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Appendix 8-1
Appendix 8.1 Natural Gas Supply Curves for EPA Base Case 2000
A Technical Paper Prepared by ICF Consulting, Inc.
1. IntroductionIn 1995, the Gas Systems Analysis Model (GSAM), developed by ICF Consulting under the sponsorship of theU.S. Department of Energy (DOE), was used to create the supply and demand curves and transportationadders for IPM. During the past five years GSAM has evolved, incorporating new data and modelingenhancements. Since 1995, updates on resource estimates, frontier resources, advances in E&P technology,costs, new environmental regulatory regimes, and federal lands access levers have been incorporated intoGSAM. This version of GSAM has replaced virtually all the data, which were used in the now obsolete 1995version of GSAM. In addition, this current version of GSAM incorporates characterizations of new supplytechnologies such as horizontal drilling that were not part of the 1995 version of GSAM. The impact of suchimprovements on the projected supply of natural gas is quite sizeable. In addition, resources from newemerging frontier basins have been incorporated in GSAM. New frontier basins may become importantsources of supply in cases where the demand for gas is high (e.g., due to a large-scale switch to gas forelectricity generation). Taking account of these new basins could impact the future growth in gas prices. 
1.1 Brief Synopsis of GSAM
GSAM represents a flexible, sophisticated approach for modeling supply, demand, and transportation issuesin the North American natural gas market. It has undergone a comprehensive, in-depth review by industry,government, and academic peers. (See Appendix 8.1.6 for further details.) It is reliable and efficient inanalyzing the broad range of issues being addressed in this study and has been successfully used to evaluatevarious upstream and downstream issues in natural gas, including consideration of alternative technologyscenarios, market conditions, and public policy initiatives on U.S. gas supplies and the strategic decisionsmade by oil and gas companies. Therefore, it is capable of providing a credible state-of-the-artcharacterization of the gas supply, transportation, and non-electricity demand for the EPA Base Case 2000.On the upstream side of the market, GSAM has a gas resource base characterized by explicit geologicproperties and operational characteristics for over 17,000 individual gas reservoirs and aggregate suppliesrepresented in 28 supply regions. Since the characteristics of potential North American gas supplies arespecified at this level of disaggregation, GSAM is free from restrictive assumptions such as regional averagesupply curves normally imposed by traditional gas market models. GSAM contains detailed information onindividual gas reservoirs both in the U.S. and Canada. Each of the reservoirs has detailed information on thelocation of the reservoir, allowing the allocation of reservoirs into supply regions (Figure A8.1). In addition,GSAM contains resources located in frontier regions such as the Alaska North Slope, Mackenzie Delta,Newfoundland, Onshore Deep Gas, Ultra Deep Water, etc. A detailed discussion of frontier supply sourcesis available later in this document.On the downstream side of the market, GSAM consists of 16 North American demand regions with over 80transportation links connecting supply and demand regions. These links represent collections of pipelinesserving the regions (or intermediate points) in question. The demand for natural gas is characterized by foursectors: residential, commercial, industrial, and electric power generation. Combined with multiple seasonsand years, the result is a model that is rich in detail. The upstream and downstream sides of the market arebrought into balance by an integrating linear program (LP) which seeks to maximize the sum of producer plusconsumer surplus less transportation costs, resulting in equilibrium prices, quantities, and flows.Key GSAM sub-modules interact with each other in a manner illustrated below to perform the aforementioned
 
Appendix 8-2activities (Figure A8.2).
•Resource Module 
 
- 
transforms raw resource and reservoir data into fully characterized, reservoir-leveldatabases. The module operates using several routines that evaluate available information and estimatemissing data elements based on reasonable engineering and geologic default parameters. 
•Reservoir Performance (RP) Module - 
estimates annual production volumes and costs associated withdevelopment of each known or potential producing natural gas reservoir characterized by the ResourceModule.
Figure A8.1 Supply Regions of the Gas Systems Analysis Model (GSAM)
 
Supply-Natural GasSupply-LNG
MDANSWLRFPOFSJPMEX
TGC
GMWLCGMC
SL
MFNPEIAPMWDGSIAETMCGMECPBCALB
Regions in GSAMPOF: Pacific OffshorePON:Pacific OnshoreSJ:San JuanRF:Rockies ForelandWI:WillistonP:PermianMC:Mid-ContinentAET:Arkla-East TexasTGC:Texas Gulf CoastGMW:Gulf of Mexico-WestGMC:Gulf of Mexico-CentralGME:Gulf of Mexico-EastNP:NorphletSL:South LouisianaMF:MAFLA OnshoreMW:Mid-WestAP:AppalachiaANS:Alaska North SlopeMD:MacKenzie DeltaALB:AlbertaBC:British ColumbiaSI:Sable IslandDG:DistrigasCP:Cove PointEI:Elba IslandLC:Lake CharlesMEX:Northern MexicoNF:Newfoundland
NFPON
 
•Exploration and Production (E&P) Module - 
evaluates the exploration, development and production ofthe natural gas resource base over time as a function of contemporary market conditions and technology,economic, and policy assumptions. Gas prices can be exogenously input or calculated based on analysisusing the Demand and Integrating Model.
•Demand and Integrating (D&I) Module - 
evaluates demand for gas by region, sector, and season as afunction of gas prices, population growth, economic activity, interfuel competition, and other regional andnational factors. It creates input files for operating the linear program to balance supply and demandacross a nationwide transportation network linking supply and demand regions. 
•Production Accounting (PA) Module - 
converts output from other modules to provide a full accounting
 
Appendix 8-3of all exploration, drilling, completion, operations, and upstream activities. The output provides details onannual gas production, gross revenues, taxes, investments, operating costs, and operating profits. The consistent evaluation of gas supply and demand under alternative economic, technology, regulatory, andpolicy conditions is the key benefit of GSAM, which is designed to be fully consistent with operator decision-making procedures. Its modular design as shown in Figure A8.2 provides flexibility in developing andcompleting various technology and policy assessments.
Figure A8.2 Major Components of the Gas Systems Analysis Model (GSAM)
 
Inputs
•
Resource Data
•
User-Specific Technology, Cost,Policy Assumptions
•
Exogenous Macroeconomic,Infrastructure and IndustryCharacterization
•
Reservoir Level Analysis
•
Explicit Technology/Costs
•
Uncertainty/Risk Evaluation
•
Serial SimulationEquilibrium
•
Maximize Producer/Consumer Surplus
•
Inertial, Capital Constraints
•
Interfuel Competition
•
Seasonal Time Steps
•
Transport and StorageConstraints/Costs
•
Endogenous CapacityAdditions
•
Investment, Drilling, Production
•
Supply, Prices
•
Resource Description
•
Technology Use
•
Market Dynamics
Upstream ModelIntegrating ModelDownstream ModelOutputs
Resource Module
Production Accounting Module
•
Regional Sectoral DemandDemand/Transportation ModuleStorage ModuleReservoir Performance ModuleE&P ModuleEnvironmental Module
•
Site-Specific EnvironmentalCosts/Benefits
2. Natural Gas Assumptions for EPA Base Case 20002.1 Natural Gas Reserves and Resources
A summary of various categories of natural gas resources for Lower-48 is provided in Table A8.1. GSAMaccounts for natural gas from an Original Gas In Place (OGIP) point of view. OGIP is defined as the amountof natural gas that can be found in the pore spaces of various geologic formations. Various levels oftechnology application (termed as current technology and advanced technology) will develop different amountsof natural gas from these pore spaces and is termed as technically recoverable natural gas resources. Dueto a variety of reasons (such as pore geometry, formation characteristics, pressure profile within reservoirs,etc.) 10-50% of natural gas volume may not be produced using the current state-of-the-art technologies. InGSAM, two technologies are applied to the resource base with a defined set of technology penetrationparameters. This yields two sets of natural gas recoverable resources, one using current technology and theother using advanced technology, as shown in Table A8.1.
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