Domestic natural gas reserves increased for the eighth straight year in 2006 and now exceed 205 Tcf -- 1 Tcf higher than in 2005 and their highest level since 1978 -- according to preliminary findings by the American Gas Association (AGA). The AGA, which issued its report Wednesday, based its numbers on a representative sample of 30 natural gas reserves holders, which it said account for more than half of total U.S. booked reserves and slightly less than half of all U.S. gas production.

The AGA estimated 30,000 new domestic gas wells were drilled last year, adding 18-29 Tcf for all U.S. domestic producers in aggregate, while about 18 Tcf was produced. If those figures hold, gas reserves replacement reached 100-164%, the AGA said. Twenty of the 30 producers reviewed increased their gas reserves year-over-year from 2005 to 2006, with most of the increase from new gas discoveries and extensions.

Chris McGill, managing director of AGA's policy analysis and author of the report, said even though domestic gas production has risen about 5% since 1990 (growing from 17.2 Tcf to the current estimate of 18 Tcf), "recent domestic production has basically only held its own. AGA's current view of future production capability is that it will remain in the 18-19 Tcf range per annum for the foreseeable future unless significant policy decisions opening access to potential resources are made."

The 15-page report noted that three straight years of record natural gas well completions has resulted in the addition of about 80,000 new wells to the producing inventory since 2004.

"However, most of these wells were drilled onshore in shales, tight sands and coal seams and it takes many of these smaller wells to sustain production," said McGill. "Growing reserves inventories do not necessarily mean that domestic production capability is dramatically increasing." Targeted drilling in tight gas and shales "should continue to produce small but steady positive additions to natural gas production capability in the U.S. if access to potentially productive acreage is sustained."

Even with industry consolidation among key reserves holders in 2006, "no single natural gas producer accounts for more than 4% of the 22 Tcf of gas consumed in the U.S. annually, which points to a competitive market for domestic natural gas supplies," the report found. In addition to adding reserves, large reserves holders in 2006 were again "strong net purchasers of gas in the ground," as they have been since 2001.

"Over 10.0 Tcf of natural gas reserves (purchases net of sales) were acquired -- led by significant purchases made by ConocoPhillips, Anadarko, Chesapeake Energy and Devon Energy," said McGill.

According to the report, the "shelf life" of gas reserves today also has increased as the reserves-to-production ratio has grown from about nine years in 2001 to an estimated 11 years in 2006.

"This can be chalked up to the marked shift in production to 'lower yield' reservoirs such as shales and coal seams, rather than more traditional producing wells," McGill noted. "The good news is that a solid long-term productive capability baseline is being established. The bad news is that it takes many more wells to sustain productive capability as more traditional production is depleted."

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