RBN Energy: it's all about natural gas.
Yesterday the Energy Information Administration (EIA) released their 2015 Annual Energy Outlook that forecasts U.S. demand for natural gas to increase by as much as 42% from 2014’s 26 TCF/year to 37 TCF/year by 2040. That translates to 101 BCF/d and is predicated on long term supplies of relatively cheap gas! Can the U.S. produce that much gas over the long term? Last week a group that is little known outside the natural gas industry – the Potential Gas Committee (PGC) provided an answer to that question when they announced their latest estimate of economically recoverable natural gas resources in the U.S. Today we analyze the impact of the latest PGC estimate and its long-term implications for the natural gas industry.
On April 8, 2015 a biennial natural gas industry event took place that didn’t get much press coverage outside the industry, and what it did get was kind of muted. It shouldn’t have been muted. The event was the press conference announcing the new Potential Gas Committee estimate of US recoverable natural gas resources. The Committee, or PGC, is a large group of industry volunteer experts who gather for a couple of years at the Colorado School of Mines in Golden Colorado, analyzing and evaluating the ability of all the producing regions of the nation to give up economically recoverable natural gas. This is the number that gets added to the Energy Information Administration’s (EIA) evaluation of proved reserves (the gas supply they’re really sure about), to arrive at a total resource ultimately available to the market.
The headline last week was that the PGC estimate of economically recoverable reserves had gone up 5.5 percent since the last estimate two years ago in 2012. Whoopee. Not a very big number. But we have to look at the absolute numbers, and see what they’ve done since shale development came to the front of the class in 2008, to understand that we have something pretty profound going on here. Figure 1 depicts the sum of the PGC estimate and EIA’s proved-reserve estimate in trillion cubic feet (TCF), for each study year since 1990. Shale is set out in green, in order to show its importance to this newfound abundance. Conventional gas estimates are in light blue and the EIA proved reserves are gray.
The new total estimate as of year-end 2014, including both EIA proven reserves and PGC undeveloped but expected reserves, is 2,853 TCF. U.S. demand for natural gas is about 26 TCF a year. So, 26 divided into 2,853 is a lot of years, 110 to be exact—PGC is saying we have 110 years’ worth of recoverable natural gas at today’s usage rate.
Where were we before people really paid attention to gas from shale? The 2006 PGC estimate, plus proved reserves, was 1,525 TCF. The 2014 resource estimate is 87 percent higher than what everyone knew about in 2006, and the difference is primarily shale development. Meanwhile, between 2006 and 2014, the industry produced a total of about 200 TCF, meaning an apples-to-apples comparison with the 2006 estimate would be the 2014 resource estimate plus the 200 TCF that’s already been consumed, or 3,053 TCF—more than a doubling of the 2006 estimate.
Another important thing to note about the PGC estimates is that they’ve steadily increased every two years since 2006—this year is not an outlier at all. Why? Because the industry’s technical ability to get a much higher percentage of the gas out of tight formations such as shale has been expanding very rapidly. That is, the PGC estimate is based on “recoverable” resource - only a portion of the total natural gas known to exist in those formations. The most significant variable that has been changing with the new estimates is how much can be extracted in practical terms, both in terms of technology and of economics. In other words, the extractable share of the known gas goes up every time technology improves to move more gas out of the formations.Much more at the link.
The takeaway for me: the US will not have an energy shortage ever.