US to Slash Marcellus Shale Gas Estimate 80%

The US will slash its estimate of undiscovered Marcellus Shale natural gas by as much as 80 percent after a updated assessment by government geologists.

The formation, which stretches from New York to Tennessee, contains about 84 trillion cubic feet of gas, the US Geological Survey said in its first update in nine years. That supersedes an Energy Department projection of 410 trillion cubic feet, said Philip Budzik, an operations research analyst with the Energy Information Administration.

“We consider the USGS to be the experts in this matter,” Budzik said in an interview. “They’re geologists, we’re not. We’re going to be taking this number and using it in our model.”

The revised estimates, posted on the agency’s website, are likely to spur a debate over industry projections of the potential value of shale gas.

Range Resources Corp. (RRC), Cabot Oil & Gas Corp. (COG) and Goodrich Petroleum Corp. (GDP) were subpoenaed by New York Attorney General Eric Schneiderman over whether they accurately represented the profitability of their natural-gas wells in the region, according to a person familiar with the matter. The subpoenas, sent Aug. 8, requested documents on formulas used to project how long the wells can produce gas without additional drilling using hydraulic fracturing, or fracking.

The previous Geological Survey estimate in 2002 said the Marcellus Shale contained about 2 trillion cubic feet of gas. The 42-fold increase is the result of “new geologic information and engineering data,” the agency said. The Marcellus formation may hold from 43 to 144.1 trillion cubic feet, the agency said.

Technology Advances

Advances in the technology used to recover shale gas led the Energy Department to more than double its estimate of recoverable shale resources, to 827 trillion cubic feet, in an April report and to project that the nation has enough natural gas to heat homes and run power stations for 110 years. Shale gas is recovered by fracturing, a technique in which millions of gallons of chemically treated water are forced underground to break up rock and allow gas to flow.

“One fifth of a big number is still a big number,” Kevin Book, managing director at ClearView Energy Partners LLC, a Washington-based policy analysis firm, said today in an interview. “It shouldn’t tell you anything about your conclusions. It should tell you what you need to know about estimates. They get revised.”

Budzik said much remains unknown about the Marcellus. Most drilling by companies such as Chesapeake Energy Corp. (CHK) and Range Resources Corp. has occurred in the northeast corner of Pennsylvania, Budzik said. New York has banned drilling until the state completes environmental regulations.

‘Sense Of Proportion’

“There hasn’t been a lot of drilling elsewhere yet,” Budzik said. “Layer on that the fact that over the next 30 years, the technology is going to evolve. It will have an impact on our projections. We all need to keep a sense of proportion here.”

The Energy Information Administration, the data-gathering arm of the Energy Department, will incorporate the USGS estimates in its annual energy outlook, which should be issued by the end of the year, Budzik said.

The Marcellus Shale assessment covered areas in Kentucky, Maryland, New York, Ohio, Pennsylvania, Tennessee, Virginia, and West Virginia.

[Via Bloomberg]