June 27, 2011
NYT And EIA: Shale Gas Bubble?

The New York Times has gotten hold of internal documents of the US Department of Energy's Energy Information Administration where several EIA officials are found voicing their skepticism about the long term prospects for extracting large amounts of natural gas from fracturing shale rock. The term "irrational exuberance" gets used.

In scores of internal e-mails and documents, officials within the Energy Information Administration, or E.I.A., voice skepticism about the shale gas industry.

One official says the shale industry may be “ set up for failure.” “It is quite likely that many of these companies will go bankrupt,” a senior adviser to the Energy Information Administration administrator predicts. Several officials echo concerns raised during previous bubbles, in housing and in technology stocks, for example, that ended in a bust.

Some of the EIA folks think shale gas companies are exaggerating their prospects by selectively showing their best wells. Click thru to the article and you can then click thru to more emails it links to.

Why this matters: Natural gas from shale is being promoted as so plentiful that it will allow a large scaling up in natural gas production. Shale gas has made natural gas much cheaper in the last few years since peaking in price right before the 2008 financial crisis. In the United States natural gas consumption grew an amazing 21.7% in 2010. The low cost of natural gas has unexpectedly made new nuclear power plants uncompetitive in the United States. If the electric power industry does a big build of natural gas electric power plants as a result of an unsustainable boost in shale gas production then a big build-out of natural gas electric plants will turn out to be a costly mistake.

Another great hope for cheap shale natural gas is in transportation. Natural gas vehicles are touted as a way to move away from costly oil. As Asian oil demand keeps rising and production fails to follow the hope in some circles is that compressed natural gas cars The big hope requires lots of cheap shale gas. Is this hope realistic? The stakes for all of us are huge.

These leaks of internal EIA documents show that Arthur Berman and Henry Groppe are not alone in their skepticism about shale gas. See Berman's post on The Oil Drum: Shale Gas—Abundance or Mirage? Why The Marcellus Shale Will Disappoint Expectations. Berman thinks likely shale gas production potential is greatly exaggerated.

And then the other thing that we see empirically is that if you look at any of these individual shale-gas plays-whether it’s the Haynesville or the Barnett or the Fayetteville-they all contract to a core area that has the potential to be commercial that is on the order of 10 to 20 percent of the geographic area that was originally represented as all being the same. So if you take the resource size that’s advertized-say for the Haynesville shale, something like 250 Tcf-and you look at the area that’s emerging as the core area, it’s less than 10 percent of the total. So is 25 Tcf a reasonable number for the Haynesville shale? Yeah, it probably is. And it’s a huge number. But the number sure is not 250 Tcf, and that’s the way all of these plays seem to be going. They remain significant. It hasn’t been proved to me yet that any of it is commercial, but they’re drilling it like mad, there’s no doubt about it.

So will a huge sustained boost in shale gas production substantially ease our adjustment to Peak Oil? Or will shale gas so disappoint that it will be seen an unfortunate distraction that delayed nuclear power plant proposals? Will coal production have to suddenly ramp to fill in a gap while nukes get hurriedly built?

Update: Jeff LeVine has a pretty good summary of the EIA internal documents and the resulting flap. Also see at The Automatic Earth Stoneleigh's take on it with her post "Get ready for the North American gas shock". I fear Stoneleigh, Art Berman, and assorted industry participants who wrote letters to the EIA are right. Shale Gas really is an investment bubble whose economics are far worse than the major shale gas players are claiming.

Share |      Randall Parker, 2011 June 27 08:41 PM  Energy Fossil Fuels

Fat Man said at June 27, 2011 10:21 PM:

The article was terrible. There was no information in it, just hearsay about low-level bureaucratic chatter. I am from Missouri. I know nothing about shale gas. If you are an optimist, you can buy into shale gas development companies. If you are a pessimist, you can short their stock, or buy long contracts term to purchase NG at current prices. But, in either event do your own research, do not believe what you read in the NYTimes.

lethalox said at June 28, 2011 5:57 AM:

I am wondering about the political economy behind the article. I live in Ulster County, New York which is on the edge of the Marcellus formation. I have many neighbors who have anti-Fracking signs on their lawns. About 5 miles from my house is the estate of the Sulzbergers, owners of the NY Times - http://maps.google.com/maps?ll=41.797056,-74.014914&spn=0.010334,0.024183&oe=utf-8&client=firefox-a&gl=us&t=h&z=16

The NY Times has been very vocal in the criticism about shale gas in the North-East, but there very little talk about the use of fracking on other energy bearing formations Natural Gas or otherwise in other parts of the country or the world. In NY, a significant portion of the formation overlaps Catskill Park. The city of New York get the majority of its water from there. So they are concerned about the water supply.

Without weighing on the science behind fracking, this article could be viewed as just facet in the attack to stop or delay drilling. It is expensive, dirty, dangerous, pollutes the water, destroying the scenic beauty, and now also does not produce much energy. I am not saying this is true of false, just surprisingly convenient.

Bruce said at June 28, 2011 7:08 AM:

A good rebuttal - I just included the headings. Detail at the site.

"Trick #1: Suggest that the Barnett, Haynesville, and Fayetteville shales are “not performing as industry expected” without actually defining what that means – and never mention the extraordinary production growth currently on display across all three plays.

Trick #2: Whatever you do: Avoid mention of the Marcellus Shale, since including anything on that would really wreck your story!

Trick #3: Allow discredited peak energy activist Art Berman to write, edit and review your piece, but be careful not to quote him too often.

Trick #4: Tell your readers that Deborah Rogers does work for the Federal Reserve Bank of Dallas, but don’t mention that she also works for environmental groups that seek to ban hydraulic fracturing — even though most folks might think that’s relevant here.

Trick #5: Ignore the insights of independent reservoir engineers; instead, base your story on cherry-picked comments, often from firms that no one has ever heard of.


Bruce said at June 28, 2011 7:19 AM:

NYT: “It is quite likely that many of these companies will go bankrupt,”"

And yet they are being purchased by very large companies for billions.

"Exxon Mobil Corp. (XOM), the largest U.S. natural-gas producer, paid $1.69 billion for two closely held energy explorers to gain shale-gas reserves in Pennsylvania and neighboring states.


"Dec. 23 (Bloomberg) -- Exxon Mobil Corp., the largest company by market value, agreed to pay $650 million for Petrohawk Energy Corp.’s natural-gas wells and pipelines in the Fayetteville Shale, its second shale purchase this year."


"Exxon will pay $31bn for XTO in an all-share deal which values XTO at a 25pc premium to its closing share price on Friday night"


And thats just Exxon.

"Giant Anglo-Australian miner BHP Billiton has agreed to buy shale gas assets from US firm Chesapeake Energy for 4.75 billion US dollars. The purchase of Chesapeake's stake in a field in Fayetteville, Arkansas represents a move into the rapidly expanding shale gas business for BHP."


etc etc

Just google "purchases shale company" or "purchases shale play"

jim moore said at June 28, 2011 2:06 PM:

I think that the real question is "how much gas worth?"
I think that at current low price for gas the supply is much more limited that it would be if the price was double or triple. I think natural gas would still be very valuable at triple its current price.

Paul said at June 29, 2011 5:47 AM:

On the opposite side: if a shale has a lot of ungasified kerogen left in it (see Antrim Shale in Michigan), and if that kerogen can be induced to further react, say by adjusting the local conditions to encourage growth of methanogenic bacteria, then gas production from the shales could potentially be enormous.

BTW, I understand a LNG terminal on the gulf coast, mothballed when shale gas dried up the market for imported LNG, is being repurposed for the EXPORT of LNG. My how times change.

I think natural gas would still be very valuable at triple its current price.

Yes, but we'd see substitution. For example, hydrogen from solar gasification of biomass would likely be considerably cheaper than from natural gas.

Rob said at June 29, 2011 9:38 AM:

I'm not really qualified to comment on the good or bad of natural gas from shale, but I would take a lot of the reporting on it with a grain of salt. Natural gas, since it contains more hydrogen molecules and fewer carbon molecules, produces a good deal less CO2 than coal when it burns. Thus natural gas could be promoted as a "greener" alternative to coal. This has enormous repercussions: Coal interests will hate it. Environmentalists will see a potential turn away from renewables. Oil interests will see it as competition.

For all these reasons, there will be a great deal of disinformation floating around. We will see numerous, bogus, "scientific" studies showing that natural gas from shale is a bad idea, whether it is or not.

Bruce said at June 29, 2011 11:36 AM:

Greenpeace actually sells energy.

"We are second largest green energy supplier in Germany"


If they are against nuclear or natural gas, it is only because they are competitors.

Joe Y said at June 29, 2011 4:37 PM:

I don't know how many readers recall this, but this NYT article reminds me of that crazy "internet" bubble in the late 90's. Almost all those companies went bankrupt by 2000. Who uses the internet now? The same thing's going to happen with this natural gas nonsense.

Bruce said at June 29, 2011 5:29 PM:

Joe Y ... I think the real question is ... who reads the paper NYT and why would you believe anything they write? Will their be actually news"papers" by 2020?

Newsweek has a new business plan ... the NYT won't be far behind.

"Tina Brown’s Newsweek has a bold new business plan for reining in losses from publishing: Stop! It will skip four issues this summer. Only 48 more to go. …"


th said at June 30, 2011 6:00 PM:

It would seem the anti-fracking agitators are losing the argument so the baghdad bob's are making it all up again, about the same as what the climate emails blackout revealed about the newspaper. I'm sure a lot of the executives at gas exploration cos. dreaded having to deal with the petty little ninnies. MIT is going rogue on them,


Breckenridge said at July 2, 2011 8:16 PM:

The New York Times asks: "Why should we use cheap, abundant natural gas when we could be abjectly dependent upon expensive and unreliable wind and solar?"

That also seems to be the attitude of the current executive of the US federal government, whose EPA is scrambling to find ways to restrict drilling for oil and gas of any form.

frank said at July 7, 2011 1:18 PM:

I think there may be exciting opportunities to use natural gas as a transportation fuel. One major obstacle has been that compressed nat gas (CNG) requires a heavy, strong container, mitigating much of the cost and environmental advantages compared with liquid gasoline. However, there apparently is a breakthrough in this area, as a professor has demonstrated that a small amount of specially engineered material (nano, I think) will actually hold the natural gas molecules within a tiny container. Since pressure comes from the molecules hitting the sides of the vessel, this is dramatically reduced. As nat gas is burned off, more of the molecules escape from the tiny containers.

According to what I heard (this was another professor from that same university), this allows the storage of large amounts of nat gas without the heavy containment vessel.

If anybody else knows more about this, I'd be very interested. This was an after-lunch casual discussion, so I was not able to follow up on the details. I do seem to recall reading about this idea elsewhere, but I have no idea if and how much it has progressed.

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