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Forget Uncle Sam: The U.S. Is Still Swimming In Natural Gas -- And Investors Can Still Profit

 March 20, 2012 02:47 PM

On Jan. 26, the U.S. Department of Energy (DOE) released a report showing the United States had about 482 trillion cubic feet (Tcf) of recoverable natural gas reserves in shale formations (not counting conventional basins).

That's a big number by any measure -- enough to fuel U.S. energy needs for the next 20 years at the current rate of consumption.
However, before this update, the last DOE projection pegged domestic shale reserves at 827 Tcf -- nearly twice as much.

So should investors panic? Has the natural gas renaissance we've all been told about -- and been positioning to profit from -- been a sham?
Here's what you need to know...

Before we get any further, let's remember that calculating oil and gas reserves is an inexact science. Sometimes even the best geologists are wildly off the mark. The more extensively an area is drilled and developed, the more data are collected regarding what lies below the surface.
Since thousands of new wells have been drilled and monitored in the nation's shale plays in the past year, earlier estimates have been fine-tuned.
Apparently, the latest data suggest that prior reports may have exaggerated Pennsylvania's Marcellus Shale reserves. Marcellus reserve estimates have been cut from 410 Tcf to 141 Tcf. That accounts for most of the overall downward revision nationwide.
But consider this...

The U.S. Geological Survey (USGS) announced last September that the Marcellus Shale held 84 Tcf of gas. Before that, the agency was sticking to an estimate of just 2 Tcf.
So the number wasn't just tweaked -- it was raised 40-fold. At the same time, potential natural gas liquid (NGL) reserves were taken from a few million barrels to a few billion barrels. Revisions of that magnitude prove these reports are anything but precise readings.  
Furthermore, government agencies are widely considered to be ultra-conservative in their projections. They ignore thousands of undeveloped acres where gas is hidden. Plus, they don't reflect what's in the ground, only what can be economically recovered -- and extraction technologies are getting better all the time.
If the shale revolution has taught us anything, it's that technology can put resources that were once viewed as off-limits firmly and cheaply within our grasp.

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