Tue Feb 19, 2013, 12:44 PM
octoberlib (5,200 posts)
Reports: Shale Gas Bubble Looms, Aided by Wall Street
Two long-awaited reports were published today at ShaleBubble.org by the Post Carbon Institute (PCI) and the Energy Policy Forum (EPF).
Together, the reports conclude that the hydraulic fracturing ("fracking") boom could lead to a "bubble burst" akin to the housing bubble burst of 2008.
Playing the role of Cassandra, the reports conclude that "the so-called shale revolution is nothing more than a bubble, driven by record levels of drilling, speculative lease & flip practices on the part of shale energy companies, fee-driven promotion by the same investment banks that fomented the housing bubble..." a summary details. "Geological and economic constraints – not to mention the very serious environmental and health impacts of drilling – mean that shale gas and shale oil (tight oil) are far from the solution to our energy woes."
PCI's report is titled "Drill Baby, Drill," authored by PCI Fellow and former oil and gas industry geoscientist J. Dave Hughes, while EPF's report is titled "Shale Gas and Wall Street," authored by EPF Director and former Wall Street financial analyst Deborah Rogers.
In President Barack Obama's 2012 State of the Union address, he repeated the fracking industry's favorite mantra: there are "100 years" of natural gas sitting beneath us.
Hughes concludes that the "100 years" trope serves as a disinformation smokescreen and at current production rates, there are - at best - 25 years under the surface.
Industry proponents rely on a figure known as "technically recoverable reserves" when they promote the potential of shale basins. The figure that actually matters though, is production rates, or what the wells actually pull out of the reserves when fracked.
In the case of U.S. shale gas, the booked reserves are operating on what Hughes coins a "drilling treadmill," suffering from the law of "diminishing returns."
Hughes analyzed the industry's production data for 65,000 wells from 31 shale basins nationwide utilizing the DI Desktop/HPDI database, widely used both by the industry and the U.S. government. He sums up the quagmire he discovered in doing so, writing,
Wells experience severe rates of depletion...This steep rate of depletion requires a frenetic pace of drilling...to offset declines. Roughly 7,200 new shale gas wells need to be drilled each year at a cost of over $42 billion simply to maintain current levels of production. And as the most productive well locations are drilled first, it’s likely that drilling rates and costs will only increase as time goes on.
The reality, he explains, is that five shale gas basins currently produce 80 percent of the U.S. shale gas bounty and those five are all in steep production rate decline.
Wall Street's Complicity
"The recent natural gas market glut was largely effected through overproduction of natural gas in order to meet financial analyst’s production targets," she wrote. "Further, leases were bundled and flipped on unproved shale fields in much the same way as mortgage-backed securities had been bundled and sold on questionable underlying mortgage assets prior to the economic downturn of 2007."
In its early days operating in the U.S., the industry cloaked itself as a "mom-and-pop" shop start-up venture.
Rogers unpacked the reality behind this rhetorical ploy, writing that Wall Street firms are "intricately married to shale gas and oil corporations...With the help of Wall Street analysts acting as primary proponents for shale gas and oil, themarkets were frothed into a frenzy."
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