Use of an Economic Incentive Factor in the Correlation and Projection of Discovery and Production Rates of Natural Gas in the Lower 48 States

Abstract

American Institute of Mining, Metallurgical, and Petroleum Engineers, Inc. Abstract An economic incentive factor has been found whose trend has closely paralleled that of annual gross additions to proved reserves of natural gas in the lower 48 states for the last 20 years. This factor is the weighted average price at the well for hydrocarbons (natural gas and oil) divided by the square of the average cost of drilling and equipping new wells (oil, gas and dry). For convenience, the well cost is put on a relative basis referred to the 1946–50 average. All prices and costs are expressed in constant 1972 dollars. The economic incentive factor has been a leading indicator of discovery rate by 2 years. The factor can be used to modify the IGT model for U.S. natural gas discovery and production to make it responsive to yearly changes in economic incentives to search for new supplies. Using the modified model and a projected trend of the economic incentive factor, future natural gas supplies in the lower 48 states have been calculated. Some projections have also been made on the basis of three possible scenarios in terms of annual possible scenarios in terms of annual gross additions to proved reserves. All indications point to the need of promptly reestablishing and maintaining promptly reestablishing and maintaining much higher annual additions to proved reserves by sharply increasing the weighted average wellhead price of oil and gas. Otherwise, production of natural gas in the lower 48 states will decline soon. Note: This study was based on historicaldata for the period 1946 - 1972.Since its completion, natural gas discovery and production data for 1973 have become available. None of the correlations or projections would be materially affected by inclusion of these new data, which are discussed briefly at the end of the text Introduction The United States has now had 6 years of inadequate natural gas discoveries in the lower 48 states and 3 years of substantially less than required natural gas production. production.