Global Gas Glut: An Update

In our September article about the global profusion of natural gas, we based a portion of our discussion on the latest, vastly increased natural gas reserve estimates reported by the U.S. Energy Information Administration (EIA). Since our article was published, the EIA has adjusted its estimates downward. We want you to be aware of those lower recoverable reserve estimates. We also want you to know that the conclusions reached in that article do not change with the new estimates of natural gas reserves.

When we wrote “Global Gas Glut” for the September issue, we used the best available estimates for recoverable natural gas reserves. Those estimates, published by the U.S. Department of Energy’s Energy Information Administration (EIA), were based on “Review of Emerging Resources: U.S. Shale Gas and Shale Oil Plays,” released in July 2011. The estimate published in this report was 410 trillion cubic feet of recoverable natural gas from the Marcellus Shale, a region stretching from New York to Virginia. The report noted that there is “considerable uncertainty regarding the ultimate size of technically recoverable shale gas” thanks to a long list of estimate assumptions and caveats. This estimate of natural gas reserves had also been used in the EIA’s Annual Energy Outlook 2011, released December 16, 2010.

The EIA estimates had been under intense scrutiny for some months. A New York Times article published on June 27, 2011, “Behind Veneer, Doubt on Future of Natural Gas,” called into question industry-biased sources and a failure to consider intra-agency disagreements over the estimates. The article prompted an EIA press release the same day that reiterated the veracity of the process used to prepare the EIA’s shale gas reserve estimates. In its response, the EIA outlined the process of collecting data and estimates “from a wide range of academic and industry experts” and “contractors to supply critical expertise in resource assessment.”

A Wildly Different Estimate

As the September issue of POWER was shipping, the U.S. Department of the Interior’s U.S. Geological Survey (USGS) released its estimate of natural gas reserves. In a report released on August 23, the USGS said that the “Marcellus Shale contains about 84 trillion cubic feet of undiscovered, technically recoverable natural gas and 3.4 billion barrels of undiscovered, technically recoverable natural gas liquids.” The USGS report notes that this estimate is significantly larger than its 2002 assessment of 2 trillion cubic feet of natural gas. Yet the USGS estimates are 80% lower than the EIA estimates contained in a report released a month earlier!

The EIA estimates “technically recoverable shale gas resources” partially based on extrapolation of current gas production rates for current wells in the same gas play areas. Those estimates are then corrected based on the local geology and other criteria. In fairness to the EIA, its estimating process relies heavily on contractors that provide well production data and other “on the ground” estimating data.

Reconciling the Differences

Credit the EIA with knowing when to fold its cards. In an August 23 interview with Bloomberg, an EIA spokesman stated,” We consider the USGS to be the experts in this matter. They’re geologists, we’re not. We’re going to be taking this number and using it in our model.” Future turf wars are unlikely. The claim that “USGS is the only provider of publicly available estimates of undiscovered technically recoverable oil and gas resources of onshore lands and offshore state waters” is undisputed.

Headlines on the Internet illustrated how polarizing the issue of shale gas can be. Forbes ran the headline “USGS Boosts Amount of Marcellus Shale Gas Reserves,” while the New York Times ran with “Geologists Sharply Cut Estimate of Shale Gas.” In reality, the EIA cut its estimate. The geologists increased their earlier estimate by a factor of 40. Perhaps the most fairly stated headline was from NGI’s Shale Daily: “USGS Clarifies Marcellus Gas Estimate.”

More importantly, an EIA spokesman said the agency will set its estimate once the USGS provides more information about its assessment to understand where the agencies diverge. “We will not be able to be more precise until that work is completed.”

We are encouraged when a federal agency not only offers its mea culpa when better-quality data is presented but also is willing to autopsy its work to improve future work products. Perhaps then the nation will be able to answer the question posed by the August 30 MIT Technology Review headline, “How Much U.S. Shale Gas Is There, Really?”

Dr. Robert Peltier, PE is POWER’s editor-in-chief. Kennedy Maize is a POWER contributing editor and executive editor of MANAGING POWER.