EIA Report Re-Estimates U.S. Shale Gas Resource

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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--U.S. shale gas reserves grew over the last year as increased estimates of the size of some shale formations offset a significant reduction in the estimated reserves in the Marcellus Shale, according to the Annual Energy Outlook released Monday by the U.S. Energy Information Administration (EIA) (Washington, D.C.), the research and statistical branch of the U.S. Department of Energy (DoE) (Washington, D.C.).

In its annual long-term energy study, the EIA estimated that the unproved technically recoverable resources (TRR) of shale gas in the U.S. was 482 trillion cubic feet (Tcf), substantially below the 827 Tcf the agency estimated last year. EIA increased its estimate of shale gas resources in four shale formations--Eagle Ford, Fayetteville, Haynesville and Woodford--but the estimated size of the Marcellus fell by 66%, to 141 Tcf from 410 Tcf last year.

In explaining its sharply reduced estimate of the size of the Marcellus shale, EIA observed: "Drilling in the Marcellus accelerated rapidly in 2010 and 2011, so that there is far more information available today than a year ago." For this year's annual energy outlook, EIA said it used "more recent drilling and production data available through 2011 and excludes production experience from the pre-shale era (before 2008)."

The agency also noted that the relatively unexplored Utica shale, which lies underneath the Marcellus, has estimated resources of 16 Tcf. EIA said a subsequent version of this report, due this spring, will include a more in-depth examination of the factors that affect all of its resource estimates.

On a percentage basis, U.S. imports of oil have declined as domestic production has increased, reversing a trend that began in 1986, EIA noted. Net petroleum imports as a share of total U.S. liquid hydrocarbon fuel consumption will drop from 49% in 2010 to 36% percent in 2035, EIA forecast. U.S. crude oil production increased from 5.1 million barrels per day (BBL/d) in 2007 to 5.5 million BBL/d in 2010. Going forward, EIA sees domestic oil production rising by another 1 million BBL/d by 2020 and biofuel production increasing by more than 1 million BBL/d of oil equivalent by 2024. Even with a projected decline after 2020, U.S. crude oil production would remain above 6.1 million BBL/d through 2035.

On the demand side, the agency projected only a "modest" growth in demand from the transportation sector over the next few years, as higher vehicle mileage standards become effective. EIA's forecast does not include potential vehicle fuel economy standards that could be enacted after 2017. If those standards were enacted, that would further slow demand growth for crude oil and refined product.

Click on the image to see EIA's estimate of liquid hydrocarbon consumption and imports through 2035.

Crude oil prices spent 2011 in the $85 to $110 per barrel range, and EIA sees them rising to $120 per barrel in 2016, measured in real 2010 U.S. dollars. Factors affecting domestic crude oil prices include pipeline projects to increase outbound capacity from Cushing, Oklahoma; world economic growth; and the ability to increase production from countries that are not members the Organization of Petroleum Exporting Countries (OPEC). Measured in nominal dollars, crude oil will cost $230 per barrel in 2035, which is about $145 per barrel in 2010 dollars.

EIA's study projected U.S. shale gas production will soar from 5 Tcf in 2010 to 13.6 Tcf in 2035. During that quarter-century, shale gas production will increase from 23% to 49% of U.S. dry gas production. U.S. production of natural gas is expected to exceed consumption early in the next decade, the DoE arm added.

Click on the image at right to see EIA's estimate of shale gas production through 2035.

The natural gas outlook reflects increased use of LNG in markets outside of North America; strong domestic natural gas production; reduced pipeline imports and increased pipeline exports; and relatively low natural gas prices in the U.S. compared to other global markets, the agency said.

Low domestic gas prices will spur export of gas in liquefied form, EIA said. It sees the U.S. becoming a net exporter of liquefied natural gas (LNG) in 2016, a net exporter of pipeline gas in 2025, and an overall net exporter of natural gas in 2021. It expects U.S. LNG exports to start at 1.1 billion cubic feet per day (BCF/d) in 2016 and increase by an additional 1.1 BCF/d in 2019. Since last year's EIA energy outlook report, U.S. gas prices have fallen so far that the agency cut its estimate of future Canadian pipeline gas imports by 50%.

Much of the growth in domestic natural gas production is a result of the application of recent technological advances and continued drilling in shale plays with high concentrations of natural gas liquids and crude oil, which have a higher value in energy-equivalent terms than dry natural gas, EIA said.

Turning to electricity, EIA sees renewables and natural gas continuing to increase their share of the electric market at the expense of coal over the next 25 years. By then, EIA forecast, 39% of U.S. electricity will be generated by coal, down from 49% in 2007. By 2035, EIA said that 27% of electricity will be generated from natural gas, up from 24% in 2010, and 16% of electricity will be generated from renewable resources, up from 10% in 2010.

Click on image at right for EIA's market-share analysis of fuels used in the U.S. electric power industry through 2035.

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