Forbes Magazine article of 6-27-11 by Christopher Helman titled "New York Times Is All Hot Air On Shale Gas"
Over the weekend The New York Times publishedthis story on how the business of drilling natural gas out of shale is some sort of ponzi scheme, even Enron-like. The article suggested that there’s really not as much gas in these plays as the industry wants us to believe, that companies are making false claims about the productivity of wells, and that the costs of extracting the gas might be so high as to not be economic.
Most of this argument is absurd on its face. The United States is currently producing more natural gas than at any time in history, on track for 27 trillion cubic feet this year. This is thanks in large part to the breakthroughs in drilling shale formations. And development of these shales has only just begun. In fact, gas is so plentiful in the U.S. right now that companies like Cheniere Energy have gotten the green light to start exporting it. (See: To Import Less Oil, U.S. Must Export More Gas).
The shale play that started it all, the Barnett of northern Texas, is today producing more than ever (5.6 billion cubic feet per day) despite there being half as many rigs working the land than there was two years ago (when production was 5.3 bcfd). As analyst Dan Pickering of Tudor, Pickering & Holt wrote in a note this morning, “If wells are declining faster than expected, the Barnett would not be at record production with reduced rig count.”
As to whether the gas is economic to extract? Would drillers be investing billions a year in new wells if they weren’t getting some return out of it? Granted, today’s low price of $4.30 per thousand cubic feet is so low that drillers have literally thousands of wells that have been bored and completed but that are not yet hooked up to pipelines because they’re waiting higher prices. But a lot of the new gas being brought on line now is what’s called associated gas — that is it is produced from wells alongside oil or natural gas liquids like propane and butane. With petroleum selling for $90 a barrel, drillers in places like the Eagle Ford shale or the Bakken can give away their natural gas for nothing and still make 100% annual returns on their drilling dollars.
Aubrey McClendon, chief executive of Chesapeake Energy, featured in the Times story, and wasted no time taking the paper to task, posting this response on the Chesapeake website. “This reporter’s claim of impending scarcity of natural gas supply contradicts the facts and the scientific extrapolation of those facts by the most sophisticated reservoir engineers and geoscientists in the world,” McClendon wrote. I don’t always see eye-to-eye with McClendon, but he’s dead on with this response: “Today gas shale production represents 25% of US natural gas production, if it were underperforming, how come gas prices are so low when US gas demand is at a record high?”
What else is in the Times’ story–a few paragraphs about landowners who were promised big bucks for the gas under their land who are now left with nothing now that the reserves look marginal. Well to the extent that there were enforcable contracts with drillers leasing their land, those people have a point; but we’ve covered the issue with much more depth on this blog than the Times tries to.
As to the issue of hydro-fracking–the Times has been solidly against the practice, even though it has been perfected over decades and there is little proof that frack fluids or natural gas has infiltrated water supplies. A handful of cases out of thousands of wells fracked are currently being investigated and addressed. As for the criticism of the million-plus gallons of water required to frack a well–that’s nothing compared with the estimated 476 billion gallons a year used to irrigate golf courses. That’s about 150 million gallons per course per year. What’s more important to you? Green fairways or affordable electricity?
We would have thought that the Times would be in favor of plentiful, low-cost natural gas. It burns a lot cleaner than coal, and with nuclear off the table for now, gas is poised to fuel U.S. economic growth for more than a generation to come. I can only guess that the problem, as the Times sees it, is that as long as we have all that cheap gas, there’s precious little need for solar panels, windmills and other cornerstones of their much-heralded but slow evolving green jobs revolution.
Forbes, on the other hand, thinks it’s pretty awesome that thanks to drilling ingenuity the U.S. has proven to have one of the world’s biggest and cheapest hoards of clean-burning gas. Now that’s a story.
Blogspot Editor's Note:
There is a cost to this pro-drilling talk. Instead of being fully committed with renewable energy sources, the nation's political will is committed into a full fledged assault upon our communities, and their environment putting off investment into renewables by subsidizing and investing in non-renewable energy sources.
Here in Pennsylvania, this massive assault into the shale bed layers has, and will continue to pollute drinking water, sending methane gas into the air, destroy soils, attack our noise levels, and negatively affect our property values, and kill our streams, rivers, and creeks. In addition, it will negatively affect our recreational areas.
This is the price that this President, this Congress, and the nation's governors and their legislatures will have this generation, and future generations paying for as a result of the greed that is affecting us now.
Marcellus Shale drilling should NOT be the answer, but should only be a supplement to a national commitment to renewable energy sources, such as geothermal, solar, wind, and mini-hydroelectric units.