The 100 Year Natural Gas Myth

Includes: TOT, UNG, XOM
by: Eamon Keane

It's difficult to read an article on natural gas without the mention of the US' 100 years of natural gas supply. It forms the basis of suggestions for a scaling up of the natural gas intensity of transport and power generation. I'll look at the evidence here.

Figure 1 shows the historical data, and then in the last year or so what you could be forgiven for believing: (click all images to enlarge)

Figure 2 shows the reality:

Figure 3 shows the breakdown of US natural gas resources:

The Potential Gas Committee (PGC) arrived at similar figures. The 100 year figure originates from their latest report. The PGC figures say nothing about when and at what cost natural gas resources will be produced. Figure 4 shows how they characterize the US' natural gas resources.

There is a world of difference between proved reserves and probable, possible & speculative resources. You can read the definitions here.

I'll now get off the years of supply metric, since it is fairly superficial. Production rates is what really counts. Figure 5 shows the EIA's historical natural gas supply breakdown and their projections:

Figure 6 shows the changes in supply the EIA predicts:

I don't think anyone ever made money by betting on the EIA's accuracy, so Figure 7 shows Exxon Mobil's (NYSE:XOM) predictions:
Their total demand by 2030 is about the same, at 25tcf, however they project a steeper decline in conventional supply, with shale & coalbed methane picking up the slack. The nearly doubling of natural gas intensity in power generation was echoed by IHS-CERA's projections this week, where it was suggested demand would reach 13tcf from 7tcf today.

Figure 8 shows where the current shale supply comes from. 2009 supply was 80bcm, or 2.8tcf, for 12.7% of supply.

Figure 9 shows where drilling has been taking place:

The future trajectory of Figure 8 depends on decline rates, economics of production, natural gas demand, and also on what happens to the number of drilling rigs in Figure 9.

Figure 10 shows the EIA's projections for shale gas globally:
Some nice new phrases were christened at CERA this week. These are:

  • The Shale Gale
  • Hydrocarbon deniers
  • If oil is 'the prize', natural gas is 'the gift', if we're allowed unwrap it

These were complemented with copious references to 'game changer'.

Yet there are those who question the promise of shale gas, Ben Dell and Arthur Berman being the most prominent. The sometimes visceral intolerance of their skepticism - Berman's World Oil column on shale was stopped and his editor fired in November - should give pause. Irrational exuberance shouldn't be ruled out. It would be best to wait a couple of years to see where Figure 8 goes before declaring a new era. In January the Director of the Potential Gas Agency, John Curtis, stated:

"Things will calm down, there's been a lot of promotion."

Just the other day, John Dizard wrote an FT column which read:

"I think it might not be a bad idea to examine the faith-based assumption that the US has a virtually unlimited supply of natural gas from shale formations that can be extracted at a low price for the indefinite future."

Disclosure: No Positions