Archive
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.
Algeria Looks to Shale as Gas Production Enters the Seventh Fold
Fellow Folders,
Just four days ago I blogged about Saudi Arabia’s entry into the club of unconventional shale gas producers, and yesterday Bloomberg reported that Algeria will soon add its name to the list as well.
Algeria’s announcement that it is “going to look for oil and gas in shale and compact formations” is yet another piece of evidence that natural gas production has reached the seventh fold, joining company with oil and coal (evidence: tar sands and mountain topping). It is becoming ever more difficult to maintain current levels of production in each of these fossil fuels, and after production reaches a bumpy plateau, it will inevitably decline along an equally bumpy descending path. (In other words, don’t be fooled by temporary surges in output!)
Add Saudi Arabia to the growing list of Shale Gas players
Fellow Folders,
According to the Financial Times (article), Saudi Arabia just announced the discovery of huge unconventional gas reserves. Yes, that is correct, Saudi Arabia is getting into the shale gas industry. As the FT puts it, “The announcement signals a potential opportunity for Saudi Arabia, but also confirms that Riyadh has not found as much conventional gas as it had hoped.”
The FT goes on to say that “International companies, which have been shut out of Saudi Arabia’s oil production for decades, have been looking over the past five years for natural gas in the kingdom’s Empty Quarter desert, with largely disappointing results.”
This is, of course, another way of saying that like conventional crude, conventional gas has reached the seventh fold of production not just in the U.S. but in Saudi Arabia. Peak production is not far behind, nor is peak net energy, and as I’ve shown in a previous post, a peak has already been reached in net oil exports – the amount of oil made available for purchase by net importers like the U.S., China, Germany, etc. This means that net importers (a group which includes 9 of the 10 largest economies) have been competing for a declining resource since 2005/6.
These seventh fold problems pose serious challenges to a business-as-usual approach to running the economy, and these seventh fold problems are especially challenging from an environmental perspective. Read more…
The Seventh Fold
