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EIA Cuts Marcellus Shale Estimate, But Predicts Net U.S. Exports

The Department of Energy's (DOE) Energy Information Administration (EIA) Monday cut its estimate of the U.S. shale gas resource base almost in half, based on a dramatic drop in Marcellus Shale estimates.

In its Annual Energy Outlook 2012 (AEO2012) reference case, EIA said "the estimated unproved technically recoverable resource (TRR) of shale gas for the United States is 482 Tcf, substantially below the estimate of 827 Tcf of AEO2011. The decline largely reflects a decrease in the estimate for the Marcellus Shale, from 410 Tcf to 141 Tcf."

However, reserve estimates are "really, really uncertain," according to EIA Acting Administrator Howard Gruenspech, who also predicted the United States would be a net exporter of natural gas in nine years.

During a briefing with reporters Monday Gruenspech discussed reserves and production of shale gas plays, particularly the Marcellus in Appalachia. While proven gas reserves have generally been increasing, "the estimates of unproven shale gas resources in the latest outlook are lower than those used in last year's outlook as a result of new information from the U.S. Geological Survey [USGS] and other additional data that has become available," he said. "The biggest single change...is the reduction in the Marcellus resource assessment.

"The new Marcellus estimate is above the mean estimate of 84 Tcf published by the USGS in the summer of 2011 [see Shale Daily, Aug. 24, 2011] but falls within the 90% confidence band associated with that estimate. The shale resource estimate used in our outlook, while above the USGS mean estimate, is well below many other published estimates."

When the USGS released its updated Marcellus estimate last year, many in the industry noticed the difference in its estimate and that of EIA. At the time EIA said incorporation of the new USGS data would lower the EIA's assumptions about the technically recoverable natural gas resources in the Marcellus in its next outlook (see Shale Daily, Aug. 26, 2011) and that is what has happened.

"Drilling in the Marcellus accelerated rapidly in 2010 and 2011, so that there is far more information available today than a year ago," EIA said. "Indeed, the daily rate of Marcellus production doubled during 2011 alone."

EIA noted that its latest estimate for gas reserves in the Northeast include a technically recoverable resource of 16 Tcf attributed to the Utica Shale, which underlies the Marcellus "and is still relatively little explored."

On Monday Gruenspecht took pains to emphasize that resource estimates are quite fluid and subject to the influence of numerous factors.

"Resource assessments are clearly highly uncertain," he said. "Everything's uncertain, but resource assessments are really, really uncertain. I'm sure that EIA and others will be working to improve their estimates as new information about geology and well productivity becomes available over time. I know that changes in or differences among resource estimates receive a great deal of attention, and I'm sure this will receive some attention, but resource estimates are not the only driver or even the most important driver of natural gas production and price projections for the next 25 years.

"The new reference case price projection is slightly below that in last year's outlook and the production projection is somewhat higher. The continued observed increase in shale gas well productivity and continued trends in declining drilling costs are important factors that drive our projections for the natural gas market."

In about nine years the United States will be a net exporter of natural gas, according to EIA. "Net imports of energy meet a declining share of total U.S. energy demand as domestic energy production increases," EIA said. "The projected net import share of total U.S. energy consumption in 2035 is 13%, compared with 22% in 2010 and 29% in 2007."

The United States is projected to become a net exporter of liquefied natural gas (LNG) in 2016, a net pipeline exporter in 2025, and an overall net exporter of natural gas in 2021. The outlook reflects increased use of LNG in markets outside of North America, strong domestic natural gas production, reduced pipeline imports, increased pipeline exports, and relatively low natural gas prices in the United States compared to other global markets, EIA said.

"Our updated reference case projections show natural gas and renewables gaining an increasing share of U.S. electric power generation, domestic crude oil and natural gas production growing, reliance on imported oil decreasing, U.S. natural gas production exceeding consumption, and energy-related carbon dioxide emissions remaining below their 2005 level through 2035," said Gruenspecht. "These projections reflect increased energy efficiency throughout the economy, updated assessments of energy technologies and domestic energy resources, the influence of evolving consumer preferences, and projected slow economic growth."

The outlook update reflects projections for U.S. energy markets through 2035. Reference case projections include only the effects of policies that have been implemented in law or final regulations. The full AEO2012 report, including projections with differing assumptions on the price of oil, the rate of economic growth and the characteristics of new technologies will be released in late spring along with regional projections, EIA said.

Increased production has pushed natural gas prices downward in the latest EIA estimates. "...[A]verage annual wellhead prices for natural gas remain below $5/Mcf (2010 dollars) through 2023 in AEO2012," EIA said. "The projected prices reflect continued industry success in tapping the nation's extensive shale gas resources. The resilience in drilling levels, despite low natural gas prices, is in part a result of high crude oil prices, which significantly improve the economics of natural gas plays that have high concentrations of crude oil, condensates or natural gas liquids."

However, beyond 2023, as tight gas and shale gas continue to achieve an increasing share of total production, prices rise due to an increasing reliance on less productive and more expensive resources, EIA said.

"Natural gas wellhead prices (in 2010 dollars) reach $6.52/Mcf in 2035, compared with $6.48/Mcf (2010 dollars) in AEO 2011," EIA said.

EIA also found that the use of natural gas, as well as renewable fuels, for power generation will be increasing. Indeed, gas-fired power generation will account for the lion's share of gas demand growth going forward, Gruenspecht said.

"The natural gas share of electric power generation increases from 24% in 2010 to 27% in 2035, and the renewables share grows from 10% to 16% over the same period," EIA said. "In recent years, the U.S. electric power sector's historical reliance on coal-fired power plants has begun to decline. Over the next 25 years, the projected coal share of overall electricity generation falls to 39%, well below the 49% share seen as recently as 2007 because of slow growth in electricity demand, continued competition from natural gas and renewable plants, and the need to comply with new environmental regulations."

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