Natural gas is a more difficult subject to address than petroleum, because the data is much less complete and reliable, and because the USA situation appears much more precarious than the world situation. BP/Amoco statistics imply that at 1998 consumption rates, the world has about 60 years of resources remaining. However, known reserves are much lower, resource estimates are highly speculative, and the major resources (approximately 70%) are in the Middle East and FSU (Former Soviet Union).
Natural gas can be readily transported by pipeline, but cannot be transported either in large quantities or economically by ship. Japan, Korea, and Taiwan have long-term contracts that lock up nearly all existing LNG shipping capacity. Europe may be able to depend on the Middle East and the FSU for several decades of natural gas supply. The USA does not have that luxury.
Because of transportation limitations, the USA must depend on North American natural gas. Mexico has already reduced exports to zero. Canada supplies about 15% of USA consumption, but has had very disappointing exploration results in recent years, and cannot be counted on to support major increases in consumption. Known USA reserves represent about eight years' supply at recent consumption rates, while demand is projected to grow by more than 50% during the next 20 years.
Included in natural gas resource estimates are:
· Associated resources – discovered along with oil fields, through drilling for oil.
· Non-associated resources – free flowing natural gas discovered without petroleum.
· Tight gases – natural gas in dense shale or sandstone deposits that requires extensive drilling and fracturing to recover.
· Coal bed methane – gas released from coal deposits that again requires extensive drilling and fracturing to recover.
Estimates for total resources vary widely from about 300 to 1,400 Tcf, (trillion cubic feet), and methods of estimating are very imprecise and speculative. Background data is not freely available to the individual, but databases can be accessed at the cost of a few thousand dollars. It seems likely that the higher resource numbers result from arithmetic addition of low probability estimates, and may therefore be meaningless. A number near 1,100 Tcf or 50 years is widely used, but is a very risky multiple of proven reserves. The hard data we do have is not encouraging. What we do know is:
· Drilling for natural gas in the five years from 1980 through 1984 was about double the average during the decade of the `90s, but annual average discoveries were slightly less.
· Because of the bad experience with wildcat drilling in the early `80s, drilling in the `90s tended to be concentrated near known large basins, extending their boundaries but not making major new finds.
· 9,000 new gas fields were discovered from 1977-87, but only 2,500 from 1987-97.
· With the application of new technology, especially hydraulic fracturing and horizontal drilling, initial production of new fields has been kept nearly constant for two decades, but depletion time has been shrinking rapidly. New wells average 56% depletion in the first year of production.
· New finds are becoming progressively smaller.
· Proved reserves of natural gas in the USA declined from a peak of 290 Tcf in 1967-70 to 167 Tcf in 1989, and, with some fluctuation, have been flat since, in spite of a major drilling peak in the early 1980s as noted above.
· For the last 12 years, discovery has just kept pace with production, and consumption growth has been served by increasing imports.
· Of 1999 EIA estimated resources of 1,280 Tcf, 890 Tcf are classified as "undiscovered," and 220 Tcf as expected reserve growth. (Most of the discovery in the 1990s was reserve growth. How much can be left?)
· Natural gas production in the USA peaked in 1973.
· Natural gas supply from the Gulf of Mexico (GOM) shelf is in decline.
· Natural gas discovery in the deep Gulf of Mexico is much lower than expected, and the NRG Association now projects peak supply as 3 Tcf in 2007 versus the National Petroleum Council forecast of 4.5 Tcf in 2010.
· Simmons has noted that rig count in the Gulf of Mexico grew 40% from April 1996 to April 2000, and 60% in Texas from January 1996 to October 2000, with production remaining flat.
There is nothing in the known facts to support an optimistic resource estimate. Clearly the natural gas industry has to rapidly accelerate drilling, just to keep production flat. A large increase in wildcat drilling in the early `80s didn't help and may not again.
Is Alaska going to help? Resources are projected by the EIA as 237 Tcf, but proven reserves are only 10 Tcf. (Does that make you wonder?) A three-foot-diameter pipeline, moving gas at 2,200 ft./sec would deliver only 0.5 Tcf/year, less than 2%of 2020 needs. The energy to move the gas increases with the cube of the velocity, and, at this velocity, would require more than 2% of the gas moved just to drive the compressors. It may not be economical to build a 2,000-mile pipeline. (Maybe the natural gas can be converted to liquid syn fuel in situ and shipped via the existing oil pipeline?)
The National Petroleum Council has forecast natural gas demand as 29 Tcf in 2010, and the EIA as well as the NEPDG project demand of 40 Tcf by 2020. Rising prices will probably severely dampen such demand growth, but it is very unlikely that supply growth can keep up.
If we can't get annual discovery to 30 Tcf, and we try to grow production to 40 Tcf by 2020, we will deplete proven reserves to zero by 2025, at which point production would fall back abruptly to the then discovery rate, which might well be in decline. There is a real risk that natural gas supply will fall off a cliff before 2025, possibly much before.
Given "what we know" listed above, it seems likely that the often- mentioned 50 years of natural gas resources is very optimistic, even with consumption flat at 1999 levels. Assuming consumption growth to at least 30 Tcf/year by 2020, total resources are unlikely to exceed 30 years, and if the pessimists, (realists?) are right could be less than 20 years.
We have approved plans for a major increase in natural-gas- fired electricity generating capacity to come on line between now and 2010. I have read that 183,000 MW are in the pipeline to come on stream by the end of 2003, nearly all of it natural gas fueled.. That capacity would call for an incremental 4.5 Tcf of natural gas, or a 20% increase in supply in just 3 years. Given that major increases in drilling in the last 5 years have just kept production flat, one wonders if that growth can be met. If not what will be the impact on prices?
Another problem with major increases by 2010 is that much of it risks being obsolete for lack of fuel before it is 30 years old. What do our children do after 2030? Hopefully the turbines will burn hydrogen. Has this eventuality been planned?
The good news is that we will have several warning signals that allow a timely change of direction. The key signals will be failure of discovery to grow as hoped, and production crossing above discovery, resulting in a new period of decline in proven reserves.
The bad news is that we will have to open presently restricted areas to drilling, in spite of environmentalist opposition. Clearly criteria should be established that let us address those areas with the highest probability of gas and the lowest potential for environmental damage first, progressing sequentially down a well analyzed list from best to worst.
The natural gas prospect illustrates the folly of developing a policy that does not look beyond 2020. It also emphasizes the need to put a very high priority on development of renewable alternatives, while we still have the fossil fuel energy with which to develop them.
Respectfully yours,
Murray Duffin, CIC