Mark Anthony

How Much Natural Gas Remains in the USA?

Wow! When I casually wrote down a few thought and published it on SeekingAlpha instablog, I never expected that it could result in so many reader comments.

I guess it raises a serious questions that every one wants to see answered: The difference between DISCOVERED and PROVEN natural gas reserves, and the UNDISCOVERED and UNPROVEN reserves.

The DISCOVERED and PROVEN natural gas reserve remains at roughly 10 years worth of US consumption. You can speculate all you want and expand your estimate of undiscovered reserves all you want.

But people do want to ask how much can you trust the estimate of the "undiscovered" reserves. How likely that they do exist? How likely that they can be discovered within the next 10 years. And how much of that gas is actually recoverable, and at what cost?

Until any speculative undiscovered reserve is actually discovered, measured, proven, and produces, they do not enter the supply / demand equation. I honestly believe the speculative numbers are nothing more than just speculations. Proven reserve is the only non-speculative number we can rely on.

How Much Natural Gas Remains in the USA?

21 billion cubic feet is 21 million thousand cubic feet. Natura; gas is sold in MMBTUs. One million BTU worth of natural gas is about one thousand cubic feet. I probably used the wrong terminology, TCF normally means trillion cubic feet.


On Oct 05 12:33 AM Camden wrote:

> Re: "21 BCF natural gas is 21 million TCF"
>
> Care to explain that?

How Much Natural Gas Remains in the USA?

Thanks for mentioning Robert Hefner's book. I knew about his name but never paid much attention. I find an early article you wrote about his book:

seekingalpha.com/artic...

Let me quote this from your article, which I presume must overwhelmed you but it completely underwhelmed me:

"In 1969 GHK, and its partners drilled a well over 24,000 feet deep in the Anadarko Basin. The well has produced 21 Bcf of natural gas (the equivalent of 3.6 million barrels of oil) and is still producing today. "

That's an very expensive well to drill, 24000 feet deep. Over the 40 years what investment return did it bring to the investor? 21 BCF natural gas is 21 million TCF, at roughly $2 or less per TCF averaged over the past 40 years, it brings in a revenue of $42M. The oil equivalent of 3.6M barrel, if averaged at about $15 per barrel in the 40 years, is roughly $54M. The initial drilling cost, inflation adjusted, plus the maintenance and operation cost over the 40 years, must far exceed the product revenue over the 40 years. This is an absolutely losing investment.

If that's the best Robert Hefner can brag about in his book, then he does not have much credibility. The US natural gas consumption in one day would be 62 BCF, three times higher than the accumulative production of that one deep well you cited.

On Oct 04 10:16 AM Michael Fitzsimmons wrote:

> a much better source of information on this subject is Robert Hefner
> III"s book, "The Grand Energy Transition". i won't repeat the data
> and logical arguments presented in that book, or refute the lack
> of same in this article, other than to say natural gas is abundant
> - in the U.S. and in the world.

Why Are Natural Gas Producers Expanding Production So Aggressively?

TraderMark:

Your observation is correct. But it is NOT the whole picture. So your conclusion is wrong. You missed two pieces which tells the story of the bigger picture:

1. At current natural gas price, it is far below production cost of the shale gas wells, although it is in par with conventional gas wells. Shale gas is the marginal production needed to keep the market supplied. CHK is a conventional gas producer, not a shale gas producer. They probably don't care much if they can still at least break even or even make a slight profit. Shale gas producers do care about the price being too low.

2. The telling sign is drilling rig count has collapsed from a year ago figure. Clearly producers are not rushing to drill more and produce more at loss. Rig count is the most important thing to tell us what the future production will be, as shale gas wells deplete fast. You have to keep drilling more wells to keep production up.
www.rigzone.com/news/a...

seekingalpha.com/autho...

China, Shipping and the Great Commodity Carry Trade

An intetesting recent article on New York Times:

China’s Commodity Buying Spree

www.nytimes.com/2009/0...

This NYT article adds to the arguments of my article that China is indeed on a global commodity buying spree to divest the dollars.

I object to the NYT conclusion that buying for stockpiling is "unsustainable". Theoretically any buying spree for stockpiling is always unsustainable, as no stockpile can grow indefinitely. At some point it has got to stop.

But it is WAY TOO PREMATURE for any one to talk about sustainability in just a couple of month. When a huge country like China decides to massively stockpile strategic industry materials, it could be a long process that extends for a decade or more before it feels it has enough.

China, Shipping and the Great Commodity Carry Trade

Regarding the "small cloud" on dry bulk shipping I mentioned in the article, which was the Drewry Report on new build ships. Here is a little bit information to help set the record straight:

www.hellenicshippingne...

Quote from the above source: "Currently, Chinese shipyards have a combined production capacity of 28.81 million DWT, accounting for 29.5 percent of the world's total, MIIT figures showed."

That gives a global total of ship building capacity of no more than 98M DWT per year. Dedicate just 1/3 of the global ship building capacity to dry bulk ships, that means no more than 33 million DWT of new dry bulk ships will enter service each year, even if ship yards turn out new ships at their full capacity. Compare this number with the approximate 600M DWT existing global dry bulk shipping fleet, 33M DWT new ships is a rather small number to make a difference.

So there is no need to worry about the bearish Drewry Report. There may or may not be a huge number of new ship orders on the order book. But it doesn't matter if the ship builders' capacility of actually turning out new ships is limited.

China, Shipping and the Great Commodity Carry Trade

Related to the discussion of this article, here is another interesting reading regarding China's strategic purchases:

Is China using its US dollar reserves to stockpile metals
agmetalminer.com/2009/.../

China, Shipping and the Great Commodity Carry Trade

Mmarrkk:

Thanks for clarifying the terminology. Of course I do not work in the oil/gas industry, and I am not a native English speaker. I did explain in the article that I mean "thousand cubic feet" when I use TCF so it does not hurt the article. But next time I will use the right terminology.

As for the precise marginal cost of shale gas production, there is no need to pick on the precise number. Cost depends on a lot of factors which all change over time. But one thing is for sure, current natural gas price does not provide any incentive for any producers to throw in billion dollar investments on new drilling rigs and new production wells. Producers want to see they have a high certainty of comfortable profit margin in the next few years before they would be willing to commit big investments.

China, Shipping and the Great Commodity Carry Trade

This earlier Seeking Alpha article by Keith Shaefer talked about marginal production cost of shale gas in better details:

seekingalpha.com/artic...

I think if you add every cost up, $10 to $13 is still a reasonable number for producers to be willing to invest money to drill the next shale gas wells, as there is investment risks involved.

China, Shipping and the Great Commodity Carry Trade

Mmarrkk:

I get the $10 to $13 per TCF cost figure from something I read a while ago. I shall dig out the source and do more study on the cost of shale gas. But if you study quarterly reports of major natural gas producers involved in shale gas that will give you a better picture.

It was correct for me to use TCF, Thousand Cubic Feet. When you say MCF you were probably thinking about MMBTU (A million BTU). One MMBTU worth of natural gas is approximately one thousand cubic feet. and that is about equivalent to 5.3 barrels of oil. Use this online energy equivalence calculator for the calculation:
www.shec-labs.com/calc...

Is There Enough Natural Gas?

On Apr 28 08:04 AM Michael Fitzsimmons wrote:

> markanthony: i respect simmons, and he has been correctly warning
> the world about peak oil. however, when it comes to natural gas,
> who am i going to believe? hefner, CHK, COP, or simmons? i'll go
> with hef. he's been drilling, exploring, and producing nat gas for
> over 50 years. he's been completely vindicated on the far reaching
> estimates he gave back in the 1970s to refute exxon mobil's congressional
> testimony. ultimately hefner's genius was his ability to disassociate
> nat gas from the simplistic "fossil fuel" category - that nat gas
> has a non-biologic origin and is therefore vastly more abundant that
> historical and traditional petroleum analysis would indicate. simple
> as that concept is, it was an absolute eye-opening revelation to
> me. after reading in his book the logic behind his conclusion, i
> find it hard to debate and believe he is absolutely correct.

Interesting theory. But it can not stand up to scrutiny. There is methane of astronomical origin, like the methane on uranus. However the earth is too small and its gravity pull too weak to trap methane in its atmosphere, let alone allow it to condense in the earth crust. I have thought about the abiotic origin of natural gas but I am not convinced.

But the origin doesn't even matter. The fact of the matter is natural gas wells are becoming increasingly expensive to drill, and each well starts to decline rapidly after just one or two years of production. Natural gas price must raise to reflect this reality of ever costly natural gas production.

Is There Enough Natural Gas?

This presentation is more recent. Note the description of shale gas, the reason for recent natural gas supply surge, and why it can not last:

www.simmonsco-intl.com...

Is There Enough Natural Gas?

On North American natural gas supply, people definitely need to read this summary by Matthew Simmons. This is a completely different picture than the one painted by optimists:

www.simmonsco-intl.com...

Is There Enough Natural Gas?

I meant to say a cube of 2040 kilometers. "Kilograms" was a typo.


On Apr 27 06:36 PM Mark Anthony wrote:

> The main article quoted a number "300,000,000 TCF" as global natural
> gas reserve. Do you know what kind of astronomical number it is?
> That is a volume of a cube of 2040 kilograms on each side! You get
> the number exagerated by many many orders of magnitude.

Is There Enough Natural Gas?

I read the USGS document again, and realized that it is talking about something totally different. It is talking about methane hydrate, a potential energy resource from the bottom of the oceans. This is something under study. But current there is NO technology available to produce methane hydrate and not a single cubic feet is produced so far. So the discussion of methane hydrate is totally irrelevant to the discussion of current natural gas price.

I am sorry that the author confused the methane hydrate reserve with natural gas reserve. The later is MUCH MUCH smaller.