The head of the US Energy Information Administration Adam Sieminski spoke about a wide range of issues at an event in New York earlier this week, including the US Winter Fuels Outlook, the new drilling productivity report, the geopolitics of shale development, EIA’s International Energy Outlook, and he provided insight into the rapidly-developing technologies used to produce hydrocarbons from shale.

The EIA expects household heating expenditures to be higher this winter than last for natural gas, propane and electricity, according to the Short-Term Energy and Winter Fuels Outlook. There was slightly better news for northeast homeowners using fuel oil, they can expect to pay about $46 less to heat their homes this season. These price movements are primarily due to changes in underlying commodity prices, with natural gas prices generally higher and oil prices down slightly from last year.

Sieminski explained how the industry stand-by data source – rig count – no longer allows analysts to generate accurate production forecasts, and this changing industry dynamic motivated the Administration to create its new Drilling Productivity Report. “We need new metrics like well classification, drilling efficiency, new well productivity, along with production and depletion trends” Sieminski said when describing the new monthly report.

Here are some key insights on drilling and productivity trends from the Energy Forum presentation:

• Higher drilling efficiency and new well productivity, rather than an increase in the rig count, have been the main drivers of recent production growth
• In the six plays considered, steep legacy production decline rates offset new well production by 69% for oil and 73% for natural gas
• Understanding the positive and negative forces that affect production volumes in a given region allows the estimation of the number of rigs required to make up for the natural loss of production from existing wells
• Considering new and existing wells separately helps to highlight plays where the growing number of relatively new wells leads to large monthly declines in legacy production, putting more pressure on increasing production from new wells in order to keep net output rising

Geopolitical Implications of US Shale Resource Development

Oil and natural gas production has risen sharply since 2010 and the trend is expected to continue with strategic implications like changes to the US refining sector, logistics and infrastructure investment, petroleum product exports, LNG and potential crude oil exports and Strategic Petroleum Reserve management.

One interesting possibility, Sieminski said, would involve exporting currently abundant light, sweet crude to Mexico or other Latin American producers in exchange for an equal value of heavy crude oil, upon which most US Gulf Coast refineries are configured to run.

International Energy Wild Cards

Sieminski discussed the following uncertainties that could alter the EIA International Energy Outlook’s findings:

• Unresolved long-term effects of economic issues in the United States, Europe, and China
• The timing of Japan’s full recovery from the impacts of the 2011 nuclear disaster at Fukushima
• Social unrest in the Middle East and North Africa, and the potential for unrest elsewhere
• Shale gas and shale oil production potential
• OPEC market share decisions
• Climate policies

Shale Revolution’s Next Phase

There has been much discussion regarding steep shale gas and oil well decline rates, causing some analysts and journalists to accuse the shale drilling boom of being nothing more than a Ponzi scheme. While this theory has largely been discredited, decline rates remain an issue that operators have thus far dealt with by drilling more wells and increasing well efficiency/productivity.

Sieminski said he thinks there is much more to be done with regard to optimizing completions and increasing well productivity. “The next phase of the shale revolution will be using 3D seismic to determine which sections of multi-stage frack jobs will be most productive. Geologists will identify which stages to frack,” which will require less water, fewer volumes of chemicals and decreased truck traffic, he said. “Companies are just beginning to get into this.”

Read Breaking Energy coverage of recovery rates and unconventional well behavior here.

Another major opportunity lies in the comparatively low recovery rates recorded by shale wells versus conventional wells. Shale wells typically recover only about 6% of the gas and 2% to 3% of the oil in place, which clearly leaves significant room for improvement. As the science and technology driving shale development evolves, there will be opportunities for advanced proppants or perhaps different source rock fracturing approaches to tap greater volumes of the total resource in place.

“Everyone I talk to in the business are at very early stages of understanding this,” said Sieminski.