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North American Natural Gas Supply Assessment of a natural resource is a time-dynamic process. Be- cause the process involves estimating the location and magni- tude of an inherently unknown quantity, the accuracy of the as- sessment is limited by the perception and understanding of the origin and occurrence of the resource; the quality and distribution of available data from which to project estimates; and the methods employed to facilitate the assessment. Owing to these factors, a range of assessment values, not a single number, should be expected. Estimates of potential gas resources change from year to year. In- creases result from new discoveries in both producing areas and nonproducing frontier areas and reserve growth in producing areas. De- creases result from continued production, reclassification of potential re- sources to proven reserves, and condemnation or downgrading of an area due to unfavorable drilling results. Additionally, the effective date of an estimate must be considered. How any of these factors influence an estimator's judgment of resource potential relates directly to the amount and quality of information that becomes available through drilling and production and the application of new technologies or new concepts. Some activities may confirm industry's original expectations about a field or new play; others may not. The combined effect of these factors for any given geological province from one assessment to the next may be an over- all net increase, a net decrease, or no substantial net change. With this background, the committee and workshop participants examined current assessments of the world and of North American natural gas resources. 34

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NORTH AMERICAN NATURAL GAS SUPPLY ~ ~ ;.o ~ .~ ~ ~ ~ 35 ~ CCCCC OCR for page 34
36 2500 - 2000 1 500 c' U.S. NATURAL GAS DEMAND, SUPPLY, AND TECHNOLOGY 1 000 500 o c' . _ of .O A:) IL c' . _ .m c' in ~ Q o .~ ~ U' ~ .O Cut Cat ._ ~ U' ~ 1994 Mean Gas 1~1 2000 Mean Gas . _ in u' FIGURE 3.2 Comparison of USGS mean undiscovered gas by region (excluding the United States). SOURCE: Modified from Ahlbrandt et al. (2000~. standard engineering techniques, an understanding of the potential for new plays, and an evaluation of the role of current and advanced technol- ogy in gas exploration and production (Thomas Ahlbrandt, USGS, per- sonal communication, 2003~. A total of 1,289 Tcf of technically recoverable resources has been re- ported for the United States by the EIA, using predominantly USGS and Minerals Management Service data (see Figure 3.3) (Mary Hutzler, EIA, personal communication, 2003~. Proven reserves account for 14 percent of the remaining U.S. resource. The largest single category (34 percent) is unconventional natural gas, comprising gas reservoired in tight (low-permeability) sands and carbon- ates in fractured shales and coalbeds (Mary Hutzler, EIA, personal com- munication, 2003) (see Figure 3.3~. Controversy exists, however, as to the size and geological nature of the tight sands gas resource in the U.S. Rocky Mountains region (where the bulk of the assessed gas is thought to re- side). A recent study (Keith Shanley, Stone Energy, personal communica- tion, 2003) of new field discoveries (see Figure 3.4) and the character of reservoir rocks in the greater Green River Basin of Wyoming calls into question the nature and ultimate gas productivity of basin-centered gas deposits a type of tight has sand reservoir thought to contain free has . .. ~ . . ~ .. . .. . clowncllp ot water, a reversal ot the norm in more permeable and porous rocks. The significance of this study is that current resource estimates for this category of tight sands may be up to three times too large. The con- cept of basin-centered gas, however, is well established (Ben Law, Pangea

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NORTH AMERICAN NATURAL GAS SUPPLY Proved Inferred nonassociated I Inrli.cr~r~vPrPr] nr~n~.c.cr~r~i~tPr] Offshore - Onshore Other unproved I Shale gas Tight gas ~, Alaska ~ :::::::::::::::vx'`~~ Lower 48 associated-dissolved 0 100 200 300 400 500 Trillion Cubic Feet | Total: 1,289 trillion cubic feet | 37 FIGURE 3.3 Technically recoverable U.S. natural gas resources as of January 1, 2002. SOURCE: EIA (2003a, p. 35) Hydrocarbon Exploration, personal communication, 2003). This contro- versy rests on a single technical presentation at which only summary data were shown. However, the Unconventional Petroleum Systems commit- tee of the American Association of Petroleum Geologists (AAPG) is pro- posing a Hedburg conference, devoted to this topic, to be held in 2004. Additionally, at least one research proposal was submitted, in August 2003, by a university to a consortium of industry and independent re- search organizations to verify the applicability of the basin-centered gas concept in the Piceance basin of Colorado. There are nongeological reasons to consider that may not allow all of the large gas volumes assessed in the United States and the rest of the world to become usable energy by the customers. First, potential gas resources consist of two components technically recoverable re- sources and a significantly smaller subset of economically recoverable resources. Proven reserves are, by definition, both technically and eco- nomically recoverable. However, other resources have less constrained (or unknown) costs to find, produce, and transport. An analysis of un- discovered conventional resources in the federal outer continental shelf indicates that, for the total Gulf of Mexico outer continental shelf, larger volumes of gas are modeled as becoming available only as wellhead prices significantly increase (see Figure 3.5~. Similarly for the onshore United States, the USGS has reported much smaller volumes of gas avail-

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38 U.S. NATURAL GAS DEMAND, SUPPLY, AND TECHNOLOGY 700 ~ 600- 500~ . _ ~ 400~ a CD 300- 200 ~ 100 ~ Since USGS 1995 National Assessment: 3870 Total wells 437 Wildcat wells 41 Discoveries O~ _ I' ~ .. '. ................ '. ~ 50 ~A. ~ 1998 1999 2000 2001 106 _ 5 - 1994 1995 1996 1 997 2002 Total Wells _ Total Wildcat Wells Total Develop. Wells I I New Field Discoveries ' Successful Develop. Wells _ Validated New Field Discoveries I $/mcf 7 5 ~c' Gig .O (A 2 1 - O FIGURE 3.4 Greater Green River Basin drilling results for the period 1994 to 2002. SOURCE: Shanley et al., in press. Data are from IHS Energy (2002~. Copy- right AAPG, 2003. Reprinted by permission of the AAPG, whose permission is required for further use. able at $3.34/Mcf in 1994 dollars, compared to the total assessed resource (see Figure 3.6~. Additionally, a significant percentage of the future gas resources of the United States is off-limits due to state and federal land-use restric- tions. For example, 13 percent of the remaining gas resource of the federal outer continental shelf (eastern Gulf of Mexico and Straits of Florida, At- lantic, and Pacific) is essentially undrillable at this time (see Figure 3.7~. The Departments of the Interior, Agriculture, and Energy have deter- mined that, for five areas in the Rocky Mountains region with the largest remaining gas potential, 14 percent of the resource is closed to drilling, 4 percent has severe restrictions of 6 months or more per year, and the re- maining 82 percent has relatively modest restrictions, due primarily to

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NORTH AMERICAN NATURAL GAS SUPPLY . t _ _ _ _ _ _ _ I . _ _ _ _ _ _ _ JJJJJJJJJJJJJ Total GOM >2400 a_ s 1 600-2400 Q 800-1600 200-800 0-200 39 1 Discovered Remaining | | $2.11 | | $3.52 | >$3.52 | ,. ~ ~ | Undiscovered Conventionally Recoverable| 05 0 100 150 200 250 300 350 400 450 Tcf _ Cumulative Production e21 Mean UERR @ $2.11 I I Remaining Reserves I I Incremental (mean) UERR Ha Incremental (mean) UCRR ~ Unproved Reserves Reserve Appreciation FIGURE 3.5 Mean total gas endowment and undiscovered economic recover- able resources (UERR) by water depth for the Gulf of Mexico region. SOURCE: Richie Baud, Minerals Management Service, personal communication, 2003. Data are from Lore et al. (2001~. migration and nesting season issues or is governed by standard lease terms (U.S. DOI et al., 2003~. Finally, there are physical limitations to bring- ing gas to market in a timely fashion. For example, while 27 percent of the remaining gas resource in the federal outer continental shelf is assessed for Alaska, no pipeline exists or has even been approved to transport gas to the lower 48 states (Richie Baud, Minerals Management Service, per- sonal communication, 2003~. Canadian Supply Canada ranks third in the world in natural gas production, behind the former Soviet Union and the United States (Greg Stringham, Canadian

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40 U.S. NATURAL GAS DEMAND, SUPPLY, AND TECHNOLOGY 700 - 600 500 - IL .c' 400 - 53 O 300 - . _ . ~ 200 - 100 Undiscovered Continuous (Unconventional) $2MCF $3.34/MCF ~ Technically Recoverable Undiscovered and Continuous (Unconventional) FIGURE 3.6 USGS economically recoverable gas estimates in trillion cubic feet for 1995. SOURCE: Thomas Ahlbrandt, USGS, personal communication, 2003. Data are from USGS (2000~. Association of Petroleum Producers, personal communication, 2003~. The United States imports over 16 percent of its gas from Canada 3.8 Tcf in 2002 which accounts for 94 percent of U.S. imports (EIA, 2003a). Most forecasts for the next 15 to 20 years assume steadily increasing Canadian imports, in excess of 4 Tcf/year (Mary Hutzler, EIA, personal communi- cation, 2003~. However, growth in Canadian gas requirements (particu- larly for Albertan oil sands development), the size of the remaining re- source base, and a decrease in the size of recently discovered gas pools might combine to limit Canada's future contribution to U.S. consumption to 4 to 4.5 Tcf/year (Greg Stringham, Canadian Association of Petroleum Producers, personal communication, 2003~. The remaining resource base has been assessed by Canadian organizations as 235 to 462 Tcf (see Table 3.1~. Much of this gas has frontier status (see Figure 3.8) and/or does not have pipeline access (Greg Stringham, Canadian Association of Petroleum Producers, personal communication, 2003~. Additionally, about half of the gas to be delivered from the Mackenzie River Delta region, after a pipe- line is built, could be consumed within Canada in conjunction with heavy

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NORTH AMERICAN NATURAL GAS SUPPLY Eastern GOM & Straits of Central COM 39% 41 Florida Atlantic 3% ~ ~ 6% Pacific . ~ ~ 4% 1,~ Western GOT 21% Alaska 27% FIGURE 3.7 Distribution of remaining gas resources in the federal outer conti- nental shelf by area (includes discovered remaining reserves, mean undiscovered conventionally recoverable resources, and 5.7 Tcf of discovered Alaska reserves that are currently uneconomical). SOURCE: Richie Baud, Minerals Management Service, personal communication, 2003. Data are from Lore et al. (2001), Sherwood and Craig (2001), and Sorensen et al. (2000~. TABLE 3.1 Range of Assessments by Canadian Organizations of the Remaining Natural Gas Resource Base as of Year End 2001 Maximum Minimum Region (Tcf) (Tcf) Western Canada Sedimentary Basina 209 138 Atlantic Canadaa b 59 33 Mackenzie Deltaa 64 64 Coalbed Methanes 135 0 Total 462 235 aData are from National Energy Board (Canadian National Energy Board, 1999~. bData from Canada-Nova Scotia Offshore Petroleum Board (Canadian National En- ergy Board, 1999~. CData are from Geological Survey of Canada (Heath and Associates, 2001~. SOURCE: Greg Stringham, Canadian Association of Petroleum Producers, personal communication, 2003.

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42 ~ Remaining r Produced U.S. NATURAL GAS DEMAND, SUPPLY, AND TECHNOLOGY FIGURE 3.8 Ultimate potential of Canadian natural gas in trillion cubic feet. SOURCE: Greg Stringham, Canadian Association of Petroleum Producers, personal communication, 2003. Data are from Canadian National Energy Board (1999~. Oil production. The other half of the Mackenzie Delta gas would be avail- able to North American markets. Canadian producers face similar land ac- cess and regulatory issues as their U.S. counterparts. On a more positive note, the first coalbed gas production in Canada began in Alberta in 2003. The Western Canada Sedimentary Basin of Alberta, British Columbia, and Saskatchewan is the premier gas-producing region of Canada and the basin that supplies almost all of the gas exported to the United States (Greg Stringham, Canadian Association of Petroleum Producers, personal communication, 2003~. While the Canadian National Energy Board (1999) has assessed the remaining resources at 176 Tcf and the Canadian Gas Potential Committee (2001) estimates 122 Tcf, the USGS (2000) has deter- mined a value of 15.6 Tcf (see Figure 3.9~. The USGS estimates represent only a few years of supply. Clearly the methodology and assumptions of these three organizations need to be compared to better determine the remaining Western Canada Sedimentary Basin gas resource. Mexican Supply The United States has been a net exporter of natural gas to Mexico for the past 15 years (see Figure 3.10~. Presently, the supply within Mexico is

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NORTH AMERICAN NATURAL GAS SUPPLY Canadian Gas Potentia Committee, 1997 Canadian National Energy Board, 1999 U.S. Geological Survey, 2000 43 122 5.6 i ~ l 76 ~ 0 20 40 60 80 100 120 140 160 180 200 Tcf FIGURE 3.9 Estimates for undiscovered recoverable gas in the Western Canada Sedimentary Basin in trillion cubic feet. SOURCE: Thomas Ahlbrandt, USGS, per- sonal communication, 2003. Data are from USGS (2000), Canadian Gas Potential Committee (1997), Canadian National Energy Board (1999), and Henry and Charpentier (2001~. 120- 100- 80 - 60- m 40- 20 O- ~ .1 .... it.. I \ 1 \ 1 \ ....................... \ 1 1 1 . , , 1v l 1949 1954 1959 1964 1969 1974 Year 1979 1984 1989 1994 1999 | ---- Importfrom Mexico Export to Mexico | FIGURE 3.10 U.S. natural gas trade with Mexico for the period 1949 to 1999 in billion cubic feet. SOURCE: Scott Tinker, University of Texas at Austin, personal communication, 2003. Data are from EIA (2000b).

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44 8,000- 6,000- 4,000- 2,000- U.S. NATURAL GAS DEMAND, SUPPLY, AND TECHNOLOGY ~^mat\0 I. Mean P90 Future ,. . alscoverles FIGURE 3.11 Natural gas production in Mexico for the period 2001 to 2010 in billion cubic feet per day. Mexican supply is not expected to meet demand. SOURCE: Alfredo E. Guzman, Petroleos Mexicanos, personal communication, 2003. Data are from Pemex Exploration and Production. not projected to meet domestic demand and Mexico would have to increase its imports of gas, either from the United States or as LNG (see Figure 3.11~. Petroleos Mexicanos is trying to reverse the low levels of internal investment and increase the number of prospects drilled by allowing foreign operators to participate, within the current legal framework, in all phases of the explora- tion and production value chain. Reported reserves of nonassociated gas range from 9 to 21 Tcf, with a total gas reserve base, including associated gas, of 76 Tcf (Alfredo E. Guzman, Petroleos Mexicanos, personal communica- tion, 2003~. The USGS (2000) has assessed an undiscovered total mean vol- ume of 49.2 Tcf of which 26 percent is nonassociated gas. Even though it does not appear that Mexico will be able to export gas, EIA (2003a) projections include Mexico as a net potential source of imports (Mary Hutzler, EIA, per- sonal communication, 2003~. Liquefied Natural Gas LNG is natural gas in liquid form. It is produced by liquefying natu- ral gas to -60F (-162C) using a low-temperature refrigeration process. LNG is a colorless, odorless liquid that consists mainly of methane (80 to 99 percent), with variable amounts of ethane, propane, and nitrogen. It occupies 600 times less volume than the same mass of gaseous methane at standard conditions, which allows for efficient transport of large quantities in cryogenic tankers to a receiving terminal. There it is con-

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NORTH AMERICAN NATURAL GAS SUPPLY 160 - 140 - 120 100 - ~ 80- m 60 - 40 20 - 45 + 6.4%/year ~ / l ?' r.1 .......................................................................................................................................................................................... - ~ -1 l 7r ~ ~ . ~ 1 ~~ = - In o '~9~ ~9~ ~9~ ~9~ ~9~9~ ~9~ ~9~9~9~9~9~9~99~99~99~99~ 99 Year _ United States IIIIII South Korea _ Japan EM Europe ~ Taiwan FIGURE 3.12 Evolution of world LNG trade for the period 1964 to 2001 in billion cubic meters. SOURCE: Colleen Sen, Gas Technology Institute, personal commu- nication, 2003. Data are from Cedigaz (2002~. versed or "regasified" back into natural gas for consumption onsite or piped to end users as part of their normal gas supply (Potential Gas Committee, 2002~. Transport of natural gas as LNG allows demand to be met (and built) in countries where local supplies are insufficient (e.g., South Korea, la- pan) and also permits expanded gas production from countries where gas supply far exceeds demand (e.g., Algeria, Qatar). There has been a rapid increase in LNG trade predominantly with Middle Eastern and Pacific Rim countries (see Figure 3.12 and Table 3.2~. The U. S. currently imports less than 2 percent of its natural gas supply via LNG, and it exports LNG from Alaska to lapan (see Figure 3.13~. Relatively small volumes of LNG are used in the United States for storage and peak shaving. U.S. demand for LNG is projected to grow to in excess of 2 Tcf/year by 2025 (Mary Hutzler, EIA, personal communication, 2003~. Natural Gas Hydrates Methane in the form of natural gas hydrates represents a potential future supply of gas far in excess of known producible supplies, though uncertainty in the estimate is very high (see Figure 3.14~. Efforts have been

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46 Japan (I) U.S. NATURAL GAS DEMAND, SUPPLY, AND TECHNOLOGY TABLE 3.2 LNG Exports for 2001 in Billion Cubic Meters. Country Exports Indonesia Algeria Malaysia Qatar Australia Brunei Nigeria Oman Abu Dhabi Trinidad United States Libya Taiwan (re-export) Total 31.80 25.54 20.91 16.54 10.20 9.00 7.83 7.43 7.08 3.65 1.79 0.77 .041 142.95 SOURCE: Colleen Sen, Gas Technology Institute, personal communication, 2003. Data are from Cedigaz (2002~. Algeria Australia Nigeria 38 Oman Qatar Trinidad and Tobaco FIGURE 3.13 Natural gas imports and exports for 2001 in billion cubic feet. SOURCE: Thomas Ahlbrandt, USGS, personal communication, 2003. Data are from U.S. Department of Energy (2002~.

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NORTH AMERICAN NATURAL GAS SUPPLY Estimated U.S. in-place methane resource all nonhydrate reservoirs (25,000 Tcf) Produced Methane (900 Tcf) , r Remaining " Recoverable" (1~400 Tcf) 47 U.S. Methane Hydrate in-place resource (200,000 Tcf) FIGURE 3.14 Methane hydrate resources in trillion cubic feet. Roughly 200,000 Tcf of the total U.S. methane resource of 227,500 Tcf resides in methane hydrates. SOURCE: Keith Millheim, Anadarko Petroleum Corporation, personal communi- cation, 2003. Data are from National Energy Technology Laboratory (2002~. made, with international funding, to test the producibility of permafrost terrain deposits in the Mackenzie River Delta area of Canada. Detailed results, which did result in gas production via a flare, are embargoed until 2004. U.S. government-industry-academia consortia are conduct- ing two research projects involving gas hydrate resources in the vicin- ity of Prudhoe Bay, Alaska. Other projects are or have been conducted offshore of Oregon and in the Gulf of Mexico. As a measure of the growing importance of gas hydrates to future supply planning, the Minerals Management Service is beginning to assess hydrate occur- rence (Pulak Ray, Minerals Management Service, personal communi- cation, 2003~. NORTH AMERICAN SUPPLY GOING FORWARD Committee members and participants noted that assessments presented at the workshop of the future supply of natural gas in North America sent somewhat mixed signals. Some workshop participants believed that (1) the United States will continue to require increasing amounts of imported natu- ral gas to meet projected demand and that North American pipeline im- ports and LNG will be required to meet U.S. demand; (2) Canada will in-

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48 U.S. NATURAL GAS DEMAND, SUPPLY, AND TECHNOLOGY crease its domestic consumption, with little excess export capacity beyond that of the present day; and (3) Mexico will most likely remain a net im- porter of natural gas. LNG imports and perhaps hydrates may be required to augment the North American gas supply.