Yesterday the Energy Information Administration (EIA) released their 2015 Annual Energy Outlook that forecasts U.S. demand for natural gas to increase by as much as 42% from 2014’s 26 TCF/year to 37 TCF/year by 2040. That translates to 101 BCF/d and is predicated on long term supplies of relatively cheap gas! Can the U.S. produce that much gas over the long term? Last week a group that is little known outside the natural gas industry – the Potential Gas Committee (PGC) provided an answer to that question when they announced their latest estimate of economically recoverable natural gas resources in the U.S. Today we analyze the impact of the latest PGC estimate and its long-term implications for the natural gas industry.
On April 8, 2015 a biennial natural gas industry event took place that didn’t get much press coverage outside the industry, and what it did get was kind of muted. It shouldn’t have been muted. The event was the press conference announcing the new Potential Gas Committee estimate of US recoverable natural gas resources. The Committee, or PGC, is a large group of industry volunteer experts who gather for a couple of years at the Colorado School of Mines in Golden Colorado, analyzing and evaluating the ability of all the producing regions of the nation to give up economically recoverable natural gas. This is the number that gets added to the Energy Information Administration’s (EIA) evaluation of proved reserves (the gas supply they’re really sure about), to arrive at a total resource ultimately available to the market.
The headline last week was that the PGC estimate of economically recoverable reserves had gone up 5.5 percent since the last estimate two years ago in 2012. Whoopee. Not a very big number. But we have to look at the absolute numbers, and see what they’ve done since shale development came to the front of the class in 2008, to understand that we have something pretty profound going on here. Figure 1 depicts the sum of the PGC estimate and EIA’s proved-reserve estimate in trillion cubic feet (TCF), for each study year since 1990. Shale is set out in green, in order to show its importance to this newfound abundance. Conventional gas estimates are in light blue and the EIA proved reserves are gray.
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About the song
“I Want to Take You Higher” was written by Sly Stone and appears as the third song on Sly and the Family Stone’s fourth album, Stand. The song has deep roots in the fact that it is a remake of “Higher” from the group’s Dance to the Music LP. “Higher” has its origins in the song “Advice,” which Stone co-wrote and arranged for Billy Preston’s 1966 album, The Wildest Organ in Town. “I Want to Take You Higher” is the B-side to the group’s hit single “Stand,” which was released in March 1969. It became a hit of its own in 1970, largely due to the performance of it at the Woodstock Music Festival and being prominently featured in the film of that festival that followed. The song went to #38 on the Billboard Hot 100 Singles chart. Ike and Tina Turner released their version later in 1970 — that went to #25 on the same chart. Sly and the Family Stone’s version starts with Freddie Stone’s bluesy guitar intro riff, progressing into a heavy funk jam featuring Larry Graham’s overdriven bass line, with shared vocals from Sly Stone, Rose Stone, Freddie Stone, and Larry Graham. Personnel on the record were: Sly Stone (lead vocals, keyboards), Freddie Stone (guitar, backing vocals), Rose Stone (keyboards, backing vocals), Larry Graham (bass, backing vocals), Greg Errico (drums), Jerry Martini (tenor sax), and Cynthia Robinson (trumpet).
Stand was recorded in 1968-69 at Pacific High Studio in San Francisco with Sly Stone producing. Released in April 1970, the album went to #13 on the Billboard 200 Albums chart and has been certified 3x Platinum by the Recording Industry Association of America. In 2015 the album was selected for inclusion in the National Recording Registry of the Library of Congress. Four Top 30 singles were released from the LP.
Sly Stone (Sylvester Stewart) is an American singer, songwriter, musician and record producer. He started his professional career as a rhythm and blues performer who moonlighted as a DJ at San Francisco’s KSOL radio station. He started working as a talent scout for Tom Donahue at Autumn Records, where his first production was Bobby Freeman’s hit record, “C’mon and Swim.” He formed Sly and the Family Stone in San Francisco in 1966 and remained with the group until 1975, when various drug and internal problems caused the band to break up. The band released 10 studio albums, two live albums, six compilation albums, and 19 singles. They are members of the Rock and Roll Hall of Fame and Vocal Group Hall of Fame and have been awarded an R&B Foundation Pioneer Award. Founding member Cynthia Robinson died in San Francisco in November 2015 at the age of 71. Sly Stone was last seen in public in 2015 and his current residence is unknown. Thank You (Falettinme Be Mice Elf Agin), a Sly Stone memoir written with Ben Greenman, is scheduled to be released in October 2023.
Comments
Hi Rick - Any idea if the PGC's estimates include Natural Gas Hydrates on the OCS in the unconventional numbers?
In reply to Unconventional Gas by Nathan Carlson
I don't think they recognize hydrates yet. Unconventional just includes shale, coal bed methane, and tight sands. Of course, lots of studies have said that if they ever economically unlock subsea hydrates, the numbers are astronomical. Some aggressive work going on in Japan in that regard, but probably still a long way off.
It is troublesome that only about 13% is proved. The question is what is the break even necessary to book as reserves all this resource base. I am almost sure that it is necessary much more than $ 4/Mcf. In other words, having almost 100y resource base, does not clarify much.
In reply to Reserves vs Resources by Andre Picarelli
As noted in the post, we'd expect the later parts of the overall recoverable resource to be higher cost, which is what's built into EIA's long-term price forecasts. However, that dynamic has been continuously improving with technological advances. The resources don't become proved reserves until they're drilled, and they ideally don't get drilled until the market needs the gas. The proved reserve number is also quite a bit larger (66 percent larger) than it was in 2006. It's always been on the order of ten years' worth of production (slightly more now, about 13 years), which in a sense represents current working inventory. So it's fair to say the industry develops its resource a decade at a time. It's why the efforts of the PGC are so important, to have an expert view of what's really out there and accessible in practical terms.