Enron Redux? Industry Insiders Say Natural Gas Drilling Is a Ponzi Scheme

If you've been following our ongoing coverage of gas drilling and the practice of hydraulic fracturing or "fracking," they you already know that there has been huge environmental fallout and the idea that natural gas is a green energy solution has been roundly debunked. But now the industry is suffering yet another setback -- and it's coming from the inside.

The New York Times has spend the last 6 months collecting emails and information from industry insiders that reveal that the gas drilling industry's economic prospects are not all they're cracked up to be. Here's a few quotes from the 480+ pages of emails the Times has made available:

"The word in the world of independents is that shale plays are just a giant Ponzi schemes and the economics just do not work." -- IHS Drilling Data

"It looks to me that the hype about these plays is creating a false sense of security for the American public." -- conversation between petroleum geologists

"After buying production for over 20 years hopefully I know the characteristics of the great wells (flat declines curves, low operating costs, large production) and as you know the shale plays have none of these. The herd mentality into the shale will eventually end possibly like the sub prime mortgage did." -- an official at Anglo-European Energy

The emails reveal that shale fields are not all they are cracked up to be. Ian Urbina writes for the Times, "In the e-mails, energy executives, industry lawyers, state geologists and market analysts voice skepticism about lofty forecasts and question whether companies are intentionally, and even illegally, overstating the productivity of their wells and the size of their reserves."

Urbina writes about how landowners in Texas who signed leases have already gotten screwed out of royalties they thought were coming to them.

In additional to creating an economic mess and in many cases, an environmental nightmare, gas companies may be teetering on the edge of illegal activity, as well. Urbina writes:

The e-mails do not explicitly accuse any companies of breaking the law. But the number of e-mails, the seniority of the people writing them, the variety of positions they hold and the language they use -- including comparisons to Ponzi schemes and attempts to "con" Wall Street -- suggest that questions about the shale gas industry exist in many corners.

It's important to note, though, that not all shale is created equal and the Times mentions that three major shale formations that are underperforming are the Barnett (Texas), the Haynesville (Texas and Louisiana), and the Fayetteville (Arkansas). But the Marcellus Shale on the East coast is not included in this list (and may even over-perform), which unfortunately may make the Marcellus even more of a target for drillers.

The story of course raises even more ire among those concerned about the impact of gas drilling. As Wenonah Hauter of Food and Water Watch said, "These revelations further prove that the Obama administration is pursuing a misguided course in encouraging the proliferation of this toxic, dangerous practice. Rather than incentivizing shale gas fracking it should devote resources to developing truly sustainable energy solutions that won't harm public health or the environment. In the meantime, President Obama should impose a national ban on shale gas fracking."

And pressure groups like Food and Water Watch are not the only ones who are concerned, this Wednesday the New Jersey legislature is voting on a bill to ban fracking in NJ and groups are hard at work across the Marcellus region to stop the practice.

AlterNet / By Tara Lohan

Posted at June 27, 2011, 9:26am

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