This document discusses the economics of shale gas production in the US. It notes that shale gas wells produce less gas than conventional wells but have similar or higher costs. However, shale gas wells have a faster production decline profile, meaning the investment is recovered more quickly through production. As a result, it is more profitable for companies to continuously invest in new shale gas wells to sustain production levels, despite the ongoing costs. This business model leaves the industry reliant on a high rate of new drilling to offset declines, creating risks if drilling activity decreases.

1. 02/04/2013
US shale gas economics:
giant with feet of clay?
18/10/2012 E&C Market info slide 1

2. Conventional vs shale gas wells
• Production
– Between 350 and 400 million m3 with a conventional gas well
– Between 50 and 100 million m3 with a shale gas well
• Costs
– The shale gas production costs are similar/higher
Source: Dévelopement and production costs, International Energy Agency
02/04/2013 Shale gas economics slide 2

3. The market price : US vs EU hubs
02/04/2013 Shale gas economics slide 3

4. The production profile
02/04/2013 Shale gas economics slide 4

5. Economics
• Due to the profiles
– Better pay back: even if more gas is produced with a conventional
well, it seems to be less profitable due to the depreciation of money
(Net Present Value formula)
– The investment is covered after 2 years
– For the same production of gas: a company can invest 3 times more
money due to the faster pay back
02/04/2013 Shale gas economics slide 5

6. Any implications
• It’s by far more interesting for companies to invest in shale gas
production
• BUT…
• It means that more than 1000 new wells have to be dwelled to
assure the sustainability of the production
- The fast depletion of shale gas deposits has to be balanced
- Companies have to coutinuously invest. It’s profitable, but some of
them are redeploying their activities towards unconventional oil
production (seems to be even more profitable)
02/04/2013 Shale gas economics slide 6

7. Any implications
• What would happen for the country is companies stopped
drilling? …  risks
02/04/2013 Shale gas economics slide 7