US has “23 Years” Of Gas Reserves

Woodfordshale.jpgBy John Richardson

Amidst all the continued excitement about abundant supplies of ethane in the US, some sceptics are still warning that all may not as it seems during petrochemicals company investor presentations.

“The US does not have 100 years of natural gas supply,” said the author of this post on the Oil Drum blog.

“There is a difference between resources and reserves that many outside the energy industry fail to grasp. A resource refers to the gas or oil in-place that can be produced, while a reserve must be commercially producible.

“The Potential Gas Committee (PGC) is the standard for resource assessments because of the objectivity and credentials of its members, and its long and reliable history. In its biennial report released in April 2011, three categories of technically recoverable resources are identified: probable, possible and speculative.

“The President and many others have taken the PGC total of all three categories (2,170 prillion cubic feet (Tcf) of gas) and divided by 2010 annual consumption of 24 Tcf. This results in 90 and not 100 years of gas.

“Much of this total resource is in accumulations too small to be produced at any price, is inaccessible to drilling, or is too deep to recover economically.”

“More relevant is the Committee’s probable mean resources value of 550 (Tcf) of gas. If half of this supply becomes a reserve (225 Tcf), the US has approximately 11.5 years of potential future gas supply at present consumption rates.

“When proved reserves of 273 Tcf are included, there is an additional 11.5 years of supply for a total of almost 23 years.

“It is worth noting that proved reserves include proved undeveloped reserves which may or may not be produced depending on economics, so even 23 years of supply is tenuous.

“If consumption increases, this supply will be exhausted in less than 23 years.

“Revisions to this estimate will be made and there probably is more than 23 years but based on current information, 100 years of gas is not justified.”

Oops. More support for the Ponzi scheme argument?

And further, in the same post, the author argues that major shale-gas fields, such as the Barnett, Haynseville and Marcellus fields, may have already reached peak production, despite the addition of lots of new wells, at current gas prices.

The Woodford shale field is already in decline (see the above chart), adds the blog post. 

“A painful adjustment is underway in the natural gas exploration and production industry,” continues the author.

“Fewer jobs will be created and projects may develop more slowly. This development may expose the notion of long-term natural gas abundance and cheap gas as an illusion.

“The good news is that this adjustment will lead to higher gas prices in a future less distant than most believe. Higher prices coupled with greater discipline in drilling will allow operators to earn a suitable return and offer the best opportunity for supply to grow to meet future needs.”

How much higher would gas prices need to rise before some of the seven announced cracker projects (10m tonnes/year of ethylene capacity) in the US come into question?

Hopefully, the threshold will soon be crossed, as we continue to worry that sufficient demand will be the problem if all these projects go ahead.

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