Depletion of Natural Gas Resources

Natural gas is a finite resource. As discovered natural gas reserves are developed and produced, additional reserves must be discovered in order to maintain production levels. Over time, replacing depleted reserves is increasingly difficult. The largest and most easily developed resources tend to be developed first, and subsequent reserve additions are, on average, smaller and more expensive to develop. The increased difficulty of adding new reserves due to the cumulative effects of depletion are offset by improvements in technology, which lowers exploration costs, the number of dry holes, and drilling and production costs.

The cases developed for this study use the Oil and Gas Supply Model (OGSM) of the National Energy Modeling System to project future natural gas production. The OGSM specifically incorporates the effects of cumulative depletion on projected future natural gas discoveries, based on historical patterns. Some industry observers have suggested, however, that current natural gas discoveries per successful well are considerably lower than they have been in the past. They are concerned that the effects of cumulative depletion are more severe than indicated by historical trends. Stronger than expected depletion effects could make future natural gas production more difficult and lead to higher prices than are projected in this study.

Additional discussion of the possible adverse effects of cumulative depletion can be found in a recent EIA Service Report, Accelerated Depletion: Assessing Its Impacts on Domestic Oil and Natural Gas Prices and Production (Sept. 2000, DOE/FE-0424). In that study, future reserve additions were assumed to be only two-thirds of the size suggested by long-term historical trends. The expected production schedule of new wells was also assumed to have a higher percentage of each well’s total output coming in the first years of production. Under the accelerated depletion assumptions, the projected wellhead price of natural gas in 2020 was 48 percent higher than projected in the study’s reference case used (which differed from the reference case for the current analysis). Assumptions of faster technological progress and increased access to reserves mitigated the higher price projections.

The assumptions used in the Accelerated Depletion  study were designed to explore the potential adverse effects of greater than expected reductions in domestic natural gas supply. The assumptions for the cases in this analysis are based on the historical trend, which indicates much less dramatic effects of depletion on potential supply.