Outlook bright for U.S. natural gas resources

Vello A. Kuuskraa
Advanced Resources International Inc.
Arlington, Va.

Even though natural gas use is expected to grow, gas prices (at the wellhead) are projected (by GRI, DOE/EIA, and others) to remain relatively flat, near today's prices of $2.00-2.50/Mcf. Significant long term investment decisions, particularly the building of electric power facilities and new gas pipelines, hinge on the reliability of these gas price and demand forecasts.

Is the domestic natural gas resource base sufficiently large and robust to support these expectations? Answering this question is a primary goal of this series of articles on natural gas and requires a rigorous look into the "resource pyramid" (or triangle) for natural gas.

The basic idea is that resources can be arrayed by quality, with a small volume of high quality gas resource (beneath the already produced volumes) at the apex of the pyramid and progressively larger volumes of lower quality gas resource toward the base (Fig. 1 [49,218 bytes]). Various authors, most recently Enron,¹ have helped introduce this valuable concept.

As will be further discussed in a future article, the natural gas resources and plays within the pyramid are dynamic, able to improve in their quality ranking with the aid of new knowledge and technology. Moveover, we do not yet fully understand the size or contents of the resource pyramid for natural gas.

Twenty years ago, natural gas resources were judged to be scarce and costly. This was followed by expectations of abundant, low-cost supplies. Today, once again, there are concerns about the adequacy of future gas supplies. Are today's concerns based on a fundamentally changed understanding of domestic natural gas resources or merely one more pendulum swing in price/supply estimates?

Following the statistically based resource assessments and highly publicized presentations by M. King Hubbert,² natural gas became viewed as a rapidly depleting resource. This led, in the 1980s, to expectations of high gas prices and restrictions on gas use.

Later, geologically based natural gas resource studies^3-4 identified gas sources that were not considered by, or included in, Hubbert's resource curves. These new gas resources are the large deposits of unconventional gas, the growth of reserves in existing fields, and the undiscovered gas in the deep waters of the Gulf of Mexico. The inclusion of these new resources in natural gas price/supply models led to a radical shift in the outlook for natural gas-a future of large, low-cost supplies and stable gas prices.

Now, some portions of the industry are raising concerns over future gas supplies. Recent articles (discussed later) in some of industry's premier technical journals, the AAPG Bulletin and the SPE Journal of Petroleum Technology, argue that the U.S. will soon reach a peak in natural gas production, restricted not by price nor demand but by fundamental limits in the underlying resource base.

What information might suggest a positive or negative outlook for natural gas? Central to any serious look at future gas resources is gauging the expected role and impact of progress in E&P technology. Yet, most resource assessments give this short shrift or ignore it.

In the past 10 years, significant advances have occurred in 3D seismic-based exploration, drilling efficiency, and well stimulation technology that have significantly increased reserves per well, drilling success, and recoverable gas resources. These advances have risen from a foundation of an improving understanding of the fundamental geologic and reservoir properties that control gas production, particularly from more complex reservoirs.

Will technology continue to progress at the same rate as in the past, or will the recent sharp reductions in R&D budgets slow technology progress?

Which new gas plays will carry the role of expanding the gas resource base, much as coalbed methane has done in the recent past?

Will other poorly defined gas resources-deep gas, gas-bearing shales, gas below basalt flows, or gas hydrates-step to the forefront?

Which old gas plays will contribute significantly to reserve growth?

These are some of the difficult questions faced by the explorers, researchers, and assessors of natural gas resources and are topics that will be addressed by this series of OGJ articles. How well we grapple with these and other central questions will help determine the nature and reliability of the outlook for natural gas.

Summary of articles

1. An overview of the controversy surrounding the adequacy of domestic natural gas resources;
2. A look at emerging gas resources in light of advances in technology; and
3. A review of the most frequently referenced natural gas assessments.

• Deep gas resources (two parts).
• Barnett shale gas resources.
• Moving into the resource pyramid (a summary of poorly understood but potentially significant emerging gas plays-such as sub-basalt gas plays, deep coalbed methane, and new shale gas resources-not yet included in resource assessments.
• Gas hydrates.

Scarcity or plenty?

Edwards,⁵ in a thought-provoking article in the AAPG Bulletin, projected "the end of the hydrocarbon era," with U.S. natural gas production peaking by the year 2010 (Fig. 2 [51,806 bytes]).

Al-Jarri and Startzman,⁶ in the Journal of Petroleum Technology, used a Hubbert-type analysis to project that world production of natural gas will peak around 2010 at about 280 bcfd or 102 tcf/year (Fig. 3 [48,576 bytes]).

Campbell,⁷ in the Oil & Gas Journal, concluded that worldwide production of natural gas "is likely to peak in 2020 at 120 tcf/year."

Similar arguments were presented by M. King Hubbert⁸ who stated, "The peak in natural gas production will probably occur in the late 1970s, with ultimate production between 900 and 1,200 trillion cubic feet." At the request of the U.S. Congress, Hubbert updated his work, predicting a peak in natural gas production in 1977 at about 23 tcf/year, followed by a dramatic decline (Fig. 4 [44,678 bytes]). Hubbert projected that annual U.S. natural gas production would be below 10 tcf by 1996, constrained by an ultimate natural gas resource base no larger than 1,050 tcf.

With hindsight, we now know that, for natural gas resources, Hubbert's use of a resource base fixed to the knowledge and technology of the 1970s led to an overly pessimistic outlook. In response to projections of scarcity, we can also say the natural gas resource base is not yet fixed nor yet fully known. We believe improved geologic knowledge and advances in exploration technology will help find new gas basins and plays not yet included in the assessed resource base. New production technology will improve gas recovery from existing fields and plays. More efficient drilling and completions will turn formerly uneconomic resources, such as in deep water, into affordable reserves. Investments in R&D will convert previously overlooked gas resources, such as unconventional gas, into producible supplies. These are just some of the ways progress in technology continues to expand the resource base for natural gas, enabling us to develop new gas reserves as we continue to move down the resource pyramid from higher to lower quality resources (Fig. 1 [49,218 bytes]).

A look at one of the emerging gas resources, unconventional gas, a comparative review of recent national level natural gas resource assessments (presented below), and the remainder of the articles in this series may help readers decide for themselves: Is the future of natural gas one of scarcity or plenty?

Emerging gas resources

Unconventional gas

The modest growth in unconventional gas production, from 1970-90, was primarily from expanded development of tight gas sands plus a steady contribution from the Appalachian basin Devonian shale play.

The recent sharp jump in unconventional gas production-from 2 tcf/year in 1990 to over 4 tcf/year in 1997-was from coalbed methane development in the San Juan basin and Antrim gas shale drilling in the Michigan basin.

Future production of unconventional gas, based on a recently completed gas supply model ARI prepared for DOE/EIA,¹⁰ is expected to remain relatively stable until 2010. At that point the cumulative effects of increasing gas prices and steady improvements in technology stimulate strong development, raising unconventional gas production to over 6 tcf/year by 2020.

This forecast of future unconventional gas production uses DOE/EIA Reference Case assumptions (Annual Energy Outlook, 1998) on gas demand and wellhead prices and a continuation of the current modest progress in unconventional gas E&P technology. Yet, how the future for unconventional gas actually unfolds will depend greatly on future investments in R&D and the resulting pace of technology progress. To understand this uncertainty, two additional cases are worth examining-a low technology progress case and a high technology progress case (Fig. 6 [48,793 bytes]).

Under low technology progress, production from unconventional gas drops steadily to 3 tcf/year by 2010 and continues to decline, as few new basins or plays are able to be developed.

Under high technology progress, production from unconventional gas climbs to 6 tcf/year in 2010 and nearly 12 tcf/year by 2020, showing the high dependence on technology for this emerging gas resource.

The analysis shows that a strong investment in successful research, resulting in high technology progress, would increase year 2020 production tight gas sands, gas bearing shales, and coalbed methane by 9 tcf (assuming gas prices and demand remain fixed). A similar analysis of technology effects for all gas resources by DOE/EIA (Annual Energy Outlook, 1998) showed that rapid (as opposed to slow) technology progress for natural gas could save U.S. industry and consumers over $10 billion/year between 2000 and 2020.

Coalbed methane

By yearend 1996, CBM production had reached 1,003 bcf/year. Cavitation technology in the San Juan basin "fairway" and development of new CBM plays in the Central Appalachian and Uinta basins helped drive the rapid increase in well drilling and production (Fig. 7 [49,407 bytes]).

For the future, CBM production might take two paths depending on the pace of technology progress (Fig. 8 [96,780 bytes]), holding other variables constant such as gas price and demand. The output from the above cited CBM supply model shows that:

1. Under a low technology progress case, CBM production declines steadily from today's peak of about 1 tcf/year to 0.6 tcf/year by 2020. Advances in CBM technology are not sufficient to enable CBM to expand into geologically more difficult settings, limiting its accessible resource base. In the low technology case, only 5 tcf of proved CBM reserves (plus 14 tcf of economically recoverable undeveloped CBM resource) remain in the year 2020.

2. Under a high technology progress case, CBM production increases, reaching 1.4 tcf/year by 2010 and 2 tcf/year by 2020. Enhanced CBM recovery, advanced well cavitation, and detailed resource characterization and basin studies help improve the recovery efficiency from existing fields and expand the economically recoverable CBM resource base. Under the high technology progress case, the CBM resource ends the year 2020 with 19 tcf of proved reserves plus 32 tcf of economically recoverable undeveloped resource.

To gain a better understanding of our current outlook for natural gas, we look briefly at the recent national level U.S. natural gas assessments of five government and industry organizations. These resource assessments provide a snapshot in time on how the public and industry currently view the resource base for natural gas.

Gas resource assessments compared

Perspective

Each organization follows its own approach to assessing future gas supply. Regardless of the approach, each is seeking the answer, some fundamental truth about remaining oil and gas resources. Thus, the assessments can, at first glance, be compared at face value. However, further insights may be gained by closer comparison. Insights may also be gained by examining the series of assessments prepared by the same organization over time. In this way, the evolution of thinking of a single organization can be analyzed and trends in methodology through time understood.

Assessments included

Summary comparison

The NPC study assessed the recoverable natural gas resource base in the Lower-48 states at 1,065 tcf with current (Year 1990) technology, growing to 1,295 tcf with advanced (Year 2010) technology. (The Alaska gas resource was assessed at 180 tcf but judged to be noneconomic, except for local uses.) As a benchmark, the gas resources estimated by the NPC (for advanced technology) would provide 65 years of gas supply at today's production rates. About half of this resource, 600 tcf, was judged to be producible at relatively low cost ($2.50/Mcf or less).

In comparison with the NPC, the PGC study has a much smaller natural gas resource base-830 tcf (excluding Alaska) versus 1,295 tcf for the NPC. Some possible reasons for the low PGC resource numbers may be their low estimates for probable resources (reserve growth), silence on the role of technology progress, and limited treatment of tight gas sands and gas shales.

Enron estimated 1,405 tcf of natural gas resources in its 1997 Energy Outlook. While few details are available, Enron does include technology progress and unconventional resources in its assessments, drawing heavily from its participation in the 1992 NPC study.

The USGS/MMS resource estimate of 1,176 tcf (without Alaska) is, in aggregate, comparable with that of the NPC. Their smaller estimates for new discoveries are balanced by a more robust outlook for reserve growth. The USGS/ MMS study does not directly include technology progress, which may add several hundred trillion cubic feet to the resource base, particularly from unconventional gas and the reworking of old fields.

Topping the list of resource estimates is the GRI 1997 study with 1,752 tcf to 2,037 tcf of future natural gas resources. The GRI study portrays a natural gas resource base that is significantly larger than NPC's under both current and advanced technology. Part of the difference may be because the GRI study is 5 years more recent than NPC's and captures changes in outlook that have occurred for certain gas plays. For example, GRI views reserve growth in a far more favorable light than the NPC, and GRI has high expectations for deep gas.

While still the benchmark, the NPC study is slowly becoming obsolete. Its resource base numbers, based on 1990 and earlier data, are more than 7 years old. High expectations for some basins in the NPC study, such as 27 tcf for coalbed methane in the Piceance basin, have thus far not been realized and would reduce the resource numbers. At the same time, newly emerging gas shale plays, such as the Barnett shale in the Fort Worth basin and the New Albany shale in the Illinois basin that are not assessed in the NPC study, would increase the resource base. Finally, much higher expectations from reserve growth-the reworking and more intense development of discovered fields-exist today than when the NPC completed its work.

As always, the natural gas resource base remains dynamic, full of surprises and disappointments, providing a never-ending quest for new answers and truth and continuing opportunities for in-depth study.

Closing thoughts

1. It is too easy, possibly even tempting, to adopt a view of pessimism and scarcity for natural gas supplies. For all his otherwise brilliance, Hubbert stumbled into this trap 30 years ago by assuming an arbitrarily fixed natural gas resource base. Today, the bulk of U.S. gas supplies stems from three resource areas not considered by Hubbert-unconventional gas, deep onshore/offshore gas, and the continuing reserve growth in discovered fields.

2. The single most important factor for future gas supplies, over which we have some control, is continuing progress in E&P technology. Expanding the knowledge base for emerging resources, developing new exploration methods, improving gas recovery efficiency, and lowering drilling and completion costs are the fruits of progress in E&P technology. As presented above, the difference between a low technology and high technology progress future is 9 tcf of annual gas supply (in 2020) from just one resource area, unconventional gas.

3. The underlying resource base for natural gas is vast, though still largely undefined and productive under today's technology and prices. If a scarcity in gas supplies does occur, it will not be because of an inadequate resource base. Rather, it will be because an underinvestment in research due to short-term financial pressures on industry and shortsightedness by those to whom we entrust our future. Given the dozen or so years for natural gas supply R&D to be transformed into natural gas production, it will be essential to maintain the research investments of today to realize the technology benefits of tomorrow.

Acknowledgments

References

1. Enron Corp., The 1997 Enron Energy Outlook, 1997, 26 p.
2. Hubbert, M.K., U.S. energy resources, a review as of 1972, in U.S. Senate Committee on Interior and Insular Affairs, U.S. energy resources, a review as of 1972, a background paper, U.S. Congress, 93rd, 2nd session, Committee Print, Serial No. 93-40 (92-74), Pt. 1, 1974, pp. 1-20.
3. Kuuskraa, V.A., Brashear, J.P., Doscher, T.H., and Elkins, L.E., Enhanced recovery of unconventional gas, Volumes I, II, and III, National Technical Information Center, 1978, 840 p. (combined).
4. Finley, R.J., et al., An assessment of the natural gas resource base of the U.S., Bureau of Economic Geology, Report of Investigations No. 179, originally prepared for U.S. Department of Energy, Office of Policy, Planning & Analysis and released as DOE/W/3110-H1, 1988.
5. Edwards, J.D., 1997, Crude oil and alternative energy production forecasts for the 21st century: The end of the hydrocarbon era, AAPG Bull., Vol. 81, No. 8, 1997, pp. 1,292-1,305.
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The Author

Vello A. Kuuskraa is president of Advanced Resources International Inc., a firm that provides technical and consulting services in geology, engineering, and economics for natural gas and oil. He was a 1985-86 Society of Petroleum Engineers Distinguished Lecturer, served on the Secretary of Energy's "Assessment of the U.S. Natural Gas Resource Base, and was a member of the National Academy of Sciences' Committee on the National Energy Modeling System. He received an MBA degree (highest distinction) from the Wharton School, University of Pennsylvania, and a BS degree in mathematics/economics from North Carolina State University.

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