In this unit, we are going to discuss the distribution of gas reserves, which are the countries that possess the largest gas reserves, how much gas they produce and what is the availability of gas. In the first slide that you can see on your screen, we have the representation of proven gas reserves. Here the concepts are exactly the same as for oil. We have defined proven reserves, and we have seen a similar chart for oil reserves. As for oil reserves, proven gas reserves have increased over the years. It means that our exploration and our understanding of the gas fields, of the gas resource has evolved over time, and we now believe that there is more gas than we used to believe. From 1993 to 2013, we have added fairly significant gas reserves. We have gone from about 115 trillion cubic meters to 186 trillion cubic meters. So there has been a very significant increase. The distribution of these reserves is somewhat more balanced than for oil, in the sense the Middle East remains very important and has not declined in its importance as the case has been for oil. Actually the contrary but also we have very important gas reserves in Europe and Eurasia. In fact, this is a bit deceiving in the sense that the important gas reserves are entirely in Eurasia, in Russia and Central Asia. Then we also have, of course significant gas reserves elsewhere. Gases are ubiquitous, and so it is found in many parts of the world and in almost all countries. In the next slide, we see the main countries that possess the largest gas reserves. We can see that, as of the end of 2013, the country that claims to have the largest gas reserves is Iran. As I said for oil, I have to stress that this is a claim. We have no independent confirmation or auditing of this reserve figures. So it is essentially the Iranian government that publishes every year or every so frequently and estimate, a revision of the estimate of their gas reserves, and this is the number they have published recently. Russia, the Russian Federation which until very recently, until last year used to be the number one country is now number two. Whether they will revise their own numbers, I don't know. We will see when the year comes to an end or whenever they feel like announcing a new number for a new estimate for their reserves. The next slide is a slide showing the ratio of natural gas reserves to actual production in 2012. This is very significant because it tells us that we have some very large reserves compared to recent production. The reserves are very significant and we can produce at the same level for many years. So in the case of the Middle East, the so-called R to P ratio, reserves to production ratio, exceeds 125 years. So the Middle East could keep on producing gas at this rate for longer than a 125 years. The ratio is also very high in Africa and in Eurasia. Notice that it is very small in North America and that is not because there is a lack of gas in North America. In fact, North America is a very large producer of gas, but it is simply that there is no incentive in exploring for gas unless you have a market for it. At the moment, the prices for gas in North America are low, and so producers do not feel a lot of incentive in exploring for gas. The next slide tells us what are the remaining recoverable resources. So you remember the difference between reserves and resources. Reserves are those quantities that we believe we can produce with 90, 50, or 10 percent probability. Resources are vaster, larger. The underline total amount of resources that are available on the ground. As you can see, Russia has by far the largest resources, and most of it is conventional which is represented in light blue. Some of it is in tight rock formations, so it requires fracking. Equally, some of is in shale formations, again, requiring fracking. Finally, the last component is coalbed methane. This is gas that can be produced out of coal seams that are, again, fracked because the coal seams always contain a certain amount of methane. So one can exploit them by producing the methane without extracting the coal. Very larger resources are also in the United States. But the importance of tight formations is greater. Finally, it's important to note China that has overall very large reserves but mostly non-conventional. So mostly shale gas in a large to a significant amount of coalbed methane as well. The next slide tells us who are the major gas producing countries? And we see immediately that the major gas-producing countries are not the countries that have the largest reserves. Number one is the United States, number two is the Russian Federation. Russian Federation is also number two for gas reserves. Number three is Iran, which is number one in terms of gas reserves and so on and so forth. Why is production in the United States so large? Because there is a market there. So what is important to determine the extent of production, the volume of production is not so much the availability of reserves but the availability of a market. If you have a large market, you will produce a lot of gas, you would sell a lot of gas even if your reserves are smaller than those of somebody else. Next, there is a slide that shows the provenance of gas from which region it is produced and also to what extent it is traded internationally across regions. You can see that the total world gross gas production. which is represented by the long horizontal red bar in the middle is composed of conventional gas, the red bar, the red portion of the bar and to some extent non-conventional gas, and that is the pink section of the bar. This is impactly flared or vented. I will come back to this and explain why some of the gas is just simply burned at the tip of the well or allowed to escape in the atmosphere. Some of it is re-injected in the field. This is especially common for associated gas which is then produced with the oil and re-injected in the field in order to maintain the pressure that facilitates further production of oil. You have something called shrinkage losses that simply refers to the fact that the volume of the gas is reduced when it is cooled and the rest of it is marketed production. If you look at the green horizontal bar which is divided in darker green and lighter green. The lighter green part is the gas which is consumed, utilized within the very same region where it is produced. The darker green portion of the bar is that which is traded across regions. Why is it that most of the gas is consumed in the same region where it is produced? For oil, this is not true. Most of the oil is traded internationally, but for gas, that's not the case. The point is gas is very expensive to transport, and so there is a high convenience in using gas close to the point of production and not exporting it over long distances. Because exporting, the process of transporting gas is very expensive. So the best value for the producer is obtain if you have a customer nearby, just around the corner. Unfortunately, sometimes it's difficult to have a customer around the corner and so the gas has to be transported across long distances. That explains also why if you are an oil and gas producing country, you will always want to maximize domestic use of gas and export of oil. Because oil is easy to export, travels easily. Gas does not travel easily and has a much lower value when exported.
