Shale a game changer
Uncertainty Clouds Gas Resource Estimates
Thanks to shale gas, estimates of the available U.S. natural gas resource have ballooned in recent years.
How reliable are those estimates?
No one knows for sure – and the projections carry a real risk of inaccuracy, said AAPG member Richard Nehring of Nehring Associates Inc. in Colorado Springs, Colo.
“It’s mainly that there are large degrees of uncertainty,” Nehring said. “I see people making plans about how to use this (estimated) resource, which is like planning what I’m going to do when I win the lottery.”
Nehring will discuss those estimates and their risks at the upcoming AAPG Annual Convention and Exhibition in New Orleans, in his paper “Just How Enormous Is the ‘Enormous’ U.S. Natural Gas Resource? Implications for Future Supply and U.S. Energy Policy.”
He noted the increase in gas resource projections resulted directly from the emergence of shale gas plays. Conventional U.S. gas production has been declining for some time. Transitional sources also are in decline.
Tight gas made up most of the shortfall after the peak in conventional gas production, but it probably won’t expand supply in the future, Nehring said.
“It will still be a major contributor, but we don’t have many of the 50 Tcf-plus plays like we do in shale gas. Tight sands gas will provide a base for the next two decades, but it’s more of a sustainer than a game changer,” he explained. “Shale gas is the game changer.”
To have an enormous gas resource, “you have to have enormous or very large plays,” Nehring said. He sees the possibility for a number of 10-30 Tcf plays in domestic coalbed methane and tight gas.
“When you talk about the Haynesville and the Marcellus, shale gas plays with over 100 Tcf of potential each, it’s a different ballpark,” he noted.
Yet, “there are several risks in evaluating these shale plays,” Nehring said.
First, shale gas production is a recent phenomenon – and in some ways, an emerging practice.
“A large degree of the debate is how much continuing production you get out of those wells. What people know is how much you get the first two years,” he observed.
In some play areas, projections of ultimate recovery might vary from four-five Bcf per well to eight-10 Bcf per well. That makes a significant difference in the amount of resource that will prove to be recoverable, he said.
The high-side estimate of gas resource in the Marcellus shale is five times the low-side estimate, Nehring noted. Typically, U.S. gas resource numbers are stated as a collection of mean estimates, ignoring the wide variation between high cases and low cases.
“As a result, people tend to ignore the uncertainties,” he said.
A second problem in making long-term resource estimates is uncertainty about the effect of economics on shale gas production.
“We can tell from experience that there is some sort of cost-curve on this resource,” Nehring said. “That’s an unknown right now. We don’t know a lot and we aren’t learning a lot about the higher-cost resource, because people are ignoring it.
“The cost-curve is a dynamic concept, not a static concept,” he added.
Changing economics in the decades ahead will have an effect on shale gas production, but it’s very difficult to know how production will respond to price fluctuations. Nehring thinks we are unlikely to know more about the high-cost resource in the near future.
“We’re probably going to be looking at the lower-cost end for the next decade, at least,” he said.
A number of shale gas plays exist in the Rocky Mountain region, but their economics are not well understood, and “the Rockies are the end of natural gas supply chain,” Nehring noted.
Alaska hasn’t even made it into the gas supply-chain picture, pending completion of an Alaskan gas pipeline. The U.S. resource estimates do include some Alaskan gas, but it’s impossible to tell if those projections are optimistic or pessimistic.
Nehring predicted a transportation cost of $3-$4/Mcf for Alaska gas, “and it’s an expensive place in which to operate,” he added. A low-price environment will do little to stimulate development of Alaskan gas.
Another consideration in judging today’s gas resource estimates might be the dismal track record of past estimates. The United States has seen estimates ranging from an abundant resource to imminent production shortages.
“I could pull out study after study saying we were going to need huge amounts of LNG imports between 2010 and 2020,” Nehring said.
Of course, companies that committed a large number of dollars and man-hours to planning and building domestic LNG terminals are now asking, “Where did all this gas come from?”
Nehring also has described uncertainties in the world’s oil resource estimate. He chaired AAPG’s Hedberg Research Conference on Understanding World Oil Resources.
Beyond the unknowns in total resource projections, Nehring predicted a plateau in world oil production by 2020-40. That peak would come primarily because consumption is devouring the world oil resource at such a rapid rate.
In evaluating gas resource estimates, Nehring is not trying to devise a more likely range of numbers. He wants to identify the risks in the current resource assessments.
“It’s not so much making firm statements about how much resource is out there,” he said, “but considerations about how to think about that resource.”
The stakes are high. Today, the United States is considering shifting a meaningful part of its electrical generation and even public transportation activities to natural gas fuel.
Companies are making plans and investment decisions based on estimates of resource availability. Incentives have been proposed to increase natural gas usage. Gas proponents believe new supplies can reduce U.S. oil imports.
“It’s hard to make plans for the long term,” Nehring said. “If you want to expand the market, you want to make sure you can provide 30 years, at least, and more like 40 to 50 years of supply for that market.”
Shale gas will be an important contributor to future supply, but the size of that resource is open to debate and revision. And adding together a number of uncertain estimates doesn’t help, Nehring noted.
“There is no methodologically sound way of summing the estimates for a large number of resource plays,” he said.