An estimate of undiscovered, technically recoverable natural gas and natural gas liquids (NGL) contained in the Marcellus Shale issued this week by the U.S. Geological Survey (USGS) will be included in the next Energy Information Administration’s (EIA) Annual Energy Outlook (AEO), according to EIA.

“Incorporating the new USGS resource assessment will lower the assumptions about the technically recoverable natural gas resources in the Marcellus that will be used in the next Annual Energy Outlook,” EIA spokesman Jonathan Cogan told NGI’s Shale Daily Thursday. “It is too early to determine how incorporating new resource estimates into the next Annual Energy Outlook will impact our projections of natural gas production and prices, but…variation in factors related to drilling costs and well productivity can have a larger effect on projected natural gas production and prices than variation in the assumed amount of technically recoverable resources.”

In an assessment released this week, the USGS said approximately 84 Tcf of undiscovered, technically recoverable natural gas and 3.4 billion bbl of undiscovered, technically recoverable NGLs are contained in the Marcellus (see Shale Daily, Aug. 24). It was the first USGS estimate of the Marcellus since 2002, when the agency estimated about 2 Tcf of gas and 10 million bbl of NGLs. Production and technological development in the intervening years yielded geologic information and engineering data, which prompted USGS to significantly increase its estimate, according to the agency.

The new USGS estimate also differed significantly from a recent report commissioned by the EIA, which included an estimate of 401.3 Tcf of technically recoverable natural gas in the Marcellus (see Shale Daily, July 11). On Tuesday a USGS spokesman told NGI’s Shale Daily that EIA’s estimate covered proved resources, while the USGS assessment estimated resources that may be in the ground but have not yet been proven.

Since the USGS assessment was released, “EIA and USGS have begun the process of sharing detailed information” about the USGS results for integration into AEO data, Cogan said. “The details, as well as the top-line estimates for undiscovered technically recoverable resources, matter a great deal for projections over a 25-year time horizon that are included in the AEO. As we learn more about those details we will have a better understanding of how best to integrate the information into the projections” presented in the AEO, he said.

But the inexactitude of such estimates — and specifically the difference in the numbers released by USGS and EIA — have raised some questions about the reserve estimating process.

“I applaud the EIA for announcing it will adopt the USGS estimates because they are based on the best available science. That is the right decision,” said Rep. Maurice Hinchey (D-NY). “However, I remain concerned about the processes which lead to the original estimates, and I have additional questions about how this change will impact the outlook for shale gas.” Hinchey said “unbiased” shale gas reserve estimates are essential to the public, the markets and policymakers. “These numbers are needed to make good decisions about our energy future.”

Differences in the many variables and assumptions involved in reserve and resource-in-play estimates can significantly alter estimate numbers, according to analysts, who noted that there isn’t even consensus on one of the most basic pieces of data in the Marcellus debate: the total number of acres to be analyzed. Other variables include the number of wells likely to be drilled, estimated ultimate recovery per well and recovery factor — the percentage of the estimated resource in the ground that can be recovered. With so many of those values differing between studies — and with recent technological breakthroughs revolutionizing shale gas operations — it isn’t surprising that estimates vary, analysts say.

Some of the confusion surrounding the latest USGS estimate is the result of the limited information that accompanied the assessment, according to Terry Engelder, a geosciences professor at Pennsylvania State University who two years ago estimated 489 Tcf of technically recoverable natural gas resources in the Marcellus (see Daily GPI, July 30, 2009).

“Virtually no one understands what they did and the USGS released this information without adequate support to allow an independent check of their calculations. We are anxiously waiting to see what algorithm they used and what was their input data,” Engelder said.

The EIA report was prepared by Arlington, VA-based Intek Inc., which compiled estimates of technically recoverable shale natural gas resources in the United States and in individual shale plays. While the USGS estimate broke the Marcellus down into three subareas, with the interior Marcellus found to hold about 96% of the entire play’s oil and gas, the EIA estimate was done with no basic geological definition of the three subareas, according to one analyst who worked on the EIA report. EIA did not have the same detailed geologic breakdown available to USGS, the analyst said.