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Modelling the Growth in Gas Reseves From Known Fields

Abstract:
The extent to which future United States demand for natural gas is satisfied by imports of LNG is contingent on the adequacy and cost competitiveness of North American supplies. One of the cheaper and more important sources of natural gas supply is accounted for by reserve appreciation, i.e., reserve growth, in known fields. Based on an extensively applied methodology developed by Arrington (1960), the increase in proved ultimate recovery is presumed to increase at a diminishing rate with the age of the field. In this paper, a single equation model of natural gas reserve growth in the Gulf of Mexico is developed and estimated. The results strongly suggest that the annual growth rate in the reserves of a field is significantly affected by initial discovery size, price, water depth, and unobserved field-specific effects. Hence, estimating oil and gas reserve growth using an Arrington based approach may underestimate the response of reserve growth to changes in economic fundamentals.

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Energy Specializations: Natural Gas – Exploration and Production; Natural Gas – Markets and Prices

JEL Codes:
D24 - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
L13 - Oligopoly and Other Imperfect Markets

Keywords: Natural gas, reserve growth, LNG, US Gulf of Mexico, gas exploration

DOI: 10.5547/ISSN0195-6574-EJ-Vol30-NoSI-13


Published in Volume 30, Special Issue of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.