We wrote yesterday about the U.S. Geological Survey increasing its mean estimate of the possible amount of natural gas in the Marcellus shale from 2 trillion cubic feet to 84 TCF.
The reason for the increase over the 2002 estimate? The usual suspects: the combination of horizontal drilling and hydraulic fracturing opening vast formations to production.
A number of news outlets have called the new USGS number a significant drop in the Marcellus estimates, saying it’s an 80 percent drop from the shale resource estimate made by the Energy Information Administration in its April 2011 report on U.S. shale resources.
So what gives?
Essentially, it’s an apples and oranges comparison.
First, USGS and EIA are two completely different agencies. USGS is all about the rocks, the geology. The EIA takes a broader look and will use data that includes economic considerations, etc.
Thus, the way the two organizations went about looking at the potential natural gas in the Marcellus was very different.
The USGS’ Brenda Pierce told me their study was based strictly on the geology and what the current technology can produce from it. They did use production data purchased from a third party to get an idea of what the shale formation can produce, but they didn’t use what exploration and production firms project their future production will be in their broader analysis.
The EIA data, on the other hand, seems to have used future projections data significantly.
The data collected by the firm INTEK takes recent production data from existing wells and assumes those results will apply through the whole area. Or, as is noted in the “methodology” section of the report summary:
“… the gas resource estimates in the INTEK shale report are predicated on the assumption that natural gas production rates for current wells covering only a limited portion of a play are representative of an entire play or play sub-area;”
The methodology section notes production rates and recovery rates “can vary by as much as a factor of 10” from one well to another, yet they still apply the blanket assumption to the whole play.
Bloomberg notes that the EIA will now use the USGS data instead of the prior study. That begs the question: how good is the rest of the EIA’s data?