NGA ISSUE BRIEF: Supply Outlook |
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January 2012
SUMMARY
U.S. Gas Resource Base Continues Growth
In 2011, the U.S. EIA reported that U.S. production grew 7.4% over the prior year, "the largest year-over-year volumetric increase in history." A key reason for this strong production trend of recent years is the growing role of shale and unconventional gas production. As of 2010, shale gas accounted for 23% of the U.S. natural gas supply, compared to 5% only a few years ago. EIA is projecting that shale could represent as much as 49% of U.S. supply by 2035. This positive supply news was underscored in April 2011 when the Potential Gas Committee released its 2010 biennial report: Potential Supply of Natural Gas in the United States. The assessment found that the United States possesses a total natural gas resource base of 1,898 trillion cubic feet (Tcf). This is the highest resource evaluation in the Committee’s 46-year history, exceeding the previous record-high assessment by 61 Tcf. Most of the increase arose from reevaluation of shale-gas plays in the Gulf Coast, Mid-Continent and Rocky Mountain areas. When the PGC’s results are combined with the U.S. Department of Energy's latest available determination of proved dry-gas reserves, 273 Tcf as of year-end 2009, the United States has a total available future supply of 2,170 Tcf, an increase of 89 Tcf over the previous evaluation. (Americans consume an average of 22 Tcf per year.) The PGC observed, "Our knowledge of the geological endowment of technically recoverable gas continues to improve with each assessment. Furthermore, new and advanced exploration, well drilling, completion and stimulation technologies are allowing us increasingly better access to domestic gas resources—especially ‘unconventional’ gas—which, not all that long ago, were considered impractical or uneconomical to pursue…Consequently, our present assesssment, strengthened by robust domestic production levels and a growing base of proved reserves, demonstrates an exceptionally strong and optimistic gas supply picture for the nation." Transformative Potential of Shale and Other "Unconventional" Supplies
The rapidly-growing source of supply in the U.S. mix is the "unconventional" gas resource. "Unconventional" gas is defined as "Quantities of natural gas that occur in continuous, widespread accumulations in low quality reservoir rocks (including low permeability or tight gas, coalbed methane, and shale gas), that are produced through wellbores but require advanced technologies or procedures for economic production."
As noted, it is primarily the advance in accessing what have been called "unconventional" gas resources. Shale gas is considered an "unconventional" resource. The gas is located generally deep underground within shale rock formations. Advances in drilling technology, such as horizontal drilling, have enabled natural gas producers to begin tapping this supply source in a significant way. For the Northeast and Mid-Atlantic in particular, the major potential source of growth is the Appalachian Basin and its Marcellus Shale resource. This area is already a locus for considerable underground storage and pipeline connections. This shale gas formation extends from West Virginia into Ohio, Pennsylvania and New York. For the Northeast and Mid-Atlantic in particular, the major potential source of growth is the Appalachian Basin and its Marcellus Shale resource. This area is already a locus for considerable underground storage and pipeline connections. This shale gas formation extends from West Virginia into Ohio, Pennsylvania and New York. Estimates are that this area may hold from 140 to nearly 500 trillion cubic feet (Tcf) of natural gas. Production in the Marcellus region has grown strongly in just the last few years, to about 4 billion cubic feet per day in 2011. The Northeast, long accustomed to being “at the end of the pipeline,” now finds itself located next to - and indeed on top of – potentially one of the largest natural gas basins in the U.S. Shale resource production is well underway in Pennsylvania. There are concerns about potential environmental issues associated with shale development, from water usage to groundwater protection to local impacts from production. New York State, in July 2011, after a multi-year environmental review, announced it plans to permit hydraulic fracturing and shale gas production in the State, with "rigorous and effective protections." See NGA’s separate Issue Brief on the Marcellus Shale for more information on this resource base. Rockies Gas Moves East
The Rockies represent about 22% of U.S. gas reserves. There had been limited pipeline infrastructure to link reserves there to markets in the Midwest and East, but that changed with the development of new pipeline infrastructure, the "Rockies Express," in 2009. The eastern portion, known as "REX-East," travels approximately 638 miles from Missouri to Ohio. The pipeline has a transport volume of about 1.8 Bcf/day. New supplies from Appalachia and the Rockies are helping the Northeast region to reduce its energy cost disadvantage. In a May 2010 paper, FERC staff noted that "prices in the Northeast are down relative to Henry Hub" thanks to the addition of new infrastructure. The arrival of the Rockies East pipeline, observes FERC, "along with the addition of another 0.5 Bcf/d of production from the Marcellus Shale in Appalachia, has pushed Northeastern basis prices downward." The rise of Appalachian production may mean less gas comes east from the Rockies in coming years.
Canadian Gas: Important Part of U.S. Mix, but Declining Exports into U.S. Anticipated
Regarding imports, Canada has been a valuable supplier of gas to the U.S. and the Northeast for decades. Canada will remain an important supplier for years to come but its share of the U.S. market is expected to decline over the long-term. Imports from Canada represented about 9% of U.S. supply in 2010. The growth of U.S. production is leading to lower imports from Canada; at the same time, natural gas demand within Canada is expected to grow. As one indicator of the changing dynamic, several pipelines in the U.S. Northeast, traditionally transporting imported supplies into the U.S. from Canada, have received federal authority to export supplies to Canada – a true reversal of long-standing pipeline flow patterns. The potential of unconventional gas is not limited just to the U.S. but includes Canada as well. In a November 2009 paper, Canada’s National Energy Board (NEB) noted: "It appears that there is potential for 1000 Tcf of shale gas in place in Canada if not more." Major potential basins close to the Northeast market include the Utica Shale in Québec and the Horton Bluff in the Maritimes. LNG Potential Remains Valuable to Key Markets
The global market is also increasing its supplies of natural gas. Liquefied natural gas (LNG) export capability has grown strongly in recent years with liquefaction capacity in countries as diverse as Australia, Peru and Qatar. U.S. demand for LNG had been increasing in recent years, but here as well, the rise of domestic production and lower commodity prices is making the U.S. a less inviting market for LNG imports. Several LNG import facilities outside the Northeast are considering adding liquefaction facilities so that they can export LNG to the world market – a reflection of the confidence in the extent of U.S. domestic supplies. Even so, LNG continues to be important to the U.S. and particularly Northeast natural gas supply mix. With the Northeast delivery system still constrained at certain points, LNG will serve to ease bottlenecks and increase supply and delivery options. LNG provides a valuable supply option to the Northeast portfolio. Overall, the supply picture for natural gas looks increasingly positive, in the U.S. and regionally, with more supply opportunities than foreseen just a few years ago. The pace of development will depend however on economic, environmental and market signals. It also will require infrastructure investments to link these new supplies to the end-use markets. For Further Information U.S. Energy Information Administration, July 2011 report on emerging resources Potential Gas Committee, April 2011 report MIT Energy Initiative, "The Future of Natural Gas," June 2011 report International Energy Agency, "Are We Entering a Golden Age for Natural Gas?," June 2011 U.S. Geological Survey, Assessment of Gas Resources in the Marcellus Shale |
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