A new natural gas study could have an unintended impact

Aubrey K. McClendon apparently expected a new natural gas supply study to change the US energy game plan when he came to Washington on July 28. It may do just that, but in a way that probably won't please producers seeking more access to federal lands.

Aug 8th, 2008

Aubrey K. McClendon apparently expected a new natural gas supply study to change the US energy game plan when he came to Washington on July 28. It may do just that, but in a way that probably won't please producers seeking more access to federal lands.

Chesapeake Energy Corp.'s chief executive is also chairman of the American Clean Skies Foundation, which advocates the use of gas as part of a sustainable energy future. The group released a study by Navigant Consulting Inc. which found that the United States has 2,247 trillion cubic feet of gas reserves, or a 118-year supply at 2007 demand levels.

Horizontal drilling and other new technologies have opened supplies in shale formations over the last 3-5 years, McClendon and Richard G. Smead, one of the study's authors and overall project manager for Navigant, told reporters at a briefing.

"It's groundbreaking. The size of these shale formations is so big it can't be ignored," McClendon maintained.

More than forecast

Smead said that the study tried to use information that's more current than what the US Energy Information Administration uses for its predictions. "Every EIA natural gas forecast has been exceeded by actual production, with shale gas particularly active in the last 10 years," he said.

His researchers spoke to 114 producers controlling 90% of known North American gas supplies and received responses from 66 about their estimated resources and anticipated production. They found that while overall production from unconventional sources has increased over 10 years, production from shale formations grew more than 660% from less than 1 billion cubic feet per day in 1998 to about 5 Bcf/d now.

"Current technology has gone through decades of change in about three years. Every indication is that this is the least expensive gas we'll have. The adequacy of this resource is not an issue. It is growing and will continue to grow with the market," Smead said.

It's also more readily available than what may be produced from areas which are currently off-limits, McClendon added. Chesapeake is making most of its discoveries by using new technology to tap formations beneath old fields which previously were out of reach, he said.

Less critical

"I think this makes lifting the Outer Continental Shelf moratorium less critical. The gas we're talking about is in traditional producing areas on largely private property," McClendon said at the briefing.

He did not emphasize that point when he testified before the US House Select Committee on Energy Independence and Global Warming later that day. But the committee's chairman, Edward J. Markey (D-Mass.), was aware of it.

"If the information in the study is correct, it takes a lot of pressure off us to open more of the OCS. This is something that could happen over 10 years, where Republicans are discussing an option that would take 30 years," he told me following the hearing.

Contact Nick Snow at nicks@pennwell.com

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