Natural Gas: Verifying Naill's Results

Figure 5 shows a test simulation to verify that the Stella model generates the results reported by Naill (1973, 238) in a base line simulation without price regulation. The model is initialized in the year 1900 with 1,040 TCF of unproven reserves and an initial demand of 0.4 TCF/yr. In this case, the unproven reserves would appear to cover demand for 2,600 years! But you know this measure is misleading if demand grows exponentially over time. Naill assumes that demand has the potential to grow exponentially at 6.6%/yr. The actual growth will be tempered by changes in the price of natural gas.

Figure 5. Verification that the Stella model matches the unregulated baseline simulation from Naill (1973, 238).

The test simulation shows a sixty year period of exponential growth in useage, discoveries, and proven reserves. But the growth phase of the simulated life cycle concludes during the late 1960s and early 1970s. The remainder of the simulation shows the "down side" of the discovery life cycle. The model suggests that gas discovery would be the first variable to reach a peak and turn downward. Within a few years, the decline in discovery rate will cause discoveries to fall below the usage rate. When this happens, proven reserves are forced downward.

Figure 5 verifies the first simulation appearing in Toward Global Equilibrium. Additional simulations show the impact of ceiling price regulation imposed in 1960, changes in the estimate of unproven reserves and improvements in exploration technology.