In August, an announcement by the U.S. Geological Survey triggered a storm of uncertainty in the natural gas industry. The agency announcement: that it had increased its estimate of undiscovered natural gas in the Marcellus Shale (which underlies much of Pennsylvania, New York, West Virginia and Maryland) from the 2 trillion cubic feet it figured back in 2002 to 84 tcf today. It was a huge increase, yet on first glance, this report from the USGS seemed to contradict one released just a month earlier from the U.S. Energy Information Administration. The EIA’s report estimated that there were 410 tcf of recoverable gas in the Marcellus. The numbers were so different that there was little surprise when headlines started cropping up with wording like: “U.S. Slashes Marcellus Reserves 80 Percent.” [Editor’s note: the anti-shale gang at The New York Times mixed up the story entirely, seemingly on purpose.]
Yet this is all a big misunderstanding. The EIA and the USGS were looking at two entirely different things. The EIA was estimating discovered reserves of natural gas, while the USGS was looking at undiscovered reserves yet to be found. This would suggest that in time some or all of the 84 tcf USGS estimate would be additive to EIA’s 410 tcf.
Contrary to the dire reports from the press, this indicates the potential for tremendous growth in the resource base and that the Marcellus contains enough gas to satisfy U.S. demand (roughly 27 tcf per year) for 15 years. Whether the two estimates are additive is still somewhat unclear, but it is clear that the USGS estimate did not invalidate and replace EIA’s estimate—they are different things. While this mixup was easy to isolate and understand, it highlights an ongoing issue in the natural gas industry, that has become more and more important as the nation evaluates the unprecedented strategic potential of this domestic energy resource: Everyone seems to estimate and report the gas resource, and even production, a little bit differently.
There is commonality on the concept of “proved reserves.” These are reserves held in actual, developed gas fields that are certain enough based on drilling results that they’ve cleared the SEC’s hurdles for reporting. But when we look at EIA, at the Potential Gas Committee (or “PGC,” the group that estimates gas resources for the industry), at USGS, and at the many expert consultants around the industry, we find that sometimes proved reserves are included, and sometimes they are excluded—but we are rarely told which. Rarely are proved reserves broken down by type, so that the proved amount of shale gas may be readily identified (it’s 35 tcf, by the way, nationwide). EIA adds to proved reserves “inferred reserves,” that come along with the proved, “discovered but undeveloped” resources, and the USGS estimate of “undiscovered” resources. However, EIA just does that at the national level in looking at something like shale gas, so the reported numbers such as 410 tcf for Marcellus represent only “discovered but undeveloped.” The PGC, for its part, also reports “probable,” “possible,” and “speculative,” which then gets added to proved reserves for a total resource base. The PGC number for the Marcellus – 350 tcf – employs a variety of mean and median values, ranges, etc. So comparing the PGC resource estimate to the EIA resource estimate or to the many private-consultant estimates out there can be confusing, and really only makes sense at the very aggregated level.
The reporting of gas production and deliverability often suffers from similar confusion. The primary source there is the difference between dry gas and wet gas (the “wet” hydrocarbons that are removed by processing facilities). Most raw production estimates, especially by field, tend to be wet, a number that is larger than the dry volume that would relate to national demand for natural gas, or to the longevity of the resource base (which is also usually a dry-gas estimate). As a result, it is very easy to make apples-and-oranges comparisons that are misleading. For example, if one adds up the wet-gas production from all the shale-gas plays, the answer would be far in excess of the total dry-gas production nationwide. Or an industry critic might see a dry-gas report, compare it with another estimate made on a wet basis, and conclude that production is falling short of expectations. This is especially possible because many reports and charts of production do not say which they are.
Are these communication mismatches important beyond the reporting of industry financial results? Yes. There is widespread concern and conflict surrounding the impact of shale gas development. People get agitated about hydraulic fracturing, drilling itself, even truck traffic. The degree of commitment the nation should make to natural gas as a strategic resource (accepting but managing the impact of development), is very much a function of the size of the prize. It is thus critical that we evolve to a more universal understanding of how much gas there is, and how soon it can be brought to market. Conversations between the USGS and the EIA to identify differences in their analytical approaches are underway, and are a good start. What we also need is a common approach for labeling reserves. What’s more, those who report about the industry need to take a closer look at what reports and data really say before drawing erroneous conclusions.