production everywhere until 2017 when rising LNG exports had a positive effect (Figure 2).
The recent resurgence in Haynesville reflects the price of gas that has approached $4/Mcf.
Still, the shale wells in the Haynesville are deeper than other shale plays, up to 14,000 feet, which means drilling and fracking costs are greater.
But this is offset by the proximity of the Haynesville to the Gulf Coast LNG terminals – the play lies across the border between Louisiana and Texas. In contrast, the Appalachian plays of Marcellus and Utica shales are far away.
Figure 2. Natural gas production from different shale plays in US. Source: EIA.
Well completion technology.
According to a US Geological Survey (USGS) report issued in 2017, the Haynesville Shale contains 304 Tcf of natural gas plus 1.9 billion barrels (Bbbl) of natural gas liquids (NGLs) — making it the largest continuous natural gas assessment the USGS has ever conducted.
The new technology that was responsible for the shale revolution of Figure 1 is the same everywhere: a long horizontal well (1-2 miles) that is fracked many times along its length (up to 40 separate frac jobs). In recent years, the drilling and fracking elements have been optimized for each play, and there are few opportunities for any further improvements. One such opportunity, using smaller proppant, was detailed earlier this year.
Acquisitions in the Haynesville have been part of the revival, according to S&P Global. Surprisingly soon after bankruptcy, Chesapeake have acquired Vine Energy for $2.2 billion. And Southwestern Energy, who began their shale venture in the Fayetteville shale in Arkansas before moving to the Marcellus, has bought Indigo Natural Resources for $2.7 billion. The buyers will be eager to prove they made good choices.
Pipeline infrastructure has been expanded. The rig count is up to 57, highest since October 2019.
The report also says operators drilled and fracked close to 50 wells in the Haynesville in June and July, the highest rate in seven years.
Gas production in Haynesville was 10.6 Bcfd in Figure 2, which amounts to a third of Marcellus plus Utica at 31.4 Bcfd. Haynesville is clearly a substantial gas play.
All of this results in Internal Rates of Return (IRR) of about 29% for the Haynesville shale basin In the first half of 2021.
Will the surge continue?
LNG exports are rising but further growth appears to be constrained by a need for new export terminals, although a sixth LNG train at Sabine Pass will be completed in 2022.
LNG’s future looks good for the mid-term since southeast Asia want to replace their coal-fired boilers in industry and residential areas. In China, it was the result of a push by middle-class folks to better their air quality.
A new report for the longer term is not as rosy. Predictions have been made that global demand for LNG could double by 2040, which would involve many new export/import LNG terminals that cost up to 10 billion dollars each.
There are three problems with this picture. First, world governments need to decarbonize from fossil fuels, and the International Energy Agency (IEA) has argued that no new fossil projects should be started after 2021. As a result, almost 40% of new LNG projects have been canceled or deferred – most of these are in US or Canada.
Second, costs of solar and wind and big-battery systems have been falling rapidly in the last several years. This poses a risk that new LNG plants will become obsolete and stranded, at huge financial losses to investors, if countries and companies replace coal directly by wind and solar.
Third, the argument that LNG is a halfway house to renewable energies is suspect, if it’s aimed at replacing coal or oil. LNG burns cleaner, yes, but if the total methane leaks in the entire supply chain lie above a couple percent then burning LNG (in power plants, for example) is no better than burning coal from a global warming perspective. The reason is methane is 20-80 times more powerful than CO2 as a global warming gas, so serious methane leaks can destroy the advantage of burning LNG over coal. This also happens to be one basis for RSG, or responsibly-sourced gas production.
Altogether, the long-term risk of the LNG business is significant because the rate of decarbonizing fossil fuel usage is unpredictable. Predictions can only offer different possible scenarios, as the oil and gas major bp have emphasized. For the enormous cost of a single LNG train the risk may be too great.
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