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The unconventional gas revolution is both smaller and larger than you might think

9 Feb 2010 by Jim Fickett.

Increased estimates of available natural gas made big headlines in 2009. The real impact of changing technology is both smaller and larger than you might think. Smaller, because of the attention paid to one high estimate of “technically recoverable resources” in the US, which may or may not give a good estimate of what will actually be produced, much less how long it might last. Larger, because it is entirely possible that, as unconventional gas technology spreads around the world, it could significantly increase the importance of gas relative to oil.

The core definition of unconventional gas (sometimes called continuous) is that the gas is highly dispersed in the rock, rather than in a concentrated bubble over oil or water. The main types of unconventional gas are deposits in shale (“shale gas”), in sandstone (“tight gas”), in coal (“coalbed methane”), or in ice (“gas hydrates”).

Advanced Resources International give a good capsule history of the recent revolution in unconventional gas:

a “paradigm shift” is underway on world natural gas supplies. … [It] began a decade ago in North America … cost coalbed methane in the San Juan Basin of Colorado and New Mexico led the way. Next was the introduction of highly productive tight gas development at the Jonah and Pinedale fields in western Wyoming. Third was the emergence of the Barnett and now the other North American gas shales. The final segment of the “paradigm shift” – the worldwide pursuit of gas shales and unconventional gas – has only just started, with Australia, China and Europe in the lead.

The main technological advances that have made unconventional gas economically producible are horizontal drilling and hydraulic fracturing. The effect of these two together is to connect large volumes of fractured rock to the well.

Pinning down concepts of future supply

There is a difference between gas in the ground and gas that will be produced and used. If a deposit is small enough and deep enough, for example, it might take more energy to dig it up than it would produce to burn it, so it would never be economical to mine it. Two key concepts in fossil fuels discussions are reserves and resources. There are many variations on both, but the main idea is that reserves are amounts very likely to both exist and be economically producible, while resources are everything that might be in the ground. More precisely, here are the two main definitions we need:

  • Proved reserves: “those quantities that geological and engineering information indicates with reasonable certainty can be recovered in the future from known reservoirs under existing economic and operating conditions” (British Petroleum)
  • Technically recoverable resources: “resources producible using current recovery technology but without reference to economic profitability” (US Geological Survey)

At any given time, technically recoverable resources are significantly larger than proved reserves. Technically recoverable resources may or may not ever turn into future reserves, depending on what further exploration turns up, as well as technical and regulatory costs going forward.

US supply

The importance of unconventional gas, shale gas in particular, is illustrated by the most recent reserves report from the US Energy Information Administration (EIA is under the Department of Energy; note this is not a permalink; units are trillions of cubic feet - Tcf):

Proved reserves 2007 Proved reserves 2008
Shale gas 21.7 32.8
Total 237.7 244.7

So the increase in proved reserves is more than accounted for by increases in proved shale reserves.

“Technically recoverable resources” is a commonly used concept, but unfortunately is somewhat ill-defined – just what level of uneconomic expense is allowed in the calculation? Details are rarely given. One industry practitioner complains:

In practice, the definition of the term “technically recoverable” is unclear and is inconsistently applied among the different assessments. A large part of the difference between existing resource assessments results from differing assumptions as to what constitutes a technically recoverable resource.

So it is not too surprising that different sources give quite different estimates. Probably the most conservative estimate for the US is from the US Geological Survey. Their stated goal is to estimate what will actually be added to proved reserves in the next 30 years. For the 2008 assessment, based on 2006 data (the latest available) they estimate 742 Tcf. This is based on quite old data for the main shale deposits, so is very likely too low, though still about 3 times proved reserves. At the high end, the Potential Gas Committee (PGC; a group of mainly industry volunteers), estimated 1836.4 Tcf, for data as of 2008. The PGC report came out in June 2009 and was the cause of last year's burst of headlines.

Both these estimates are in addition to proved reserves, so that the PGC estimate of overall future supply is 244.7 + 1836.4 = 2074.1 Tcf. Since 2008 production was about 20.6 Tcf, this lead to a number of breathless statements about the US having a 100 year supply of gas. However, although this estimate comes from the hands of experts, it necessarily includes considerable guesswork (about 600 Tcf are from “Speculative resources”), and it does not include any attempt to figure what fraction of the resources will actually be economically producible.

All in all, then, the US is likely to have, in gas that will actually be produced some day, somewhere between the USGS estimate of 742 + 245 = 987 Tcf and the PGC estimate of 2074 Tcf, or between 48 and 101 years of production at current rates. (Don't forget that phrase, “at current rates”. If Pickens is successful in converting a large fraction of the US auto fleet to natural gas, for example, the resources would not last nearly so long.)

World supply

If the US numbers are a bit hard to pin down, the global numbers are much more so, and at present it is very largely an educated guess what unconventional gas mining might do for global reserves. But there is a great deal of excitement in the industry, and informed people are suggesting the impact could be large. PFC energy said:

Global natural gas resources could be more than quadrupled, helping tackle climate change, if the world adopted US technology and expertise to tap unconventional sources, according to a report by PFC Energy, a consultancy. …

“You're talking about massive new resources,” said Nikos Tsafos, PFC's upstream and gas group senior analyst. “Even if you only got 10 per cent of [the total resources], given the need for economic viability at each formation, you would increase the reserve base globally by 50 per cent.”

Consequences

According to the 2009 British Petroleum Statistic Review of World Energy, proved reserves of natural gas, worldwide, were 185 trillion cubic meters at the end of 2008, which works out to 167 billion tons of oil equivalent. Proved reserves of oil, worldwide, were about 171 billion tons. On a global level, then, oil and gas reserves are of approximately the same size (in thermal output).

If global gas reserves do increase by anything close to 50%, this is a very, very big deal. By comparison, the Brazilian offshore discoveries, which also caused quite a stir, are thought likely to increase reserves by something in the tens of billions of barrels. 10 billion barrels of oil is less than 1% of world oil reserves.

If it does turn out that we have much more gas than we thought, globally, that is very good news on several fronts. First, of course, is that there is simply more energy. But if we are going to get a bonus in one of oil, coal, or gas, gas is definitely the best. Since natural gas is mostly methane, which is one fifth carbon and four fifths hydrogen, while oil is about one third carbon and coal is mostly carbon, gas combustion produces far more water and far less carbon dioxide than burning oil or coal. Further, gas power plants can be started and stopped more quickly than coal or oil plants, and hence complement solar and wind energy more effectively. Finally, there are serious concerns about the future world food supply, and nitrogen fertilizer is manufactured from natural gas.

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There are two new reference pages up in draft form: Unconventional gas background and US natural gas reserves. More details and future updates can be found on those pages.