Current hydrocarbon reserves and future reserve growth on University Lands: quantification and economic evaluation

This report analyzes past natural gas production trends on Federal lands and describes not only the impact of technological advancements on those trends but also the impact of GRI-funded technology research on past natural gas production. It forecasts the economic value of continued GRI research on future production and revenue streams. Studies by the National Petroleum Council indicate that investment in technological research and development (R&D) has played a major role in U.S. natural gas production, and increased investment is necessary if U.S. natural gas production is to keep pace with demand.

Nearly all growth in U.S. natural gas production, including Federal lands, which accounts for more than one-third of the total U.S. production, is expected to come from deep-water/subsalt plays in the Gulf of Mexico and from unconventional sources such as low-permeability sandstones and coalbed methane. Production from each of these potential resources is critically dependent on continuing advances in technology.

Annual natural gas production from Federal lands is forecast to increase from 7.3 trillion cubic feet (Tcf) to 10.2 Tcf by 2015. Increased production, however, depends on continued development and application of technology. By 2015, the value of technology in terms of incremental natural gas production on Federal lands is estimated to be 45 Tcf from deep-water/subsalt and unconventional resources alone. This technology-dependent production represents a potential incremental royalty revenue of more than $22 billion.

Past GRI programs are estimated to account for approximately 15 percent of total natural gas R&D in the U.S.; for unconventional natural gas resources, GRI's contribution has been even greater. By 2015, continued technological R&D by GRI can be expected to deliver more than 10 Tcf in incremental production to the total U.S. natural gas supply. On Federal lands, GRI's impact is estimated to achieve an incremental production of more than 6.7 Tcf. These scenarios assume a fully funded GRI program throughout this period.

A benefit/cost analysis of a proposed GRI natural gas technological research program, funded by a 10-percent annual nomination of royalty revenue from Federal OCS natural gas production, shows positive economics. Using a base-price case of $3 per thousand cubic feet (Mcf), escalating it 1 percent annually and a discount rate of 10 percent, this program is projected to produce an internal rate of return of 101 percent, with a net present value of $5 billion. This amount is based on projected incremental natural gas production and royalty revenue on Federal lands alone. In the context of the broader impact of GRI technological R&D on total U.S. natural gas production, and using the same project economics, the program is projected to produce an internal rate of return of 143 percent, with a net present value of $8 billion.