Discussion on:

The questionable economics of shale gas

Excellent article. Well researched, written and informative. Quite revealing in fact.

Fracking threatens the water supply of over 100 million Americans. It is a pending disaster that will make the recent Gulf spill look like a hiccup. It could ruin the ground water across large swaths of America - a disaster that would be permanent on a human scale.

The frackers claim that their wells are much deeper than the aquifer, but all it takes is a problem with the casing going down into the well, or a problem with their catchment pond, their waste disposal methods, etc. for their poisons and natural gas to leach into the environment, and especially the water table. They can't promise that it won't happen, and it's almost guaranteed that it will, over and over again, as it already has happened many times.

It's just the proverbial "salt in the wound" that it's likely also just another scam, like the so-called "derivatives" of the recent housing market debacle.

I agree with you that a large portion of water is at risk due to the now popular method of fracking. What I find weird is that the risk to the water supply for gas production that, as MR. Nelder says, is not a profitable venture.

The idea of drill, baby, drill seems to miss the practical aspects of balancing cost of exploration with actual production results. It is disconcerting to find out that energy producers are taking on riskier methods to keep oil and gas flowing.

Shale gas may indeed be over-promised. But it is one more energy option to explore. Drilling techniques will be refined, extraction science improved, and there will be plenty of time to determine how much supply is extractable. I agree that at present, the promise seems a bit tenuous. I don't agree that fracking is a serious threat to the water supply of 100 million people.

Chris,

If that is your coinage, it is deliciously brilliant.

With conning going bat poop in our national life such cautionary, researched articles are worth their weight in spam as per Roubini's recent tweets to the question, "What do you think of gold?" Roubini responds, "No views on that Barbarous Relic. I would rather buy Spam. (take that, Ron Paul, you reactionary idiot-my addition) Can you eat Gold? No. You can eat & barter Spam. Can you sell spam back to your bank? No Banks can take back your Gold."

It's strategic to be cautioned about the possibility that no banks will take on your frack at some future time, because you've been conning the Hell out of everyone.

Thanks for posting. http://www.nsserials.com/

The water problem is critical, and with the tight economics of shale gas production (costs $8 per mcf but market price only $3) and the primitive water treatment technology being offered, it doesn't look like the water problem will be solved soon. If you're losing money on drilling but just are doing it so you can hold on to your leases in hopes of unloading them onto some bigger fool, then that doesn't look like any kind of answer to our energy needs, and it's not something to be proud of. The only way it makes sense is if the price of gas triples, which was not what the country is expecting out of this supposed boom. This is also bad news for wind and solar, which need natural gas backup.

Yes maybe fracking won't yield nearly as much gas as people hope. And maybe fracking will indeed cause significant problems with fresh water supplies and so will have to be severely curtailed. But (as Chris Nelder is honest enough to point out) maybe not. The point is that we just won't know until we try.

The important thing is not to rely on any particular new technology until its place in the energy mix has been proven. So taking a responsible attitude towards planning our energy future means deploying a lineup of different tecchnologies in descending order of feasibility and availability and recognising that the order may change several times over the years ahead. That logic means that we must inevitably start with fossil fuels (oil, coal, gas and nuclear) because they are the proven technologies that are actually working right now. Of these only nuclear has a low carbon footprint. So for those alarmists (not me) who are obsessed with fears of dangerous man-induced climate change, the logic should be to reduce dependency on oil, coal and gas by increasing nuclear capability. Then, as the various renewable energy sources do become more mature and available over time, the nuclear capability can be reduced proportionately. But, if the renewables don't perform quite as well as we all hope, or take longer to do so than we plan, we will not be left high and dry with an energy shortage.

What I am saying is that nuclear is currently the least worst option and we would be crazy not to exercise that option while carrying out the development of renewable energy alternatives. To rely today on the imminent arrival of new unproven technologies (including shale gas) for our energy future would be very foolhardy indeed.

The problem is that the same people who want to get rid of the CO2-generating fuels are also neurotic about nuclear. Why this should be so is not clear since nuclear is a carbon-minimal form of power generation which also has an incredibly safe track record. So they are left trying to persuade the rest of us that the renewable alternatives are more proven and advanced than they actually are. This wishful thinking is in danger of destroying the West as the Chinese and other emerging nations march cheerfully on towards a safe, clean and predominantly nuclear future.

@cosserat: so there's this country on the other side of the world, it's called Japan, and it's having all sorts of fun with nuclear energy. Perhaps you'd like to get in on what will likely be firesale prices on the land. Of course, you won't be able to use the land for any reason. But as you cheerfully point out, China and other emerging nations are cheerfully incorporating nuclear energy into their portfolio.
Never mind that the countries with far greater experience in nuclear energy are moving away from it. You wouldn't want to do anything stupid like learn from others experiences.

In order to keep a lease, you don't have to do massive drilling. It only takes one well. You don't even have to run it all the time. Yet we now get 25% (I've actually read 40% just the other day) of our gas from shale.

All the talk of accounting tricks is silly. On the scale of production that's going on, if at the end of the day if you don't have money in your pocket, you just don't do it. Accounting tricks are only useful to hide profits. For example, there are all kinds of ways to shift profit so you reduce taxes. But if there is no profit, then no accounting trick will ever conjure one up.

Neider needs to stop thinking that oil companies will spend tens of billions in unprofitable enterprises just to mess with his mind. He might also consider taking an Accounting 101 course.

Pennsylvania has more than 1,600 Marcellus wells. Gas drillers are promising 10,000 new wells in the next few years, and they???re eager to frack the Delaware River Basin. Drilling activity has more than doubled, yet the PA DEP budget was cut by $165 million. Surely enforcement represents an ever expanding task? Meanwhile, gas drillers are storing gas and flaring wells more frequently while they wait for higher gas prices, and 25,000 miles of new high-pressure gathering pipelines to be slapped down to ship LNG to China. I gather it's too late to put this genie back in the bottle, but no one in Harrisburg has any vision for all this gas. And, given all that we do know about fracking, shouldn't watersheds be off limits?

Good post Chris!

I first read your writing a couple of weeks back with your "Why energy journalism is so bad" post. I started out a half a year ago reading about the petroleum industry and energy economics and was very confused. took me a long time to get my head around the spin and outright BS. I wish I'd had your post on energy journalism available when I first started my reading!

Anyway I very much agree with your summary of the economics of the shale gas play.

A couple of articles I've come across that should add to the discussion and complement your post.

Wood Mackenzie on shale gas play break-evens.
http://www.ogfj.com/articles/2011/08/playing-a-smart-shale.html

And a Rigzone "Musings from the oil patch" opinion.
http://www.rigzone.com/news/article.asp?a_id=113141

If this shakes out as badly as I think it might I can imagine that a lot of investment will never come back to the shale gas plays. And that is probably for the best!

Thanks,

Andrew

Thanks for highlighting those excellent pieces, Andrew. I wish I'd found them in my research for this article!

We are seeing more and more articles about frac'ing and I have noticed an interesting trend. Those opposed to the practice always spell frac with a "k". Frac, is short for fracturing, and those in the industry have consistantly spelled it "frac". I don't believe it is an accident that those opposed to frac'ing choose to spell it with a "k" to ensure the association with another word that starts with an f and ends with a k, and add to the negative perception.

The fracturing of zones containing hydrocarbon (either oil or gas) has been around for several decades, with tens of thousands of wells being frac'd in the US. If contamination of ground water had been a serious problem with frac'ing, then it should be easy to find numerous cases where this has happened, which simply is not the case.

Good luck with that http://www.google.com/trends?q=frac%27ing%2C+fracking

Drat! That's not it... "fire truck" is two words!

Chris, I don't get why "thousand cubic feet" is abbreviated mcf. I would have thought that would be for "million cubic feet". Can you explain?

mcf is thousand cubic feet
That's just the way it always was is what I was told!
mmcf is a million cubic feet (I think)
bcf, more sensibly is a billion cubic feet

Just remembered... it's the roman numeral M
http://en.wikipedia.org/wiki/Roman_numerals

I am still not convinced by all the conspiracy theories (and I was a fan of the X Files). The assumptions about why lease holders insist on holding on to the leases are so simplistic that they approach the ridiculous. Also, those of us in the energy industry have all heard of the USGS geologist who had predicted that by 1970 we would have completely ran out of oil.

One thing that geologists and engineers always forget is the effect of simple economics in the production and consumption equation. I have seen so many horribly wrong forecasts prepared by engineers and geologists that at this point in my life I tend to dismiss them instantaneously.

The question I have of Mr. Berman et al is who gets to benefit (or in the alternative who really gets harmed). So, let's argue for a moment that they are correct. How do E&Ps benefti from "cooking their books"? The article tried to answer the question but I believe it failed. What is the motive? Come on I am sure you have an answer.

A_D_T

I appreciate your wise and honest reflections on the "favored status" that's been mantled on shale gas. I'm not against shale gas, but argue that we consumers must honestly assess the environmental risks along w/ the true economic costs vs. benefits into the whole picture. The impact of fracking on releasing more earthquakes and contaminating ground water MUST be openly and honestly determined. Once those things are known and reported, the panacea of shale gas may be far less glamorous, and possibly even rejected. In my personal opinion, I think environmentally and socially favorable, and economically viable, alternative energy sources like biofuels from cellulosic and algae feedstock are much better and should receive our dedicated national focus.

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