USGS Reserve Estimates Still Grossly Undervalue Total Resource Worth

The U.S. Geological Survey (USGS) recently released new estimates showing that 32 billion barrels of oil and 291 trillion cubic feet of natural gas could be added to our current proven reserves from existing reservoirs. The USGS calls this “reserve growth” and describes it as “estimated volumes of technically recoverable, conventional oil and gas resources that have the potential to be added to current reserves.”[i] If you think that resource description is a “mouthful”, you are right. It is good news that USGS estimates these increases, but these estimates are only for existing reservoirs and is therefore a very small subset of our recoverable oil and gas resources.

Even the USGS recognizes that its assessment of reserve growth for discovered accumulations of technically recoverable onshore oil, natural gas, and natural gas liquid resources are a small subset of our total resources because the agency states that they constitute “about 10 percent of the overall U.S. oil and gas endowment.” The numbers exclude oil and natural gas resources located offshore in U.S. waters, and they exclude unconventional forms of oil and natural gas such as shale oil, shale gas, oil shale, tight oil and tight gas. But, we believe that these numbers actually provide a much smaller share of our oil and gas resource wealth than the USGS believes, which we explain below.

The USGS Assessment of Reserve Growth

Reserve growth represents potential additions to U.S. reserves over time based on current technologies and enhanced understandings of existing reservoirs. It results from delineation of new reservoirs, field extensions or improved recovery techniques. It is an estimated number and should not be confused with proven reserves, which are generally confirmed through exploratory drilling. The Energy Information Administration recently updated its U.S. proven reserve figures to 25.2 billion barrels of oil and 317.6 trillion cubic feet of natural gas as of the December 31, 2010, and is expecting to have the 2011 numbers released early next year.  Reserve growth is in addition to proven reserves, and if added to them shows that we have 57.2 billion barrels of oil and 608.6 trillion cubic feet of natural gas practically readily available to use.

Technically Recoverable Resources

But we have many, many more volumes of oil and natural gas resources in this country.  Reserve growth is    different from technically recoverable resources, which are assumed to exist based on seismic testing and other geological factors. The Institute for Energy Research released a report last December that details the technically recoverable fossil fuel resources in North America and they are huge.[ii]

Technically recoverable resources of oil in the United States total 1.44 trillion barrels, enough to last over 200 years at current usage rates, and technically recoverable resources of natural gas in the United States total 2,744 trillion cubic feet, enough to last over 100 years at current usage rates. These numbers include onshore and offshore conventional oil and gas, oil sands, oil shale, tight oil and gas, shale oil and shale gas, and coal bed methane.  The USGS study did not assess these unconventional sources of oil and natural gas or the offshore resources of the United States.

Shale oil and natural gas, for example, are currently being produced in large quantities from shale formations in the Marcellus and the Bakken basins using hydraulic fracturing and horizontal drilling technologies. In fact, production of shale oil in the Bakken has made North Dakota the second largest state producer of oil resulting in a gross state product growth rate of about 7 percent and an unemployment rate of under 3 percent. Production of shale gas in the Marcellus and in other shale formations has resulted in a large drop in natural gas prices, bringing manufacturers back to the United States that had been going overseas where energy prices were less.

The United States is endowed with the largest oil shale resources in the world with almost 1 trillion barrels estimated to be technically recoverable. But, the Obama Administration has delayed leasing these resources and has cut significantly the amount of federal lands proposed to be leased for oil shale development from the lease plan developed by the Bush administration.[iii] Unfortunately, our oil shale resources are mostly on federal lands so private and state lands cannot do the yeoman’s job in producing oil shale as they are doing for shale oil production.

Obama Administration Unduly Takes Credit for Oil and Gas Production on Private and State Lands

Below is an excerpt from the USGS press release on the reserve growth estimates, quoting Ken Salazar, the Secretary of the Interior.

 “Today’s estimates are more good news for U.S. energy security, and affirm the need for the all-of-the above energy strategy that the President has implemented,” said Salazar, noting that U.S. dependence on foreign oil has gone down every year during the Obama Administration, including a reduction in net oil imports by ten percent – or one million barrels a day – in the last year alone. Total oil production from federal lands and waters has increased 13 percent during the first three years of this Administration, compared to the last three years of the previous Administration. Oil production in the first quarter of 2012 was higher than any time in the last 14 years and natural gas production is at its highest level ever.[iv]

Yes, these statistics are basically true, but they are true in spite of the Obama Administration, not because of it. For example, total oil production from federal lands and waters did increase by about 13 percent during the first three years of the Obama administration based on lease plans from prior administrations, but it also decreased by 13 percent in just one fiscal year, in fiscal 2011 from fiscal 2010, mainly due to Obama Administration policies following the Macondo accident in the Gulf of Mexico. In fact offshore oil production on federal lands fell by 17 percent in that single year. [v]

And yes, “U.S. dependence on foreign oil has gone down every year during the Obama Administration, including a reduction in net oil imports by ten percent—or one million barrels a day—in the last year alone.” But, helping those statistics is that oil demand is down 3.4 percent from 2008 levels due to a poor economy and high gasoline prices that may set a record this year[vi]; oil production on private and state lands is up 14 percent[vii] due to less bureaucratic red tape in leasing and permitting compared to federal lands; and biofuel production is up 48 percent due to the mandates from the Energy Independence and Security Act of 2007. In fact, private and state lands produce 5.5 times more oil than federal lands per acre as discussed here.

Source: USA Today, http://www.usatoday.com/money/industries/energy/story/2012-08-14/gas-prices-rise/57059104/1

Conclusion

The USGS has reassessed its reserve growth estimates for conventional onshore oil and gas. “This is oil and gas that is there but we haven’t actually drilled yet,” said Alex Demas, a spokesman for the USGS.[viii] And while these numbers essentially double our proven reserves of oil and natural gas, they are a drop in the bucket to our total resource endowment that includes conventional and unconventional sources of oil and natural gas.  We are blessed with enormous – in fact, untold — energy wealth in this country but the main impediment to bringing it to the American public remains the federal government.