Report  |  1 September 2011 print twitter

Shale gas: controversy and resources

By Karel Beckman

In this space we recently reported that a new assessment of the Marcellus Shale in the northeastern US by the US Geological Survey seemed to indicate that shale gas resources in the US may be a lot smaller than was previously thought. This, however, turned out to be incorrect. Below we give the correct story - and provide an overview of recent shale gas publications, including our own.

On 23 August, the United States Geological Survey (USGS) released a new survey of the Marcellus Shale, so far the biggest shale gas field in the world. In this space, we reported that the outcome ‘was a serious disappointment to shale gas advocates’. We wrote that ‘it has forced the Energy Information Administration (EIA) of the US government to cut its estimate of the (technically recoverable) resources of Marcellus from 410 trillion cubic feet (tcf) to just 84 tcf.’

Quite an important issue, as Marcellus is by far the biggest shale gas resource in the US. Total technically recoverable shale gas resources in the US are estimated by the EIA at 750 tcf, of which Marcellus supplies 410 tcf . In other words, a downgrade of Marcellus to 84 tcf would mean a downgrade of total US shale gas reserves of 43% (from 750 tcf to 424 tcf).

Now USGS in its press release did not talk about a downgrade. In fact, it said in its press release that according to the new estimate, the Marcellus Shale contains ‘significantly more’ gas than was previously thought. But USGS was comparing the new results to their original estimate made in 2002, before the advent of hydraulic fracturing techniques. See here for the new assessment and here for the previous one.

The EIA's estimate of the Marcellus reserves of 410 tcf can be found here. The IEA did not base its estimate on the 2002 USGS study, but on work done by a consultancy, INTEK, and perhaps also on a study by study by Engelder (2009) of Penn State which estimated 489 Tcf of technically recoverable gas from the Marcellus. So, compared to the EIA’s estimate the new USGS study did seem to be a considerable downgrade. This, indeed, is what the New York Times reported in a news story on 24 August.

Before that, on 23 August, news agency Bloomberg had reported that the EIA would ‘slash its estimate of undiscovered Marcellus Shale natural gas by as much as 80 percent after an updated assessment by government geologists.’ Bloomberg added that the new estimate ‘supersedes an Energy Department projection of 410 trillion cubic feet’, quoting one Philip Budzik, an operations research analyst at the EIA.

This is essentially the story we reported on 1 September. We also quoted J. David Hughes, a geoscientist connected with the Post Carbon Institute, who noted that ‘the new estimates represent a considerable downgrade from the widely used study by Engelder (2009) of Penn State which estimated 489 Tcf of technically recoverable P50 gas from the Marcellus and the estimate of 410 Tcf published by the EIA in July, 2011, based on work done by its consultant INTEK. The new USGS resource estimates for the Marcellus are likely to be much more rigorous than the Engelder and EIA estimates. It should also be noted that the USGS estimates include gas underlying areas which are off limits for drilling but, as they are “undiscovered” resource estimates, they do not include the actual booked reserves of companies for SEC filings (which are very small by comparison).’

We also added some more informaton on Hughes. We noted that he wrote a study for the Post-Carbon Institute, Will Natural Gas Fuel America in the 21st Century?, in which he argued that the natural gas industry has propagated ‘dangerously false claims about natural gas production supply, cost and environmental impact’. The most significant of those ‘false claims’, says Hughes, is ‘one that has been bought hook, line and sinker by everyone from the Energy Information Agency (EIA) and the Obama Administration, to leading environmental groups – that the United States has a 100-year supply of cheap natural gas.’ Hughes’s report says this is ‘a pipe dream’. In fact, he writes, ‘the US faces a decline in domestic gas supplies in the very near future unless drilling rates quickly increase’.

However, we then got a comment from a reader, saying that the claim of an 80% downgrade was based ‘on a faulty reading of a USGS report by the New York Times’ Ian Urbina.’ The reader, Donald Hertzmark, wrote: ‘The USGS estimate was applied only to Marcellus areas that are not now under production or drilling, a very small part of the Marcellus. The USGS figure represents undiscovered reserves from these areas, not the entire Marcellus. This is not a restatement of reserves nor is it a downgrading. I have spoken with a USGS official familiar with these shale gas resource estimates and this person does not understand how the story got so confused.’

We checked this with the EIA and the USGS and the reader turned out be correct. A spokeswoman of USGS told us: ‘The USGS assessment is only of the undiscovered resources (not reserves) of the Marcellus Shale. Because they are "undiscovered," they are resources in those areas yet to be found (or drilled), thus outside of currently producing areas. Resources and reserves in currently producing areas are discovered or known, and we do not assess those.’

Thus, Bloomberg may have reported correctly that the EIA would ‘slash its estimate of undiscovered Marcellus Shale natural gas’, but apparently had not realized that this downgrade did not apply to the whole Marcellus Shale (nor had we).

We also checked the Bloomberg story with the EIA. Their spokesman replied with the following statement: ‘The reported interpretation of the statement [by Bloomberg] is incomplete and therefore inaccurate. EIA will incorporate USGS's estimate for the “undiscovered, technically recoverable” portion of the total technically recoverable resource base. However, that estimate is only a part of the total and, at the present time, there is not enough information available from the USGS to allow for estimations to be completed of inferred reserves. Both of those estimates would be combined with proved reserves to provide the total technically recoverable resource base as would be reported by EIA.’

So much for the Marcellus Shale controversy. We sincerely apologize for the confusion.

We further referred our readers to a number of sources for information on shale gas. First of all, we noted that a new study has been published in the scientific magazine Environmental Research Letters, which reports that shale gas production has considerably less impact on global warming than coal. The study, Life cycle greenhouse gas emissions of Marcellus shale gas, may be seen as a refutation of an earlier study from Cornell University that claimed that shale gas was worse for the the climate than coal.

And we gave an overview of other sources, which we reproduce here:

EER’s coverage of the unconventional gas revolution

In EER, we have of course extensively covered the unconventional gas revolution from the start. Here are some of our major articles on this topic:

And here are some important recent reports on unconventional gas:

 

Readers' Contributions

Ashutosh Shastri
2 September 2011

The USGS had previously assessed Marcellus potential to be 2 TCF in 2002 and this USGS survey is the first update of the 2002 figures. So in a sense this update further consolidates the significance of Marcellus to the US energy economy and seeks to bring a sense of balance to the exuberent predictions of the EIA- which to be fair has acknowledged USGS to be the geological expert. So yes, while the climbdown of orojections from 410 to 84 is significant in terms of "news"- the underlying uprating from 2TCF in 2002 to 84 TCF in 2011 by the same agency, the USGS, should provide more confidence to the energy investment community which is only just beginning to factor in the shale gas discontinuity.

You are right to say though, that Shale cannot be a panacea and that developing gas "routes" along with "reserves" is equally, if not more, important.



Donald Hertzmark
5 September 2011

In your review today you note that "the US Energy Information Administration (EIA) was forced last week to cut its estimate of the amount of shale gas in the great Marcellus basin by 80%."

This statement is based on an inaccurate reading of a US Geological Survey report by the New York Times' Ian Urbina. The USGS estimate was applied only to Marcellus areas that are not now under production or drilling, a very small part of the Marcellus. The USGS figure represents undiscovered reserves from these areas, not the entire Marcellus (please see: http://geology.com/usgs/marcellus-shale-assessment/). This is not a restatement of reserves nor is it a downgrading. I have spoken with a USGS official familiar with these shale gas resource estimates and this person does not understand how the story got so confused.

For your information I have been working in the unconventional gas area for many years and have worked on resource estimates and market analyses for shale gas and other unconventionals in several countries.

Nick Grealy
5 September 2011

It seems to me that there is a vested interest in much of the European "experts" (who never saw shale coming of course!) explaining how shale won't work for Europe as it's too dirty (proof?) or uses too much water (proof?) or will slow down renewables etc etc.

This confusion over reserves and resources in the Marcellus is a technical issue of little consequence. Interesting story here about how the Marcellus gas is going to be exported as LNG from 2016. Does that sound like it's running out? And Europe will have a new source of LNG on it's doorstep twice as close as Qatar and no further away from GATE or Milford Haven than Algeria or even Norway!

http://www.somdnews.com/article/20110902/NEWS/709029550/1074/1074/section/news07/&template=southernMaryland

And of course at www.nohotair.co.uk I have extensively covered unconventional gas in well over 1000 posts the first one being from July 2008!

Lucian Pugliaresi, Energy Policy Research Foundation
12 September 2011

I agree with the other commentators, the so-called lowering of the gas reserve estimates has been confused by the press. More importantly, It is always a mistake to place a lot of emphasis on basin wide resource and reserve estimates. In 1980 the USGS stated (and testified before Congress) that the U.S. had 30 billion barrels of recoverable reserves remaining. In 2010, USGS lowered their estimate to 20 billion barrels of recoverable reserves, but during the 30 year period between these two estimates the U.S. produced multiples of the 1980 estimate. The production of oil and gas is both art and science, and both have out performed the experts.

The real lesson of the shale gas revolution in the U.S. is that all the experts were wrong. We know this because we are sitting on over $30 billion of LNG import facilities operating at less than 10% capacity. Using pre and post shale boom pricing estimates, American consumers are saving $44 billion annually from the reduction in natural gas prices. Buyers and sellers in the market are willing to enter into futures contracts out to 2020 at prices well below $7/mcf.

The horizontal and fracking technology used to produce unconventional natural gas is now migrating to so-called tight oil sands plays in North Dakota, Texas, and Ohio, among others. In fact, the U.S. and North America may be moving towards a major renaissance in oil and gas development, including enormous opportunities for value added refining and petrochemical processing. The economics of these prospects will generate higher levels of economic growth and employment expansion overtaking the expected expansion from green jobs from U.S. government expenditures. Much of the U.S. green agenda is now facing the risk of catastrophic financial failure because of heavy reliance on experts who insisted conventional fuels would be too expensive.

Precisely then, what are the ‘dangerously false claims about natural gas production supply and cost" Mr. Hughes is referring to. Unemployment in all the U.S. natural gas producing regions is now below the national average. I agree that we should live in a data driven world, and we might even give the data a hard look for time to time.

Karel Beckman, editor EER
15 September 2011

Please note that this article was amended by the editor on 15 September, as explained in the text.
The contributions below are reactions to the previous version of the article, which we have removed.
We apologise for the confusion and we would like to thank the readers who responded to the earlier article.

 

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