EIA has overestimated U.S. shale gas future – Texas researchers claim

Oil jack and gas valve
Source: DollarPhotoClub

Forecasts for the longevity of the U.S. shale boom may be grossly overestimated according to an analysis conducted by scientists from the University of Texas at Austin’s department of petroleum and geosystems engineering.

The USA is betting on an abundance of shale gas for many decades ahead. This optimism is reflected in the scale of investment in new plants relying on natural gas, building new pipelines and terminals to export liquefied natural gas (LNG) to Europe, Asia, and South America.

All this optimism is based on predictions by the country’s Energy Information Agency (EIA) which says that, in the words of the agency’s director Adam Sieminski: “For natural gas, the EIA has no doubt at all that production can continue to grow all the way out to 2040.”

The problem is that EIA has been known to be very wrong in its assessments in the past. Most recently in the Monterey Shale in California when it slashed its initial estimates by 96 per cent. Researchers who have been carrying out their own analysis of shale deposits have often accused the agency of being over-optimistic.

Now, the work of researchers from the University of Texas at Austin’s department of petroleum and geosystems engineering puts into question EIA’s assessment of U.S.-based shale deposits.

The results are “bad news”, Tad Patzek, a member of the University of Texas’ team told Nature Journal. With companies trying to extract shale gas as fast as possible and export significant quantities, he argues, “we’re setting ourselves up for a major fiasco”.

And bad news in the U.S. might have repercussions not only on the country’s energy and manufacturing sectors. It would thwart U.S. ambitions to export LNG, as well as have a knock-on effect on shale exploration world-wide. “If it begins to look as if it’s going to end in tears in the United States, that would certainly have an impact on the enthusiasm in different parts of the world,” says economist Paul Stevens of Chatham House, a London-based think tank.

According to EIA forcasts – released to Nature Journal – production from the big four plays (Marcellus, Barnett, Fayetteville and Haynesville) would continue rising quickly until 2020, then plateau for at least 20 years. But that’s not what the researchers at the University of Texas have found.

If natural-gas prices were to follow the scenario that the EIA used in its 2014 annual report, the Texas team forecasts that production from the big four plays would peak in 2020, and decline from then on. By 2030, these plays would be producing only about half as much as in the EIA’s reference case. Even the agency’s most conservative scenarios seem to be higher than the Texas team’s forecasts. “Obviously they do not agree very well with the EIA results,” says Patzek.

NATURE Fracking Projections
Source: EIA

So what caused the discrepancies between the two predictions?

The EIA breaks up each shale play by county, calculating an average well productivity for that area. But counties often cover more than 1,000 square kilometres, large enough to hold thousands of horizontal fracked wells. The Texas team, by contrast, splits each play into blocks of one square mile (2.6 square kilometres) — a resolution at least 20 times finer than the EIA’s.

This yielded vastly different results because the more fine-grained Texas study took into consideration elements that the more coarse-grained EIA study ignored.

For one, EIA assumed that future wells will be at least as productive as past wells in the same county. This is not likely to be the case since companies usually go for ‘sweet spots’ first and move to more demanding deposits later. It is therefore safe to assume that later wells will not be as productive as the earlier ones.

The high resolution of the Texas studies allows their model to distinguish the sweet spots from the marginal areas. As a result, says study co-leader Scott Tinker, a geoscientist at the University of Texas at Austin, “we’ve been able to say, better than in the past, what a future well would look like”.

Another difference is that in the Texas study allowances were made for areas where drilling would be difficult. For example under lakes or major settlements. EIA made no such allowances and as a result the estimate of the number of wells that are likely to be drilled in each play is higher than in the report prepared by the University of Texas.

The University of Texas scientists are not alone in their pessimism. Studies by Weijermars, as well as Mark Kaiser of Louisiana State University in Baton Rouge and retired Geological Survey of Canada geologist David Hughes8, suggest that increasing production, as in the EIA’s forecasts, would require a significant and sustained increase in drilling over the next 25 years, which may not be profitable.

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