CEES Working Paper Series

Cutler Cleveland
Center for Energy and Environmental Studies

Boston University

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Introduction

Five Rocky Mountain States have about one-third of the nation's proven natural gas reserves and about 42 percent of the remaining undiscovered, technically recoverable natural gas resources in the lower 48 onshore United States. A significant amount of the resource is under federal jurisdiction. The Energy Policy and Conservation Act (EPCA) Amendments required an inter-agency analysis of proved oil and gas reserves for all onshore Federal lands in the United States. This assessment was to include the "extent and nature of any restrictions or impediments to the development of such resources." The responsible Federal agencies extended the scope of analysis to include undiscovered oil and natural gas resources. The resultant EPCA study reports that about 138 trillion cubic feet (tcf) of undiscovered, technically recoverable natural gas exist on federal land in the study area. About 87 tcf, or 63 percent of undiscovered gas on Federal land, is available for leasing with no special restrictions, environmental or otherwise. About 12 percent of the undiscovered, technically recoverable natural gas currently cannot be leased at all. The remaining 25 percent are available with varying degrees of leasing restrictions. The EPCA study focused on technical recoverability. But economic recoverability is important because (i) the cost of developing conventional deposits of oil and gas in the study region is among the highest in the nation, (ii) the majority of the undiscovered resource is natural gas in unconventional deposits that often are more expensive to develop than conventional deposits, and (iii) the study area has substantial environmental amenities and ecosystem services that could be harmed by oil and gas development, and such costs should be accounted for in some form. Estimates of potential economic and energy security benefits based on technical recoverability alone will overestimate such benefits. Publicly available data on the costs of drilling, equipping and operating gas wells can be used to estimate economically recoverable amount s of gas. About 32 tcf of gas are economically viable at $3.34 per mcf (1993$) in the entire EPCA study region. This amounts to about 23 percent of the 138 tcf of technically recoverable gas on Federal land. With recent rates of gas consumption around 22 tcf, the 32 tcf of gas represents about 1.5 years of supply. The recoverable quantity currently under Federal lands with no access whatsoever is about 4 tcf. An additional 9 tcf are economically recoverable from Federal land where there are varying degrees of access restrictions. The prices used to estimate these quantities are in the range of average real gas prices over the past few decades, but they do not reflect the cost of pipeline access, a formidable and unresolved issue in the region. These should be viewed as minimum estimates as they are based on technology and prices in the mid-1990s. Considerable research and development effort is now aimed at improving the recovery of unconventional gas, efforts that undoubtedly will boost these yields. The EPCA Study could be improved with the following additional work:
•There is a need for a more detailed, play-specific economic analysis of resource availability in the study area.
• The impact of access restriction on the cost of developing oil and gas needs more explicit and detailed development. To the extent possible, costs associated with access restriction or other environmental constraints should be distinguished from other costs.
• The Energy Information Administration should consider reporting quantifiable environmental cost data in its regular survey of the costs of equipping oil and gas leases. Such costs are significant for some types of gas development in the region, such as the disposal of water in coalbed methane extraction.
• Subsidies that specifically target the development of gas in the region should be identified and accounted for in economic analysis of the region's resources.
• The potential environmental cost of removing access restrictions needs the same level of analysis as the geological assessment.
The GIS that forms the foundation of the EPCA study provides an excellent framework to do this. Habitat for critical and endangered species, migration routes, National Parks, and other specific information about environmental resources could be included in the GIS. One could then compare location specific aspects of both environmental and oil and gas resources, thereby giving some impression of where the potential tradeoffs lie.

 

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