Over the last decade, the United States has firmly established itself as the world’s largest natural gas producer. This significance of this is difficult to overstate, as less than a decade ago growing natural gas demand and declining production was putting the US on course to import significant amounts of gas from abroad.
The growth has created a buzz throughout the entire commodity industry and around the world. Folks that cover oil, ethanol, electricity, coal, natural gas liquids, petrochemicals, and grain often comment about the exceptional growth of the US natural gas industry, sharing thoughts on how big a role gas will play in the US and abroad.
As a fan of the US Energy Information Administration, the BP Statistical Review of World Energy, and International Energy Agency, I wanted to take a look at how the US compares with other natural gas behemoths to see how the US natural gas industry compares from a few different perspectives.
Globally, the race for the top natural gas producer has been a two-horse race between the US and Russia. Iran, Canada, Qatar, Norway and China are the other five countries that produce more than 100 Bcm/year, and together, these seven countries produce roughly 60% of global production.
The 2015 BP statistical review, released in June, shows the US produced 728.3 Bcm of natural gas in 2014, a 6.1% increase from 2013. In contrast, Russia produced 578.7 Bcm of gas in 2014, a 4.3% decline from 2013. In Imperial units, this equates to 70.5 Bcf/d and 56 Bcf/d, respectively (as using the conversion calculation here).
In my time studying and working in the energy space, my opinion on proven reserves has transformed. At the beginning, I took them very seriously and literally. Now I believe reserves are highly subjective and variable, as I’ll explain.
There are three classifications of reserves: Proved, probable, and possible. Proved (P90) reserves mean that the oil company that owns the asset believes there is a 90% certainty that the assets are in the ground and can be extracted under today’s economic conditions. Probable (P50) means that there is a 50% certainty, and possible (P10) reserves are given a 10% certainty.
Some of the regions that have the largest reserves of hydrocarbons, including gas, are not transparent. How reserves are classified is in many ways a guessing game. There are many examples where companies and countries have exaggerated their hydrocarbon reserves. Why would they do this? A company’s value is highly dependent on the amount of proved reserves it owns. As for countries, those that are part of OPEC face production quotas that are set by reserve levels. The more reserves the country says they have, the higher their allocation quota.
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But there is a great deal of variability in reserves because, put simply, reserves are never constant and always changing. A number of factors attribute to changing levels of reserves, but commodity prices and technology are some of the biggest variables. For example. between 1988 and 1999, US natural gas proved reserves were mostly flat, as new discoveries and commodity prices offset production. From 1999 to 2013 though, US proved reserves doubled, mainly as a result of new technological advances in drilling methods, such as horizontal and hydraulic fracturing.
If there is one last example I can share with to emphasize that reserve numbers should be looked at with caution, take a look at reserve data and compare it with actual production data.
Clearly, higher proved reserves do not automatically lead to higher production levels.
Natural gas consumption
The US is the clear leader in natural gas consumption, consuming 759.4 Bcm of natural gas in 2014. A list of the world’s largest consumers, along with how much they grew between 2013 and 2014 can be found in the graph/chart below.
Russia, Qatar, and Norway are the three dominating natural gas exporters. Russia dominates gas movement by pipeline, while Qatar owns the largest fleet of LNG tankers to sell its gas all over the world. The US sends a fair amount of gas to Mexico and Canada via pipeline, but has yet to make a splash into LNG exports. That could change soon.
Platts unit Bentek Energy forecasts the US to export 35.8 Bcm in 2016 up to 124.3 Bcm by 2019.
There are a few countries that are extremely dependent on natural gas/LNG imports, notably Japan and Germany. The graph bellows show the world’s top natural gas importers. One reason for the large amount of imports from the US is geography. Because of how integrated the North American natural gas system is between the three countries, it often makes economic sense to move gas between one another.
Looking ahead from both a pipeline and LNG perspective, Asia will be the key player. For more information on recent developments in the Asian LNG market, I encourage you to listen to this short podcast by Platts LNG editor Abache Abreu.
So what does the future hold? The EIA’s latest Annual Energy Outlook reference case calls for US natural gas production to grow at a rate of 1.4% a year over the next 25 years, reaching 1,003 Bcm or 97.1 Bcf/d in 2040.
At that rate, the US is poised to maintain a position as the world’s largest natural gas producer. There are many challenges ahead, but looking back at the enormous obstacles that have been overcome to get to where we are today, it seems likely US gas production can meet — or exceed — expectations.