US pricing decision will unlock vast new natural gas reserves
With a proverbial flourish of the pen, the Federal Energy Regulatory Commission (FERC) has as much as doubled US reserves of economically recoverable natural gas.
This is the result of a pricing decision the commission made on natural gas from an unconventional type of geological formation called "tight sands."
For some time it has been known that the United States has large amounts of natural gas, mostly in the Rocky Mountain region, trapped in tightly cemented sand.The size of this resource is estimated at 200 trillion cubic feet, equal to that of proved conventional reserves.
This gas, however, is difficult to recover. Ordinary wells sunk into these areas yield very little natural gas. But, when the tight sands that trap the gas are fractured, it then becomes possible to extract it.
Such is the potential value of these reserves that the Atomic Energy Commission experimented for years with the possibility of using underground nuclear explosions to do the fracturing. Although these attempts were abandoned , the more modern approach of injecting water at high pressure to fracture the gas-bearing formations has proved successful.
The barrier to development of this resource has been price rather than lack of technology. Federal regulators have not allowed the industry to sell gas from tight sands for any more than that from conventional wells.
Now FERC, in the words of its chairman, Charles B. Curtis, is allowing tight sands developers "a premium of 50 percent beyond the price of gas produced from conventional wells." The new price is $3.26 per million British thermal units, the equivalent of $19.56 per barrel of crude oil.
The commission, with some prodding from President Carter, has attempted to set the price high enough to encourage development of these resources, but not so high as to divert drilling activity from less-expensive conventional fields.
The American Gas Association is quite happy with the ruling, although some of the companies involved had hoped that the price would be tied to the world market price of oil, some 20 percent higher.
There is a great deal of uncertainty concerning how much of the 200 trillion cubic feet of tight sands gas can be recovered economically at this new price. According to a US Environmental Protection Agency (EPA) analysis, this could result in a production of roughly 600 billion cubic feet per year by 1985, the equivalent of 300,000 barrels of oil a day. With added incentives, EPA planners say, production by that date could be more than doubled.
Because the environmental impacts of developing and utilizing natural gas are substantially smaller than those associated with coal or oil shale, the EPA has been advocating maximum incentives for tight sand gas development.
"Because of the size of the resource, the relatively low cost associated with it, and its environmental acceptability, we believe unconventional natural gas should be given major emphasis," says William Drayton, EPA administrator for planning and management.
It is possible that FERC may decide to further increase the price on tight sands gas. The current ruling is an interim one, and the commission admits that its price was set with insufficient information on the cost of production of this fuel. In the next month FERC will be soliciting public comment and holding hearings on this issue. After the opinions and evidence thus obtained are analyzed, a process that normally takes about two months, a final ruling will be issued.