FOUR IMPORTANT FACTS
TO KEEP IN MIND ON LATEST ABANDONED WELLS REPORT DYLAN LACROIX | EnergyInDepth.com It’s true that the ongoing global pandemic and oil price drop earlier this year resulted in challenging times for the U.S. oil and natural gas industry. But the industry has also shown its resilience time and again – and is doing so now as it continues to meet global demand. And yet a new report from climate investment group the Carbon Tracker Initiative (CTI) claims the United States is on the precipice of an orphan well crisis due to the potential insolvency of hundreds of companies across the country. And like similar previous claims, this report features findings based on faulty assumptions and exaggerated data, including downplaying the existing regulations and funding for managing plugging and abandonment. Here are four important facts to keep in mind when reading the report. Fact #1: CTI exaggerated the number of wells drilled. CTI claims there will be approximately 3.8 million wells orphaned in the future: “We estimate that plugging 2.6 million documented onshore wells in the U.S. alone will cost $280 billion. This estimate excludes costs to plug an additional estimated 1.2 million undocumented onshore wells.” But in order to get such a high estimate of numbers, CTI acknowledges it used a database with estimates for drilled wels that is far higher than statereported data. From the report: “Enverus’ unplugged onshore well counts may be significantly higher or lower than the figures listed on state databases…For example, the Railroad Commission of Texas reported a total of 439,695 oil and gas wells in the state, as of July 30, 2020. By comparison, Enverus lists 444,000 wells classified as either “oil” or “gas”. Enverus also lists 32,000 wells classified as “oil & gas”, in addition to another 130,000 nonproduction wells (e.g., injection, disposal, and water wells), and 187,000 wells of unknown production type. In total, Enverus counts 783,000 unplugged wells in the Texas onshore oilfields. In another example, Enverus counts 73,000 unplugged wells in New Mexico, whereas the State of New Mexico reports only 66,000 wells.” CTI assumes that every U.S. well will be orphaned
or abandoned, and also uses a sweeping, broad definition of wells that includes not only oil, gas, oil and gas, and coalbed methane, but also injection, disposal, dry hole, monitor, storage, unknown, and water wells which are very different and as such, would have varying costs to properly plug. Fact #2: CTI assumes that peak oil and natural gas demand has already occurred. The reality is that demand is rising following declines related to the global pandemic, despite what the CTI report insinuates. Earlier this year McKinsey & Company released a telling report on the future of natural gas in North America, finding that demand for the resource is set to grow for years to come. From the McKinsey report: “Demand will continue to grow from 95 billion cubic feet per day (bcfd) to 125 bcfd by 2035 then plateau. More than 70 percent of the demand growth is driven by gas exports (both LNG and also piped exports to Mexico).” Carbon Tracker’s report frames the future of the oil and natural gas industry in a way that undermines the current and future role of natural gas in the global economy. As the International Energy Agency’s Gas 2020 report explained earlier this year, demand growth is expected to be slower than projections made prior to Covid-19, but growth is still on the horizon starting in 2021: “We have adjusted this year’s forecast to account for Covid‑19 resulting in expected global natural gas demand reaching over 4 370 bcm annually in 2025, or an average annual growth rate of 1.5 percent per year for the 2019-25 period, compared to initial forecast which assumed an average growth rate of 1.8 percent per year over the same period.” IEA continues: “After a 4 percent drop in 2020, natural gas demand is expected to progressively recover in 2021 as consumption returns close to its pre-crisis level in mature markets, while emerging markets benefit from economic rebound and lower natural gas prices… The Asia Pacific region accounts for over half of incremental global gas consumption in the coming years, driven principally by the development of gas in China and India.” And IEA explains the U.S. will have a role to play Abandoned continued on page 12
OCTOBER 2020
OhioGas&Oil 11
