Tax & Financial Consulting Services
The Government Just Wiped Out 15 Years'
Worth of Natural Gas Reserves
Karibu (Welcome) G&G Readers,
The U.S. Energy Information Agency has a lot of explaining to do.
The EIA is a statistical agency within the U.S. Department of Energy. It provides data and forecasts on coal, natural gas, electricity, renewable energy, and nuclear energy. The agency is known as the nation's "premier" source of energy information.
But last week, it admitted to a mistake that could send natural gas prices soaring…
On July 6, the EIA released a detailed report estimating how much natural gas the U.S. has left in producing shale areas. The technical term they use is "undeveloped technically recoverable."
Click here reo EIA report: http://www.eia.gov/analysis/studies/usshalegas/
Some of the largest shale gas areas in the U.S. include the Marcellus, Haynesville, Eagle Ford, Barnett, and Fayetteville. Below is a list of EIA estimates for undeveloped technically recoverable shale gas in these areas.
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At 410 trillion cubic feet, the Marcellus has the highest shale gas resources by far. The U.S. consumes roughly 22 trillion cubic feet of natural gas each year. So according to the EIA, the Marcellus alone holds more than 18 years of natural gas.
But last week, another report released by the U.S. Geological Survey said the Marcellus formation has only 84 trillion cubic feet of undiscovered recoverable gas. That's about 80% lower than the estimate provided by the EIA.
Following the new study, the EIA said, "We're going to be taking this number (84 trillion cubic feet) and using it in our model." In other words, the EIA is admitting its estimate was wrong.
This massive adjustment results in a decrease of 326 trillion cubic feet from potential natural gas reserves – 15 years of supply.
That may not seem like a big deal. After all, some estimates indicate the U.S. has over a 60-year supply of natural gas. But these estimates are based on current demand. And looking ahead, demand for natural gas is expected to soar…
• Natural gas is slowly replacing coal in terms of electricity generation.
• Companies like UPS, Ryder, and Waste Management are purchasing trucks with natural gas engines instead of diesel. This trend could jump 10-fold if the current administration passes the Natural Gas Act. This legislation will provide tax incentives for heavy-duty truck manufacturers to switch from diesel engines to natural gas.
• The U.S. will also start exporting natural gas at some point, forcing U.S. consumers to compete with a worldwide market.
• Commodity expert Rick Rule believes natural gas will be used as a replacement for oil. Venezuela and Mexico, for example, are seeing huge declines in oil reserves. Rick predicts these two countries may not be capable of exporting oil into our country in five years. They represent over 35% of the oil supplied to the U.S. (That's probably why most major oil companies are buying up natural gas assets hand over fist.)
The huge revision lower in Marcellus estimates is a big deal. In fact, we may see estimates revised lower in places like Haynesville and Barnett in the future. This has enormous implications for energy investors like those of us in the GGIS Portfolio… which I'll be sharing with subscribers in the coming weeks.
If demand surges and reserves are not as big as originally thought, we could see a sharp move higher in natural gas prices in the coming years… a move few people expect. More on this to come…
Until next time, keep a global view and good investing ...
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LEGAL NOTICE: This work is based on what I’ve learned as a financial researcher and analyst based SEC filings, current events, interviews, corporate press releases and what I've learned as a financial consultant. It may contain errors and you should not base investment decisions solely on what you read here. It’s your money and your responsibility. Nothing herein should be considered personalized investment advice.