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Update on the (un)economics of shale gas
Fellow Folders,
In April I wrote a quick post on the (un)economics of the much-hyped shale gas ‘revolution’. That post was inspired by comments made by long-time oil industry analyst Henry Groppe which were published in the Globe and Mail. In that post, I leaned on the insights of petroleum geologist and industry consultant Art Berman, who had been arguing eloquently and persistently that shale gas reserves are greatly overstated. The point that Art argued in his 2009 presentation at the annual ASPO-USA conference (.pdf), is that the production rates for conventional gas fields and shale gas fields are significantly different. Shale gas produces high volumes for short periods while conventional fields produce at relatively low rates but do so over a long period of time. The problem with the shale gas reserve estimate methodology is that the models which accurately predict conventional production rates are being applied to unconventional plays in order to forecast future production and estimate total reserves. As a consequence, high initial flows are forecasted to decline at much slower rates than a growing body of empirical evidence suggests will be the case. This misapplication of models has resulted in a situation where the “volume of commercially recoverable [natural gas] has probably been greatly over-estimated.”
In October, I attended the annual ASPO-USA conference where I had the opportunity to talk with Art and take in another of his excellent presentations on the subject of the Marcellus shale play. For the more technically inclined, you can download the presentation from here (.pdf).
According to Art Berman the economics of shale gas production have not improved and the conclusions he drew from other shale plays apply to the Marcellus. He makes numerous forceful points: Read more…
NY Dept. of Environmental Protection calls for shale gas prohibition
Fellow Folders,
The NY Dept. of Environmental Protection has weighed in on the shale gas issue that I first wrote about back in April. After studying the hydrofracing process, the NYDEP has called for the prohibition of shale gas production anywhere in the watershed that supplies NYC. Specifically, the NYDEP-commissioned study deems the risks of water contamination and infrastructure damage to be unacceptably high. I applaud this decision. As I’ve said many times before, hydrofracing is inherently risky, and we can’t allow a BP-magnitude hydrofracing disaster to comprise an even more precious and increasingly scarce resource: fresh water.
The fact that we are turning to shale gas – and tacitly accepting the associated risks and costs – to fuel the ‘clean’ energy revolution is evidence that natural gas production has reached the seventh fold. We can continue to produce natural gas and even increase production rates for some amount of time, but doing so requires that we take ever-greater environmental risks by pumping toxin-laced water into the ground in order to release hydrocarbons from the best carbon sequestration device known to man: shale. And this hydrofracing process not only increases our collective exposure to severe environmental risks, the process itself is more costly than we know. The costs of production are increasing not only in dollar terms (ROI) but in energetic terms as well (See my post on EROEI and net energy).
An energy revolution is needed, but is this the direction we want to go? I think not. Turning to shale is a mistake. From an energy generation perspective we have options like solar, wind, tidal, and hydro. But these alternatives won’t fill the gap. We need to match our push for alternative sources with even stronger conservation efforts. Unlike shale gas production, voluntary conservation carries zero negative externalities. In fact, it is a net benefit from all perspectives.
Thanks for reading,
DA
Presentation to Sustainable West Seattle – 20 September 2010
Below the fold, you will find the slides and transcript from a presentation that I recently gave to the kind folks that comprise Sustainable West Seattle.
Shale Gas Overhyped says Petroleum Industry Analyst Henry Groppe
EDIT: (12/23) For an update on the (un)economics of shale gas production go here, and for an update on the NY Dept. of Environmental Protection’s decision to prohibit hydrofracing, announced on 12/22 go here. And for background, go here.
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Henry Groppe – of Groppe Long & Littell is betting that natural gas prices will double by summer. Why? Because like me, he does not buy the shale gas hype, and recognizes that shale gas has entered the seventh fold of production!
But who is Mr. Groppe, and why should we listen to his prognostications? As The Globe and Mail reports:
In 1980, when oil approached $40 a barrel and forecasters predicted $100 oil was inevitable, Mr. Groppe said crude would fall below $15 by the mid-1980s. It did.
In 1998, when crude dipped to barely above $10 and some prognosticators were hailing a new era of cheap energy, Mr. Groppe said oil was set to soar. By early 2000, it had topped $30 a barrel.
And two years ago, when it threatened to reach $150 a barrel and forecasters said $200 and more were just over the horizon, Mr. Groppe predicted we’d be back at $60-$70 in the second half of the year. By October, he was right again.
Now, he says, a slow-but-gradual decline in North American natural gas reserves – regardless of shale – means an average price in the $8 range is inevitable to trigger the “demand destruction” necessary to keep the supply-demand picture in balance. Eventually, he says, that price will creep up toward $10 by the end of the decade, as gas production slowly depletes.
I recommend reading the original article as it gets into some of the (un)economics of shale gas production that I left out of the “Shale Gas is a Giant Loser” post. It sounds like Mr. Groppe has been listening to Art Berman, an independent petroleum geologist, consultant, and (former) columnist for the industry journal World Oil. Mr. Berman has been covering the shale gas story for years. Art recently penned an article titled “Facts are Stubborn Things” which was pulled at the last minute after World Oil received pressure from a top executive at Petrohawk Energy (a major shale gas player). After the article was pulled, Art quit his gig as a columnist, and World Oil editor Perry Fischer was fired. Fortunately, ASPO-USA ran the article – which discusses the (un)economics of shale gas production. Further insight into Art’s arguments are articulated in the presentation (.pdf warning) which he gave at the 2009 ASPO-USA conference.
Shale Gas is a Giant Loser!
12/23 Update: For an update on the (un)economics of shale gas production go here, and for an update on the NY Dept. of Environmental Protection’s decision to prohibit hydrofracing, announced on 12/22 go here.
Fellow Folders,
In my seventh fold posts, I focus on the nexus of the 3-E’s – energy, the environment, and the economy. After years of research, I’ve become convinced that a techno-fix to our 3-E problems simply will not scale up to meet the world’s growing energy demands, and that the best mitigation strategy is voluntary conservation. The problem, of course, is that while conservation preserves natural capital, conservation stifles the accumulation (and hoarding) of monetary wealth. Motivated to exploit nature for profit, energy companies have engaged a tactical marketing campaign in which the primary objective is growth at all costs (so long as they are not forced to pay these costs!). In this post, I hope to convince you that there is a significant risk that we cannot afford the long-term environmental and health costs associated with shale gas production. I hope that reading this post will help you see through the shale gas hype and motivate you to take a stand against the sinister and predatory practice of hydraulic fracturing (hydrofracing… pronounced hydro-frack-ing).
Let’s begin with the question, “What is shale, and why does it need to be hydrofraced?” Read more…
The Seventh Fold
