Shale development helped push total U.S. natural gas reserves higher last year even as production increased, according to the Energy Information Administration.

An EIA report yesterday charted U.S. proved reserves of oil and natural gas, a measure of what is recoverable from known reservoirs under current economic and operating conditions.

Proved natural gas reserves at the end of last year were 244.7 trillion cubic feet (tcf), the highest level since EIA began reporting them in 1977. New discoveries outpaced production to provide a nearly 3 percent overall increase in reserves over the previous year.

Proved reserves of shale gas grew by 8.9 tcf to reach 32.8 tcf at year's end, according to EIA.

"Today, increases in shale gas proved reserves reflect the industry's rapidly maturing ability to apply two technologies to shale formations: horizontal drilling and hydraulic fracturing," the report states.

And there is more to come, the report says, because development of the Marcellus Shale in the Northeast has only recently begun, and hence did not lead to substantial proved reserves increases last year.

Texas accounted for more than 70 percent of shale gas production last year, followed by Arkansas.

Production of shale gas last year, at slightly more than 2 tcf, was just slightly higher than production levels of another unconventional source, coalbed methane. But discoveries of coalbed methane were below production, and total reserves fell slightly to 20.8 tcf.

Production of onshore conventional and tight gas in the lower 48 states was 13.9 tcf last year, and discoveries outpaced production, boosting proved reserves at year's end to 169.9 tcf.

Oil

Turning to oil, the report shows that discoveries -- while increasing for the third consecutive year -- failed to outpace production. Proved oil reserves at the end of 2008 were 19.1 billion barrels, compared to 21.3 billion barrels at the end of 2007, a 10 percent drop. Production was 1.7 billion barrels, and total discoveries were 1.1 billion barrels.

However, the report points out that much of the drop in proved reserves was due to so-called net revisions, which totaled 1.6 billion barrels of downward reserve estimates last year. These revisions were based on changes in the price that companies use to estimate how much they can economically produce.

Current Securities and Exchange Commission rules require that operators use oil prices on the last trading day of the year to estimate proved reserves. The report notes that in a volatile year like 2008, this can have misleading effects.

Last year, the spot price for West Texas Intermediate was almost $100 per barrel at the beginning of the year, rose to more than $145 per barrel in July, then slid all the way to under $45 per barrel at year's end.

New SEC reporting rules that will cover the 2009 and future reporting years are designed to make reserve estimates less vulnerable to the short-term price volatility, the report notes. The new rules, if already in effect, would have yielded a smaller downward revision, or maybe even an increase, the report states.

"While the effect of the new methodology cannot be precisely estimated for past years, it seems certain that net revisions for 2008 would have been substantially less negative, or perhaps even positive, under the new reporting method," it states. "In any case, EIA's 2009 proved reserves estimates will reflect operators' reports based on the new regulations."