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Is Natural Gas the Next Bubble ? Has Fracking Promised More Than It Can Deliver?

New research shows that putting too much of our eggs into this energy basket could be detrimental to our future economic health.

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Berman, after digging into the true numbers of these shale gas plays a few years ago, was one of the first in the oil and gas industry to publicly question the shale gas boom narrative. What he found was exceedingly high production decline rates from the shale gas wells, which forced operators to maintain a furious drilling pace just to keep up with production targets.

His analysis turned out to be correct. The frenzied drilling eventually led to a glut, or overproduction, of shale gas, which depressed prices and made these projects losing propositions. Today, the overall U.S. gas supply is flat, which it has been for over two years now.

"It looks like an industry that's in big trouble," Berman said in a phone interview. "That's what it looks like to me. You look at the balance sheets of these companies and they're terrible. Most of them don't have any retained earnings from their gas efforts. Giant write-downs every quarter."

As a consequence, he noted, drilling activity has plummeted.

"If you look at plays like Haynesville, there are fewer than 30 rigs running in Haynesville," Berman said. "At one time, there were over 200. Barnett, there are something like 30 rigs. At one time there was something like 185."

A new study by independent geologist David Hughes supports prior findings by Berman and also the U.S. Geological Survey (USGS), which shows operators greatly overestimating actual well production on shale plays throughout the country, from a minimum of a 100 percent to as much as 400 to 500 percent. (A "shale play" is an area of land that companies believe might be productive.)

The Hughes report, published by the Post Carbon Institute in February, performed an analysis on 60,000 shale wells and every play in the U.S. and their numbers corresponded with findings by the USGS.

While Pennsylvania State University professor Terry Engelder agrees that production has plummeted and there is a glut of natural gas, he said it's "a bit of a red herring" to claim that the shale gas wells have vast decline rates.

Engelder, who openly admits his research at Penn State is heavily funded by the natural gas industry, said that industry economic models were always based on those decline rates.

"So everyone who went into this went in with their eyes wide open," he said in a phone interview. "And only later on have the naysayers started then turning around the argument saying, 'Look how fast the wells are declining, this is a losing situation.'"

But Berman strongly disagrees.

"These wells," said Berman, "have decline rates that are just off the charts and that was really not anticipated."

The Coming Consumer Squeeze?

Back in 2009, when Berman started speaking publicly about the realities of the so-called shale gas boom, Deborah Rogers, a member of the advisory committee of the Federal Reserve Bank of Dallas at the time, found the irate industry response to Berman highly suspect.

"I mean the Chesapeakes and Devons of the world just went ballistic," Rogers, a former Wall Street investment banker and a financial consultant, said in phone interview. "As a financial person at the time, back in 2009, I remember thinking this is very interesting because this reaction is just over the top."

So she began to do some digging herself into well data from shale companies, discovered the numbers didn't add up, and soon became one of the early industry insiders to sound the alarm about the overestimation of shale gas wells.

 
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