Economic analysis of shale gas wells in the United States

Natural gas produced from shale formations has increased dramatically in the past decade and has altered the oil and gas industry greatly. The use of horizontal drilling and hydraulic fracturing has enabled the production of a natural gas resource that was previously unrecoverable. Estimates of the size of the resource indicate that shale gas has the potential to supply decades of domestically produced natural gas. Yet there are challenges surrounding the production of shale gas that have not yet been solved. The economic viability of the shale gas resources has recently come into question. This study uses a discounted cash flow economic model to evaluate the breakeven price of natural gas wells drilled in 7 major U.S. shale formations from 2005 to 2012. The breakeven price is the wellhead gas price that produces a 10% internal rate of return. The results of the economic analysis break down the breakeven gas price by year and shale play, along with P20 and P80 gas prices to illustrate the variability present. Derived vintage supply curves illustrate the volume of natural gas that was produced economically for a range of breakeven prices. Historic Natural Gas Futures Prices are used as a metric to determine the volumes and percentage of total yearly production that was produced at or below the Futures Price of each vintage year. From 2005 to 2008, the total production of shale gas resulted in a net profit for operators. A drop in price in 2009 resulted in a net loss for producers from 2009 to 2012. In 2012, only 26.5% of the total gas volume produced was produced at or below the 2012 Natural Gas Futures Price.

Department dc:contributor.department

Massachusetts Institute of Technology. Department of Mechanical Engineering.

Grantor dc:publisher

Massachusetts Institute of Technology

Year dc:date.issued

2013

Author dc:creator

• Hammond, Christopher D. (Christopher Daniel)

Advisor dc:contributor.advisor

• Francis O'Sullivan.

• Mechanical Engineering.

Statement dc:rights

• M.I.T. theses are protected by copyright. They may be viewed from this source for any purpose, but reproduction or distribution in any format is prohibited without written permission. See provided URL for inquiries about permission.

Licence dc:rights.uri

• http://dspace.mit.edu/handle/1721.1/7582

Language dc:language.iso

eng

Handle dc:identifier.uri

http://hdl.handle.net/1721.1/83718

OAI identifier oai:identifier

oai:dspace.mit.edu:1721.1/83718