Average electricity prices are expected to remain virtually unchanged through 2010, rising a scant 0.4 cents per kilowatt-hour, according to the Energy Information Administration's (EIA's) "Annual...
U.S. Gas Production: Can We Trust the Projections?
Government (EIA) forecasts suffer in credibility when compared with geologic assessments.
In recent years, many have promoted natural gas as the "clean and safe" alternative to coal or nuclear energy in electrical power generation. This emphasis on natural gas should focus attention on the long-term forecasts of U.S. production and consumption of natural gas, as published by the Energy Information Administration (EIA) in the Annual Energy Outlook. In particular, what confidence should be placed in these projections?
First, consider gas consumption. The EIA predicts that U.S. natural gas consumption will increase by 62 percent from 1999 to 2020, while use of petroleum and coal will rise by 33 percent and 22 percent, respectively, over the same period. The predicted gas upsurge will occur primarily as a result of construction and operation of a large number of new base-load gas-fired electricity generation plants.
Second, consider gas production. The EIA predicts U.S. natural gas production will increase by 56 percent from 1999 to 2020, while coal production will increase by 17 percent over the same period, and oil will decline by 2 percent by 2020. () Now compare those predictions with past experience. As shown in Figure 1, U.S. marketed gas production reached a maximum of 22.65 trillion cubic feet (Tcf) per year in 1973 - a record that still stands after more than a quarter century of upheavals in gas markets. 1 This fact should provide a context for the EIA forecast.
Falling Productivity: A Steady Trend
In justifying its forecast of natural gas production, EIA argued that sustainable increases in domestic production would occur because the steady decline in drilling costs would lead to increased well completions, and that new, but unspecified, technology would boost well productivity. EIA projected that annual gas well completions would increase from 10,300 in 1999 to 23,400 wells in 2020. EIA's predicted well-head price for 2020 is $3.13 per thousand cubic feet ($/Mcf) - below average well-head prices for calendar year 2000.
Why, then, has U.S. gas production dropped since that quarter-century peak recorded in 1973? The reason is a decline in proved reserves.
Simply put, additions to U.S. "proved" reserves from new discoveries and from more intensive development of identified fields (field growth) were insufficient to maintain reserves at levels that sustained production. 2 Production from individual wells is physically limited by the amount of hydrocarbons that can be accessed at any given time. In many cases, no more than 10 to 15 percent of the proved reserves of individual fields can be extracted annually without risking reservoir damage and reducing ultimate field recovery. The "proved reserves" category limits annual production to an amount well below recoverable resource volumes. Reserve additions may fail to keep up with production because of a declining discovery rate (gas discovered per well), and because of low drilling activity. Low drilling activity is a signal that the industry is having difficulty finding and developing resources that can be produced commercially.
Data show that average U.S. gas well productivity has declined by at least two-thirds since 1973. Consider Figure 2. It