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Shale gas and oil reserves

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Gas

2011 PGC report

In April 2011 by the Potential Gas Committee, an organization of petroleum engineers and geoscientists, released a report (fee required) and slide deck with a projected "future gas supply" estimate of 2,170 trillion cubic feet (tcf). At the 2010 rate of American consumption—about 24 tcf per year—that would be a 95-year supply of gas, leading to claims of a 100-year supply.

According to the PGC, its assessments are made by estimating gas resources in 90 offshore and onshore geological provinces, including internal company data about well drilling and production results, and raw data on production decline curves and seismic data,[1] although the details have not been made freely available to the public.[2]

In the PGC report, 273 tcf are "proved reserves," meaning that it is believed to exist, and to be commercially producible at a 10 percent discount rate (conforming with the gas reserve data of the U.S. Energy Information Administration). An additional 536.6 tcf are classified as "probable," meaning they are connected to fields where gas is currently being produced, although it is not yet proven to exist or be technically recoverable. An additional 687.7 tcf is "possible," meaning it is based on new fields in the same geological formation where the rock structure may differ, creating uncertainty. A further 518.3 tcf are "speculative," which are estimates of gas in typically deep formations or other nonproducing areas that have not yet been drilled. A final 176 tcf are claimed for coalbed methane gas, which is gas in coal formations.[2]

2011 MIT report

In 2011 the MIT Energy Initiative (MITEI) released The Future of Natural Gas, which stated that "There are abundant supplies of natural gas in the world, and many of these supplies can be developed and produced at relatively low cost. In North America, shale gas development over the past decade has substantially increased assessments of resources producible at modest cost" and "natural gas provides a cost-effective bridge to a low-carbon future."

Globally, the report estimates that "The mean projection of remaining recoverable resource in this report is 16,200 Tcf, 150 times current annual global natural gas consumption, with low and high projections of 12,400 Tcf and 20,800 Tcf, respectively. Of the mean projection, approxi­ mately 9,000 Tcf could be developed economi­cally with a natural gas price at or below $4/ Million British thermal units (MMBtu) at the export point."

For the US, "the mean projection of the recoverable shale gas resource in this report is approximately 650 Tcf, with low and high projections of 420 Tcf and 870 Tcf, respectively. Of the mean projection, approximately 400 Tcf could be economically developed with a natural gas price at or below $6/MMBtu at the wellhead."

The study also supported a "global gas market" and said the environmental impacts of fracking are “challenging but manageable.”

A major sponsor of the report was the American Clean Skies Foundation, founded and chaired by Aubrey McClendon, CEO of the nation’s No. 2 gas producer Chesapeake Energy.[3] Other acknowledged major funders of the study included the Hess Corp., Agencia Nacional de Hidrocarburos of Colombia, the Gas Technology Institute, and Exelon.[4]

Ernest Moniz, the study’s chair, did not disclose that he had joined the board of oil and gas consulting firm ICF prior to the release of the report. Moniz’s compensation from ICF since 2011 is valued at over $300,000. The MIT report also did not disclose that study co-chair Anthony Meggs joined gas company Talisman Energy prior to the release of the study. Another study group member, John Deutch, has served on the board of the LNG company Cheniere Energy since 2006 and owns $1.4 million in Cheniere stock.[5]

The four “founding members” of MITEI — BP, Shell, Italy’s ENI and Saudi Aramco — each agreed to pay $25 million over five years for the right to help manage research projects, maintain an office at MITEI headquarters and “place a researcher in a participating MIT faculty member’s lab,” according to the MITEI website. Ten “sustaining members” commit $5 million each for fewer rights, but still get seats on MITEI’s executive committee and governing board.[4]

2011 and 2012 IEA reports

The 2011 International Energy Agency's World Energy Outlook (WEO) included a special report asking "Are we entering a golden age of gas?" and stated that "The global natural gas resource base is vast and widely dispersed geographically. Total recoverable resources could sustain today’s production for over 250 years, and all regions have recoverable resources equal to at least 75 years of current consumption."

The WEO 2012 edition included a "Golden Rules for a Golden Age of Gas," arguing gas production would largely be shaped by the regulatory and thus social response to fracking and drilling. WEO-2012 predicts that gas will overtake coal in the primary energy supply mix by 2035, and the US will become all but self-sufficient in net energy terms by 2035 due to rising production of primarily oil and shale gas.

2011 and 2012 EIA reports

In its 2011 Annual Energy Outlook, the U.S. Energy Information Administration (EIA) made projections of U.S. natural gas production and supply to 2035, and offered a range of gas estimates. In the most optimistic, "high shale resource case," it estimated there are 1,230 tcf in the “estimated unproved technically recoverable resource base.” It also offered several production forecasts through 2035, ranging from 827 tcf in its Reference case, to 423 tcf in its Low case. In the Low case, the EIA states the U.S. could again become a net natural-gas importer by 2035.[2]

In its 2012 Annual Energy Outlook, the EIA cut estimates of unproved technically recoverable gas resources by 42%.[6]

2011 Post Carbon Institute report

The 2011 report, "Will Natural Gas Fuel America in the 21st Century?" by geoscientist David Hughes of the Post Carbon Institute takes a critical look at 2011 EIA yearly forecasts for the production of shale gas, in which projected gas production increased from 16% of all U.S. energy production in 2030 in its 2009 forecast, to 45% of U.S. production in 2035 in its 2011 forecast.

Hughes argues that "To increase U.S. gas production as projected by the EIA, U.S. drilling rates will likely have to increase to at least 30,000 wells per year in the near term and continue to grow to 40,000 wells per year to meet production requirements by 2035." Yet "the current growth in U.S. gas production is a hangover from the drilling boom at rates in excess of 33,000 wells per year in the 2006–2008 time frame. The drilling rates of about 20,000 wells per year in early 2011 will likely lead to production declines unless increased markedly."

Hughes sees drilling costs and variability in well production as barriers to the EIA's projections: "The historical proportions suggest that about half of [EIA's] projected oil and gas well drilling would be successful gas wells. If this is the case, the EIA is suggesting that gas production can continue to grow with fewer than 17,000 wells drilled per year in 2011 and 2012. This is highly unlikely given the historical relationship between the rate of drilling and gas production."

Hughes concludes that "the EIA forecast suggests prices will remain at or below the marginal cost of shale gas production for several years while production rises. This is likely wishful thinking of the highest order."

2011 USGS Marcellus Shale report

The US Geological Survey (USGS) periodically reviews individual shale plays. USGS, like the Potential Gas Committee, provides a range of expected shale gas volumes, not a single estimate.

Its 2011 Marcellus Shale estimate said the formation most likely held 84 tcf of undiscovered, technically recoverable natural gas. There was a 95 percent chance that it held at least 43 tcf and a slight, 5 percent chance of as much as 144 tcf. The EIA speculated in its Annual Energy Outlook 2011 that the Marcellus might have an "estimated technically recoverable resource base of about 400 trillion cubic feet." The USGS reassessment reduced that estimate for the Marcellus by 80 percent.

The span of estimates is the result of computer modeling that factors in key shale play variables, such as the thickness, depth and age of the shale play, the porosity of the rock, and the production from current wells and wells in similar formations.[1]

2011 Berman and Pittinger report

The 2011 report, "U.S. Shale Gas: Less Abundance, Higher Cost," by geologists Arthur E. Berman and Lynn F. Pittinger argues that shale gas "industry reserves are over-stated by at least 100 percent based on detailed review of both individual well and group decline profiles for the Barnett, Fayetteville and Haynesville shale plays. The contraction of extensive geographic play regions into relatively small core areas greatly reduces the commercially recoverable reserves of the plays that we have studied."

The study continues: "Reserves and economics depend on estimated ultimate recoveries based on hyperbolic, or increasingly flattening, decline profiles that predict decades of commercial production. With only a few years of production history in most of these plays, this model has not been shown to be correct, and may be overly optimistic."

Oil

2013: EIA

In June 2013, the U.S. Department of Energy estimated "technically recoverable" shale oil resources of 345 billion barrels in the 42 countries it surveyed, or 10 percent of global crude supplies.[7]

2012 Belfer Center report

Belfer Center researcher Leonardo Maugeri's 2012 "Oil: The Next Revolution" concluded that oil production capacity in the United States and several other countries is growing at such a rate that global oil output capacity is likely to grow by nearly 20 percent by 2020. The report is "based on an original field-by-field analysis of the world’s major oil formations and exploration projects."

According to geoscientist David Hughes: "The Maugeri forecast has been discredited by several authors, mainly on the grounds that Maugeri underestimated the depletion rate of existing fields and overestimated the contributions of production from countries such as Iraq and tight oil fields in the United States. Nonetheless, despite its obvious shortfalls, this report has been widely cited and is a foundation of the Republican Party’s energy policy."[8]

2012 EIA report

In its 2012 Annual Energy Outlook, the EIA put recoverable shale-oil reserves in the U.S. Lower 48 states at 24 billion barrels. At the U.S. rate of consumption of 6.9 billion barrels in 2011, that comes out to 3.5 years of new supply.

Company write-downs on shale gas

According to energy investor Bill Powers: "[In 2012], Chesapeake Energy wrote down 4.6 trillion cubic feet (Tcf) of proven reserves from its Barnett and Haynesville shale wells. At the end of 2012, Southwestern Energy wrote down the proven reserves of its Fayetteville Shale assets from 5 Tcf to 3 Tcf. Other companies, such as BHP Billiton and BP, took huge write-downs. BG Group also took a big write-down due to poor performance of its Haynesville wells."[9]

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