Approximately 84 Tcf of undiscovered, technically recoverable natural gas and 3.4 billion bbl of undiscovered, technically recoverable natural gas liquids (NGL) are contained in the Marcellus Shale, according to a new assessment by the U.S. Geological Survey (USGS).

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 estimate also differed significantly from a recent report commissioned by the Energy Information Administration (EIA), which included an estimate of 401.3 Tcf of technically recoverable natural gas in the Marcellus (see NGI, July 11).

But the differences between the USGS and EIA estimates may not be as significant as some media reports interpreted them. In its assessment USGS estimated only resources that may be in the ground but have not yet been proven, USGS geologist Jim Coleman told NGI Friday, while the EIA estimate also included proved resources in the play.

USGS and EIA are “working together to understand between ourselves what causes that apparently large difference between the numbers,” Coleman said. “I’m fairly confident that we used different input numbers and they use a different collection of numbers than we do; we also only look at undiscovered technically recoverable, and it’s my understanding…that they also include resources that have been discovered.” That difference could account for at least some of the difference between the EIA and USGS estimates, Coleman said.

“We use a methodology that as far as I can tell very few other companies use, and some other agencies and think tank-type groups don’t use either,” Coleman said. “We look at actual data and start from the basic data and create a product that way. It appears that some people who are doing estimates look at what other people have done and assume that that’s right and go from there. We try to go all the way back as far back into the line of data and interpretation and interpolation as possible, so at least we understand where our numbers come from and what the sensitivity to the final result is based on.”

The USGS assessment is an estimate of continuous gas and NGL accumulations in the Middle Devonian Marcellus Shale of the Appalachian Basin in Kentucky, Maryland, New York, Ohio, Pennsylvania, Tennessee, Virginia and West Virginia. The USGS estimates of technically recoverable oil and gas — quantities producible using currently available technology and industry practices regardless of economic or accessibility considerations — include oil and gas beneath both onshore and offshore areas (including Lake Erie) and beneath areas where accessibility may be limited by policy and regulations.

More than 81 Tcf (96%) of the estimated oil and gas resides within the Interior Marcellus, which is the central extent of the trend and west of the Appalachian Structural Front (ASF), USGS said. Another 2 Tcf is in the Western Margin Marcellus, which encompasses the western extent of the formation and is west of the ASF, and about 0.77 Tcf is in the Foldbelt Marcellus, which is east of the ASF, according to the report.

The USGS estimate will be included in the next EIA Annual Energy Outlook (AEO), EIA spokesman Jonathan Cogan told NGI.

“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. 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,” Cogan said.

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 — 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.

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.

Some of the confusion surrounding the latest USGS estimate was the result of 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 NGI, Aug. 3, 2009).

Contrary to some published reports, the USGS did not “slash the Marcellus gas estimate by up to 80%,” according to Engelder, who said some mainstream media reports were the result of reporters “not doing an adequate job of due diligence for a number of reasons.”

The USGS assessment “reported a mean undiscovered resource, which is to the best of my knowledge only a fraction of the Marcellus resource,” Engelder told NGI. “The USGS used a cell-based methodology that excluded proven gas reserves and possibly the resource potential in a larger offset pattern than is permitted by the [Securities and Exchange Commission] offset rules…put another way, the USGS undiscovered resource is only a fraction of the technically recoverable resource base,” which a number of studies — including Engelder’s — have demonstrated, he said.

Coleman was nonplussed by some of the reports that followed the release of the USGS estimate. “I’ve heard probably the most outrageous ones and not enough of the ones that probably said ‘don’t worry about it, things are OK; we’ve got a lot of gas, it’s just there’s just a lot of uncertainty here,'” he said.

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