EIA report to drastically cut estimates of U.S. shale reserves

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Just as football fans have been eagerly anticipating the start of the NFL draft, followers of the U.S. energy sector have been looking forward to the release of the U.S. Energy Information Administration's 2012 Annual Energy Outlook.

OK, so no one is actually sitting on the edge of their seats to see what the federal agency thinks will happen in the electricity generation sector in the same way they are waiting to see where Andrew Luck and Robert Griffin III will be drafted, but there will still be a lot of very interesting information contained in the report, which will be released sometime this spring.

Earlier this year, the EIA made available an early release overview of the report  and some of the findings were surprising to say the least.

Probably the most eye-popping of the changes between the 2011 report and what has been released about the 2012 one is the downgrade of estimates of shale gas reserves in the country.

In 2011, the EIA estimated that the U.S. had 827 trillion cubic feet of shale gas reserves, but the 2012 report slashes that figure to 482 trillion, a reduction of 42 percent.

That reduced estimate drastically changes America's place on the list of country's with the top shale gas supply. According to the EIA's World Shale Gas Resources report from April 2011, the U.S. had the second highest technically recoverable shale gas resources on the planet, behind only China, which was estimated to hold 1.275 quadrillion (yes, quadrillion) feet of the hydrocarbon.

Now, using the U.S. estimates from the 2012 Annual Energy Outlook report and global estimates from the 2011 shale gas report, America has just the fifth most shale gas in the world. The country's whose estimates leap-frogged the U.S. were Argentina (774 trillion cubic feet), Mexico (681 trillion) and South Africa (485 trillion).

The chief cause of the drastic downgrade was a serious revision of the estimated size of the Marcellus shale, which covers parts of New York, Pennsylvania and Ohio and most of West Virginia, among other states.

In 2011, the EIA estimated that the Marcellus contained 410 trillion cubic feet of recoverable gas but that figure has been reduced 66 percent to 141 trillion. Still the Marcellus might not be a bust on the scale of failed Chicago Bears running back Curtis Enis, and a more apt analogy may be current free agent tailback Cedric Benson, who after a few disappointing seasons ended up a successful NFL player, although he still never lived up to the expectations of a fourth overall pick.

The EIA said that the revised Marcellus estimates were due to more data becoming available.

"Drilling in the Marcellus accelerated rapidly in 2010 and 2011, so that there is far more information available today than a year ago," the department said. "Indeed, the daily rate of Marcellus production doubled during 2011 alone."

And the EIA isn't the only government agency that has bad news for the Marcellus. Bloomberg reports that the U.S. Geological Survey said earlier this year that it might cut its estimate of undiscovered natural gas in the shale play by 80 percent after it received updated geological assessments.

The U.S. is clearly still in a strong position to become a net exporter of natural gas (something the Department of Energy estimates will take place in 2021), but the future for shale gas development certainly looks to take a big hit from the upcoming EIA report.

This serves as a reminder that in the shale gas game, just as in the NFL draft, one shouldn't count their chickens before their hatched (or wells before their fracked).



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: News Headlines , Commodities , International , Technology , US Markets

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Doug Sweeney


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