Analyst Predicts Strong Reserves Addition Report
A veteran natural gas reserve and production expert has issued a
bearish warning to natural gas market observers: 1998 total reserve
additions could jump as much as 3 Tcf from 1997's figure to between
22 and 23 Tcf. That would be well above the range of 14.9 to 20.2
Tcf over the last nine years. With 1998 production estimated at
about 19 Tcf the forecast adds up to reserve additions exceeding
production by 116% to 121%.
Henry R. Linden, former head of the Gas Research Institute and
currently director of the Energy & Power Center at Illinois
Institute of Technology, said he realizes "such a prediction is
risky so close to the release of official data by the Energy
Information Administration." EIA's annual report, usually published
in September, now appears headed for release in early November.
Linden bases his calculations on active gas rigs, gas rig
productivity and gas well completions. "The average active gas rig
count in 1998 was 560 --- only four less than the count in 1997
when we replaced 104% of reserves. The reason is that the drilling
slump hit U.S. gas exploration and development activity relatively
late in 1998, in contrast with the collapse in oil drilling
activity." While working oil rigs went from 380 to 155 by the end
of 1998, the count of gas rigs in service remained high, between
549 and 609 through September, and dropped only to 491 by the end
"Unlike the oil rig count, it has now fully recovered to close
to 600 according to Baker Hughes, Inc.," Linden said. "In addition,
gas rig productivity remained at a relatively high 21.6 wells/rig
in 1998 and the number of gas well completions was 12,106 - the
highest since 1985."
Multiplying completions by the 1.9 Bcf of average additions per
well between 1990 and 1997 results in about 23 Tcf. With per well
additions at the 1997 level of 1.8 Bcf the total comes to 22 Tcf.
"Even with a substantial margin for error, this would be
adequate to replace 1998 dry gas production of about 19 Tcf."
Earlier this year the American Gas Association (AGA) said 1998
reserve additions could come in anywhere between 84% and 117% of
the 19 Tcf of production. AGA's estimates are based on the top-30
reserve holders. The wide range is because it is not known if those
top-30 companies, which added 7.8 Tcf, represent 35% or as much as
49% of the market. Chris McGill, AGA's director of gas supply and
transportation, said he personally expected reserve numbers to come
in closer to the lower end of the range.
"I wouldn't expect reserve replacement to be far above
production," McGill said. He also noted that reserve additions have
outpaced production for the last four years, chalking up 19.7 Tcf
or 108% of production in 1994; 19.3 Tcf (107%) in 1995; 20.2 Tcf
(107%) in 1996 and 20 Tcf (104%) in 1997.
Whatever the 1998 reserve numbers are, they won't necessarily
have an impact on current production. "There's a disconnect between
reserve additions and production," McGill said, because for a
variety of reasons production usually doesn't come on line
immediately. Another reason for believing reserve totals may be
lower: "the industry is different [today]. They operate more on a
'just in time' basis. There's no reason to build up large
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