EIA sees less Lower 48 shale gas: Good news for Alaska?

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The U.S. Energy Information Administration has released an early overview of its 2012 Annual Energy Outlook (AEO2012), and it contains sharp drops in the agency's estimates of unproved technically recoverable natural gas in the Lower 48 states.

In particular, the estimates of shale gas have been dramatically cut compared to the previous year's forecast.

In the agency's 2011 Outlook, the estimate was buoyed by the promise of new technology enabling the extraction of up to 827 trillion cubic feet of natural gas from shale rock formations.

But now, on the strength of new drilling and production data coming out of the shale boom, the EIA's estimate of untapped U.S. shale gas fell to 482 trillion cubic feet.

The Marcellus Shale, which has been at the epicenter of the boom, had its technically recoverable reserve cut from 410 trillion cubic feet to 141 trillion cubic feet.

The downgrades are seen by some as a response by the EIA to recent U.S. Geological Survey shale gas estimates that were also sharply lower, but the EIA says the primary factor in the reductions is a great amount of new drilling and production data from deposits undergoing boom times.

Both swings in reserve totals reflect ongoing volatility in natural gas as markets come to terms with the boom time uncertainty of shale gas.

Despite the smaller resource base estimates, though, the total U.S. natural gas production from 2010 through 2035 in the EIA's 2012 Outlook Reference case, the baseline scenario before variables are accounted for through other cases, is 7 percent higher than 2011's.

The EIA's new estimate holds that the U.S. will become a net exporter of liquefied natural gas by 2016 and an overall net exporter of natural gas by 2021.

The EIA's new outlook could bode well for Alaska as the state continues to seek a project to bring its natural gas to market, but the full picture won't be known until the final 2012 Outlook is issued in spring. Alaska has lately experienced a shift among its leadership toward export of liquefied natural gas to Asia, rather than a pipeline to Alberta, Canada, and then to the Lower 48 market.

The advent of shale gas has caused a stubborn drop in prices around North America, which are expected to stay low this year through winter, when high demand typically draws down storage and increases prices.

On Friday, Alberta spot prices for February delivery reached a 10-year low, hovering just above the troubling $2-per-gigajoule (GJ) mark. (A gigajoule is slightly less than 1 million BTU's.)

The spot price for Alberta's benchmark storage AECO hub dropped to $1.92/GJ on Friday, then rebounded to close the day at $2.10/GJ. Prices in New York are similarly depressed, with February delivery contracts closing at $2.678 per million BTUs.

The EIA removed an Alaska-to-Alberta gas pipeline from 2011's Outlook reference case because it determined that the project would not be economical based on the prices forecast through 2035.

An Alaska gas line to Alberta is staying absent from the EIA's 2012 reference case because "assumed high capital costs and low natural gas wellhead prices make it uneconomical to proceed with the pipeline project over the projection period," which ends in 2035.