After USGS Analysis, EIA Cuts Estimates of Marcellus Shale Gas Reserves by 80%

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"After USGS Analysis, EIA Cuts Estimates of Marcellus Shale Gas Reserves by 80%"

The U.S. Geological Survey released its estimates for natural gas reserves in the Marcellus Shale formation this week, concluding that earlier estimates were significantly inflated.

According to the USGS, there are about 84 trillion cubic feet of technically-recoverable natural gas under the Marcellus Shale, a massive sedimentary rock formation below eight East Coast states. Previous estimates from the Energy Information Administration put the figures at 410 trillion cubic feet.

In calling the USGS “the experts,” the EIA says the new figures are the most accurate. The agency has now cut its earlier estimates by 80%.

You might think the industry would be lamenting these downgraded figures. Actually, they’re celebrating them. In 2002, before new drilling methods were in place to more cost-effectively access shale gas, USGS estimates of recoverable gas were far lower than the current figures:

These gas estimates are significantly more than the last USGS assessment of the Marcellus Shale in the Appalachian Basin in 2002, which estimated a mean of about 2 trillion cubic feet of gas (TCF) and 0.01 billion barrels of natural gas liquids.

These new estimates are for technically recoverable oil and gas resources, which are those quantities of oil and gas producible using currently available technology and industry practices, regardless of economic or accessibility considerations. As such, these estimates include resources beneath both onshore and offshore areas (such as Lake Erie) and beneath areas where accessibility may be limited by policy and regulations imposed by land managers and regulatory agencies. Federal geologists published new estimates this week for the amount of natural gas that exists in a giant rock formation known as the Marcellus Shale, which stretches from New York to Virginia.

But while we appear to be narrowing in more realistic figures, the inconsistencies in shale gas reserve estimates among industry, federal agencies and state agencies is of concern. The New York Times had a piece Wednesday on the differences in analysis:

In April 2010, the Energy Information Administration revised its methodology for estimating natural gas production. Despite the change, some energy analysts say that in Texas significant discrepancies remain between the federal numbers and estimates produced by state regulators. Some energy analysts have also faulted regulators in Pennsylvania, which is the only gas-producing state to publish oil and gas production data every six months rather than providing it monthly. This practice, according to the energy analysts, limits the ability to accurately assess well performance and provide more exact long-term estimates for how much gas that part of the shale formation can actually produce over time.

Some analysts have been very critical of industry estimates and projected decline rates, saying the amount of economically recoverable gas is far lower than what companies are claiming. In June, the Times released a large number of emails between industry analysts that suggest the industry is vastly overstating reserves:

“The word in the world of independents is that the shale plays are just giant Ponzi schemes and the economics just do not work,” an analyst from IHS Drilling Data, an energy research company, wrote in an e-mail on Aug. 28, 2009.

Deborah Rogers, a member of the advisory committee of the Federal Reserve Bank of Dallas, recalled saying that in a May 2010 telephone call to a senior economist at the Reserve, Mine K. Yucel. “We need to take a close look at this right away,” she added.

A former stockbroker with Merrill Lynch, Ms. Rogers said she started studying well data from shale companies in October 2009 after attending a speech by the chief executive of Chesapeake, Aubrey K. McClendon. The math was not adding up, Ms. Rogers said. Her research showed that wells were petering out faster than expected.

“These wells are depleting so quickly that the operators are in an expensive game of ‘catch-up,’ ” Ms. Rogers wrote in an e-mail on Nov. 17, 2009, to a petroleum geologist in Houston, who wrote back that he agreed.

With numerous state and federal agencies looking at this issue, the estimates are likely to get more accurate. But there’s one big caveat to the USGS figures: they are for technically-recoverable resources, not economically-recoverable resources. The amount of gas that can be competitively recovered will depend largely on gas prices and decline rates at existing fields — two very big unknowns.

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13 Responses to After USGS Analysis, EIA Cuts Estimates of Marcellus Shale Gas Reserves by 80%

  1. Stephen,

    410 divided by 84 is 4.88, so the amount by which the former estimates were overinflated was 388%. The current values are nearly 80% less than the former estimates.

  2. Paul Magnus says:

    When fracking is done safe and healthily then the EROI just isn’t there.

    These are the days of peak were we are prepared to suffocate in a desperate bid for the dregs of fossil fuels.

  3. Paul Magnus says:

    How much gas is there in terms of consumption … I think I heard a figure of 4-5yrs of US use?

  4. malexy says:

    As a reference, the US presently consumes roughly 24 trillion cf of natural gas annually. Thus, the “massive” Marcellus resource represents less than 4 years of technically recoverable supply.

  5. I have read only one small book on the history of the oil industry, but I recall that standard proceedure among oil companies, in difficult times, is to overestimate significantly available resources in the ground as a strategy to insure a prosperous future. When there is plenty, there is no need to go exploring alternatives. We are in such a time.

    • Rod Adams says:

      @David – that is an interesting way to characterize the situation. Many observers might question how oil and gas companies can “ensure a prosperous future” by overestimating resources. If that discourages a search for additional resources, wouldn’t it make the future less prosperous if the overestimates do not pan out and we run short of needed energy supplies when the economy picks up?

      I do not get it.

      Wait a minute. Maybe I do understand the logic – for the oil and gas companies. If their exaggeration discourages exploration for both more resources and for alternatives, wouldn’t the shortfall that I described above lead to dramatic PRICE increases?

      History shows me that oil and gas company prosperity takes a huge tick upwards in periods of high energy prices while the rest of the world’s prosperity plummets due to concentrating more and more of our money into the hands of energy suppliers.

      Disclosure: I work for a company that is designing small modular nuclear power plants. Temporarily low natural gas prices are making the nuclear renaissance a real struggle due to the fact that many utility executives have bought into the mythology of cheap gas for the foreseeable future due to applying the “innovation” of hydraulic fracturing to large areas of shale that contain tightly bound gas resources.

  6. otter17 says:

    And here I thought the congressional representative from the district just north of me was correct when he said that the Marcellus Shale had an unlimited supply of natural gas.

    I’m sure he meant that there is “a lot” of nat gas, but he still sounded a bit arrogant and in the pocket of the gas companies.

    • Jeffrey Davis says:

      “Congressional representative” and “in the pocket of gas companies” is redundant.

  7. otter17 says:

    @2. Paul Magnus
    What procedures are done for safe/healthy fracking that would reduce the EROI?

    I’m curious since I’m interested in peak oil and the potentially harmful measures we may resort to in order to stave off economic downturn.

    An oil and gas engineer friend of mine told me that peak oil wouldn’t be a problem since we have enough nat gas to power our transportation vehicles. I was a bit skeptical then, and more so now. It seems that estimating reserves on the high side is the default position for the oil and gas industry.

  8. catman306 says:

    So the plan is to tear up many square miles of Appalachian and Allegany countryside and poison much of the ground water for 4-5 years of natural gas supply. And PROFIT!

    These people are utterly insane!

  9. David B. Benson says:

    Stephen Lacey — Thank you. This is most timely.

    Some useful prior comments as well.

  10. Jade says:

    Looks like a fair amount of this won’t be used by the US, as China and other countries buy up shares of the drilling projects:

    http://www.pittsburghlive.com/x/pittsburghtrib/s_731595.html

  11. Roger Blanchard says:

    Government agencies have a long history of exaggerating reserves estimates for fossil fuels. I assume they do that to assure the public that the future looks bright for the American lifestyle.

    Just to give one example, prior to 2002, the USGS was stating that the National Petroleum Reserve-Alaska had an average of ~9.5 billion barrels (Gb) of technically recoverable oil (much of the NPRA was opened to oil exploration and development in the late 1990s). In 2002, they upped it to 10.5 Gb. Exploration results have been terrible and I’ve only heard of the discovery of about 330 million barrels. In 2010, the USGS downgraded the amount of technically recoverable oil to 0.896 Gb from the 10.5 Gb.

    The amount of recoverable oil or gas will be considerably less than the technically recoverable amount so even the technically recoverable estimate is of little value in my opinion.

    Roger Blanchard
    Sault Ste. Marie, MI