Since the first days of the Marcellus gas rush in 2007, nearly everyone has asked: when will the gas rush end? Answering that question requires a simple calculation of dividing the amount of gas that can be produced by the rate at which gas will be produced. So what's the answer?

Using a production rate of three trillion cubic feet per year and the new EIA estimate of 142 trillion cubic feet of Marcellus gas available for production, Marcellus gas production will last at least 50 years. But here are the caveats on the calculation.

Right now Marcellus gas production is ramping up rapidly, but it just crossed daily production numbers that amount to 1 trillion cubic feet per year in 2011. If Marcellus production stayed at that rate, the Marcellus would produce gas for 142 years, given the new EIA reserves number of 142 trillion cubic feet.

If Marcellus gas production reaches the equivalent of 2 trillion cubic feet per year, a highly likely outcome, then Marcellus gas production would last 70 years, if one again uses the new EIA reserves number.

I have assumed that Marcellus gas production will reach 3 trillion cubic feet per year, an extraordinary number. At 3 trillion cubic feet per year, the Marcellus would be providing about 12% of total US gas, but natural gas production would last 50 years at that rate, given a 142 trillion reserve estimate.

Remember we have already completed 5 years of the Marcellus gas rush, if one assumes that it began in 2007. In fact the first Marcellus test well was drilled in 2005.

How certain are these estimates? Reasonably. Today's rate of gas production is known, but it is changing rapidly, going up from 1 trillion cubic feet per year to the next milestone of 2 trillion cubic feet per year. Gas pricing, however, can slow or speed up gas production. Today's pricing were it to continue would slow the rate at which gas is produced and possibly prevent the Marcellus from reaching the 3 trillion cubic feet per year production level.

What about the reserve number of 142 trillion cubic feet published yesterday by EIA in what it calls its reference case for its 2012 Energy Outlook--its annual crystal ball exercise, where the EIA projects our energy future through 2035 by modeling. www.eia.gov/forecasts/aeo/er/? The EIA reference case is built on numerous data assumptions that often change significantly year to year.

One such assumption concerns the amount of natural gas available for production across the country and within regions, and the EIA estimates of these numbers have varied substantially for the last 5 to 10 years. Until this year, the EIA gas reserve estimates used in its annual Energy Outlook modeling had gone up, up, up.

But in its 2012 Energy Outlook EIA projects that the Marcellus gas reserve has 142 trillion cubic feet, down 66% from last year's estimate of 410 trillion cubic feet. This sharp change in the EIA number underlines that the gas reserve estimates are a moving target.

But what difference does the moving target really make? Not much in the real world of gas production and pricing.

Even the much lower new EIA Marcellus reserve number of 142 trillion cubic feet is an enormous number that would take about 142 years to produce at 2011 production rates and will take 50 years to produce if Marcellus gas production reaches an humongous 3 trillion cubic feet per year.

The new EIA estimate confirms that no doubt exists that there are huge amounts of gas in the US and Pennsylvania, while the precise amount will remain mysterious forever. The gas in Pennsylvania goes well beyond the Marcellus for example and includes other formations like the Devonian and Utica.

Pennsylvania has been producing gas for more than 120 years, is now a top 5 gas producing state, and it will be producing large amounts of gas 50 years from today.

Their earlier number was closer to correct in my opinion. There are other shales in the basin that might contribute significantly as well. I would guess with all of the shales there is >500TCF recoverable. Technology will only improve.

ReplyDeleteYou are right-it is a lot of gas either way. Right now there is a glut of natural gas that has pushed the price down so far that many companies have stopped drilling. I don't think many of them are making money at <$3/mcf. So we should see the price go back up in the next year or so. I think they would like to see it at $4-5/mcf but it is tough to keep it there.

In the meantime, if companies want to improve public perception on the issue, they should be running ads saying "did you notice that your gas and electric bills are down about 40%? That is all due to shale gas" or something along those lines.

Here's Considine's estimates and projections for just Pennsylvania production, which are higher than Mr.. Hanger's "facts of the day" numbers for all Marcellus production. If one assumes that PA represents half of Marcellus (i.e., 141TCF/2 = 71TCF), the cumulative production from PA equals 71TCF by 2025, assuming that production rates do not increase above 2020 levels. The figures below include interpolations for the years 2013,2014, and 2016-2019. Considine is considered a pro-industry analyst. Mr. Hanger makes up assumptions about production rates that fit his ideology rather than using estimates and projections that are readily available.

ReplyDeleteYEAR TCF TCF (Cumulative)

2011 1.28 1.28

2012 2.45 3.72

2013 2.92 6.64

2014 3.65 10.29

2015 4.38 14.67

2016 4.75 19.42

2017 5.11 24.53

2018 5.48 30.00

2019 5.84 35.84

2020 6.39 42.23

Mike, are these forecasts from the 2011 Penn State impact study Considine co-authored with Watson and Blumsack (dated July 20)? I was surprised the study provided such an optimistic forecast without mentioning the possibility of industry cutbacks in PA due to steep price drops. I'm not an industry expert, so please advise. Are these numbers still credible?

DeleteI use 3 estimates of annual Marcellus production: 1 trillion cubic feet which is a large amount because that rate of production was achieved in 2011; 2 trillion cubic feet because it seems likely that we will reach 2 trillion cubic feet (more than 8% of US total production) perhaps in 2012; and 3 trillion cubic feet (a huge number that would represent 12% of total US production) as the upper case because the price of gas has crashed and that seems based on the January 2012 prices a reasonable upper case. The projections that Mike Wagner offers were made before the price collapse of gas. I think those projections at the high end are literally off the charts and are not reasonable or possible in the current price environment. That price environment will change but when and by how much is uncertain. Time will tell.

ReplyDeleteAlthough your analysis goes out 50+ years, you assume a maximum production of 3.0TCF per year based on supply-demand conditions of 2012. That's not a reasonable assumption for a 50-100 year analysis. Demand will increase to meet/exceed natural resources in that time frame (Rev. Thomas Malthus, 1780 or so). Based on Considine's figure of >6TCF per year for PA alone (which I take to mean that it is technically feasible), I think your analysis should used at 8 TCF per year as an upper bound and 6 TCF as a most likely estimate.

ReplyDeleteThe conclusion--that the resource will still last a long time, but not as long as we thought the day before the IAE update--doesn't seem justified. An equally supportable conclusion from the IAE update is that gas is a tenable energy source for 2 or 3 decades after which we face more energy intensive hydrocarbon extraction, hard-constraints due to global warming.

We can probably agree on two things: 1) EIA estimates are historically fallible; 2) There's a lot of gas that can be recovered economically.

DeleteI don't think an 8 or 6 tcf assumption for Marcellus annual production is reasonable when EIA projects annual national shale production at 13 to 14 tcf by 2030 or so. That would mean like half of the shale gas in the US would come from the Marcellus. Possible but not likely. Also this week's reduction in drilling rigs for gas, combined with earlier gas drilling rig declines, in response to low gas add to the case that projections of 8 or 6 tcf are likely high. But again time will tell.

ReplyDelete