Conventional role still seen in gas supply

CALGARY, Alberta (Reuters) - Conventional natural gas won't disappear from the North American supply picture as production from shale formations grows exponentially, as expected, in coming years, industry officials said this week.

Still, executives who spoke at the Reuters Global Energy Summit expect most big gains in production will be from shale plays in such locations as Texas, Louisiana, Pennsylvania and British Columbia.

"The bias looking forward will certainly be to the majority of the growth in the unconventional, but there remain opportunities in the conventional sector," said David Collyer, president of the Canadian Association of Petroleum Producers.

With gas prices at a third of year-ago levels, companies have cut drilling. But shale remains a hot topic in industry circles as players see immense growth when markets recover.

Early this decade, the sector feared shortages as conventional supply began to wane. Companies started to plot costly alternatives, such as liquefied natural gas terminals and Arctic projects.

Now, advancements in drilling and completion technology have allowed the industry to unlock multitrillion-cubic-feet reserves of shale gas and analysts expect ample domestic supplies for years to come.

"I will tell you the biggest change in my career in this country is what's happened with gas and shales," said Steve Farris, chief executive of Houston-based Apache Corp (APA.N).

Apache is a player in Northeastern B.C.'s Horn River shale. There, pipeline company Spectra Energy (SE.N) expects to spend $1 billion beefing up transport capacity in coming years.

Farris said he is confident shale gas production volumes will overtake conventional volumes within five years.

Unconventional gas, also including coalbed methane and tight gas, is expected to climb to 64 percent of U.S. supply by 2020 from 42 percent in 2007, consulting firm ICF has said.

To tap shale gas reserves, companies drill horizontal wells and pump in chemicals at high pressure to fracture the rock at various intervals below the surface.

With conventional gas, producers target deposits trapped in sand and rock formations where production requires little technological coaxing.

Shale gas is pricey, sometimes costing $10 million per well, but the industry, cognizant of low gas price forecasts, is working to boost efficiency and cut costs.

"The change in the supply outlook for natural gas is really a very dramatic illustration of how technology can be used to unlock a significant resource," Collyer said.

The industry estimates that United States is thought to have between 1,700 trillion and 2,200 trillion cubic feet of technically recoverable reserves, or enough gas at current output rates to supply the country for more than 90 years.

Shale reserves make up about 28 percent of the total, but that share is seen growing as big new plays like Marcellus in Appalachia are more fully defined.

But base production in Canada and the United States is still conventional and tried-and-true gas plays are expected to remain an important source of supply.

Ultimately, returns on investment will dictate which plays get developed, said Larry Nichols, chief executive of Devon Energy Corp (DVN.N).

Devon was one of the first companies to start major shale gas developments. It now produces about 1.2 billion cubic feet a day from the Barnett Shale in Texas alone.

"Certainly there are a variety of shale plays that have a variety of economics, and there are a variety of conventional gas plays that have their own set of economics," Nichols said.

However, Farris said the minimal exploration risk of shale plays, which can cover very large areas, raises the bar for the economics of conventional gas.

"Your conventional plays are going to have to withstand that geologic risk and still make a good rate of return," he said.

(Editing by Walter Bagley)

(For summit blog: blogs.reuters.com/summits/)