Fracking - A Boom and Bust

The Energy Return On Investment (EROI) for fracked shale gas is dramatically lower than for conventional supplies.

In the US shale gas production costs a multiple of the current selling price.

Exxon CEO says low US natgas prices are not sustainable

Contrary to BP's prediction that shale gas exploration would make North America "energy independent by 2030", the U.S. gas production has already hit a production ceiling and is actually declining in major areas.

"Like the recent credit bubble, the boom and bust in gas were driven in large part by tens of billions of dollars in creative financing engineered by investment banks like Goldman Sachs, Barclays and Jefferies & Company." (New York Times, After the Boom in Natural Gas, 20 October 2012)

“What I hear in my district is, we miss those high natural gas prices now that it's down, because the drilling is substantially, substantially reduced,” state Rep. Phil King, R-Weatherford, said at a a recent StateImpact Texas panel (Texas Shale Regions' Fortunes Diverge, Texas Tribune, 1 March 2013). “Our problem is, the prices of natural gas have gone so low that it’s very, very difficult for someone to drill a well and even break even on it,” King said. “So from my perspective, we still need that incentive to offset the cost of those very expensive Barnett Shale wells.”

The shale gas boom in the US has been a shot in the own foot of the petroleum industry as the natural gas prices there fell sharply after exaggerated estimates of reserves and a now short term oversupply. Insiders have warned of a boom and bust. Meanwhile, Royal Dutch Shell expects US natural gas prices to double by 2015.The Energy Returned On Energy Invested (EROEI) is dramatically lower than for conventional supplies. The true viably recoverable reserves might be about 1/10 of the prognoses of the industry or even lower. Several companies have already problems to gain more capital. And this is obviously the reason for that shale gas hype.

...At $2.53 per million Btu at the Henry Hub, the price of natural gas is up 33% from the April low of $1.90 per million Btu, a number not seen in a decade.

.But even if it doubled, it would still be below the cost of production. And if it tripled, it might still be below the cost of production for most producers. That's how mispriced the commodity has become.

Reports: Shale Gas Bubble Looms, Aided by Wall Street

Wall Street

19 February 2013

Two long-awaited reports were published today at by the Post Carbon Institute (PCI) and the Energy Policy Forum (EPF)

Together, the reports conclude that the hydraulic fracturing ("fracking") boom could lead to a "bubble burst" akin to the housing bubble burst of 2008.

While most media attention towards fracking has focused on the threats to drinking water and health in communities throughout North America and the world, there is an even larger threat looming.  The fracking industry has the ability - paralleling the housing bubble burst that served as a precursor to the 2008 economic crisis - to tank the global economy.

Playing the role of Cassandra, the reports conclude that "the so-called shale revolution is nothing more than a bubble, driven by record levels of drilling, speculative lease & flip practices on the part of shale energy companies, fee-driven promotion by the same investment banks that fomented the housing bubble..." a summary details. "Geological and economic constraints – not to mention the very serious environmental and health impacts of drilling – mean that shale gas and shale oil (tight oil) are far from the solution to our energy woes."

On February 19, 2013, Energy Policy Forum published “Shale & Wall Street: Was the Decline in Natural Gas Prices Orchestrated?” The report examines the role of Wall Street investment banks in the recent shale gas drilling frenzy and related drop in natural gas prices.

Shale & Wall Street: Was the Decline in Natural Gas Prices Orchestrated?

"The recent natural gas market glut was largely effected through overproduction of natural gas in order to meet financial analyst’s production targets and to provide cash flow to support operators’ imprudent leverage positions."

The report can be downloaded here.

Post Carbon David Hughes New Shale Gas Report: Drill Baby Drill

A provocative new analysis of so-called unconventional fuel reserves in the United States concludes that the exuberant forecasts are simply unwarranted based on the facts of geology. In short, the hype around shale gas is just that. Hype. We speak with the author of the Drill Baby Drill study. David Hughes is a fellow at the Post Carbon Institute.

In this landmark report, PCI Fossil Fuel Fellow David Hughes takes a far-ranging and painstakingly researched look at the prospects for various unconventional fuels to provide energy abundance for the United States in the 21st Century. While the report examines a range of energy sources, the centerpiece of “Drill, Baby, Drill” is a critical analysis of shale gas and shale oil (tight oil) and the potential of a shale “revolution.”

The full report => (PDF | 25.8 MB)

South African Engineering News writes: "The first problem concerns resource and reserve estimates. Resources refer to the quantity of gas that could theoretically be extracted using current technology, while reserves have to be commercially viable at today’s prices. Experience in the US has shown that only about 10% of the total area of a gas-bearing shale formation yields economically productive wells."

Similar the situation in Europe. Poland's recoverable reserves of shale gas are maybe at 1/10 of the industry's former prognoses.

ExxonMobil ends shale gas tests in Poland

Financial Times, 18 June 2012

Energy companies and the government were enticed by an estimate last year from the US Energy Information Administration, which said Poland might hold 5.3tn cubic metres of shale gas – the largest reserves in Europe.

However, a newer estimate by Poland’s government geological institute cut about 90 per cent off that, suggesting reserves of 346-768bn cubic metres.

Another example of vast exaggerations of the gas industry is reported in The Guardian (10 January 2012):

Cuadrilla put the potential shale gas resources in the Lancashire region alone at a massive 200 trillion cubic feet – an amount that could supply the whole of the UK's gas needs for more than five decades.

But using more conservative methods, the British Geological Survey put the likely resources at 4.7 trillion cubic feet, [less than] one-fortieth of the company's figure. Even then, only about 5% to 10% of that figure is likely to be able to be recovered, meaning the true potential for shale gas in the UK is likely to be small.

Professor Mike Stephenson from the British Geological Survey explains in 55 seconds why only a small percentage of existing shale gas reserves can be recovered:

In Ireland, Tamboran is forecasting 2.2 trillion cubic feet of shale gas in a desktop study, a nationwide supply of 12 years recoverable in a time frame of 30 years.

If we apply similar realistic corrections to Tamboran's estimate we could expect some 55 billion cubic feet in a time frame of 30 years. That would equal to an average annual output of just 1% of the Irish demand of natural gas. But only if all that gas would be viably recoverable.

This is also conform with a 2011 report by the European Parliament Policy Department, Economic and Scientific Policy, which concludes:
"Even an aggressive development of gas shales in Europe could only contribute to the European gas supplies at one-digit percentage share at best. It will not reverse the continuing trend of declining domestic production and rising import dependency. Its influence on the European greenhouse gas emissions will remain small if not negligible, or could even be negative if other more promising projects are skipped due to wrong incentives and signals."

The study, Impacts of shale gas and shale oil extraction on the environment and on human health, by the EU Policy Department states,

"The present privileges of oil and gas exploration and production must be reassessed in view of the following facts that

  • European gas production has been in steep decline for several years and is expected to decline by another 30 per cent or more until 2035,
  • European demand is expected to rise further until 2035,
  • Imports of natural gas will unavoidably increase further if these trends become reality,
  • it is by no means guaranteed that additional imports in the order of 100 billion m³ per year or more can be realised.

The resources for unconventional gas in Europe are too small to have any substantial influence on these trends. This holds even more as the typical production profiles will allow extracting only a limited share of these resources. Environmental obligations will also increase project costs and delay their development. This will reduce the potential contribution further.

Whatever reasons for allowing hydraulic fracturing exist, the justification that it helps to reduce greenhouse gas emissions are rarely among them. On the contrary, it is very likely that investments in shale gas projects – if at all – might have a short-living impact on gas supply which could be counterproductive , as it would provide the impression of an ensured gas supply at a time when the signal to consumers should be to reduce this dependency by savings, efficiency measures and substitution

Shale gas seen as unlikely bet for Russia

Financial Times, 24 April 2012

Asked whether Europe could replicate the US shale gas revolution, Alexander Medvedev, head of Gazprom’s export arm, cites an example from history.

“Trotsky dreamt that the Russian Revolution would spread to the rest of the world, including the US,” he says. “Fortunately for world civilisation, it didn’t.”

It’s the same, he adds, with shale. Environmental opposition to fracking, exorbitant costs and high population density mean it will never catch on in Europe – at least not on anything like the scale seen in North America.

(Also => Shale Gas: The View from Russia)

BP: Shale Boom will Never Happen in the UK or Europe, 17 January 2013

Analysts at BP (NYSE: BP) have found that shale gas production in the EU may reach 2.4 billion cubic feet per day (bcfd) by 2030, and will not therefore be enough to offset the rapid decline in conventional natural gas production over the same period, inevitably leading to more imports. In contrast the US currently produces about 20bcfd.

IEA chief: Only a decade left in US shale oil boom

CSM, 28 February 2014

A surge in US oil and natural gas production has lifted hopes about North American energy security, but that growth will plateau and will be difficult to replicate elsewhere, says Maria van der Hoeven, chief executive of the International Energy Agency, in an interview with the Monitor.

Part 3 of 4, of Frackonomics, an event at the New York Society for Ethical Culture presented by United for Action. The speakers debunk the Financial Myths of Shale Gas and Embracing A Green Energy Future.

Appearing in this segment: Albert F. Appleton (Al Appleton)

Al Appleton is an international environmental and infrastructure consultant with interlocking expertise in water resource and water utility management, infrastructure economics, and public finance, land use and landscape preservation, and the economics of sustainable development. He is recognized worldwide as one of the leading experts in the Albert F. Appleton (Al Appleton) is an international environmental and infrastructure consultant with interlocking expertise in water resource and water utility management, infrastructure economics and public finance, land use and landscape preservation, the economics of sustainable development and the use of new green financial strategies such as Payment for Ecosystem Services (PES) to achieve mutually supporting economic development and environmental protection goals.

During the first half of the 1990s, Mr. Appleton served as Commissioner of the New York City Department of Environmental Protection (DEP) and Director of the New York City Water and Sewer system, where he developed and implemented groundbreaking innovations that saved New York City billions of dollars. Since the mid-1990s, Mr. Appleton has done sustainable water resources development and ecosystem services development work in numerous foreign countries as well as the United States.

His current work, all of which is proceeding to implementation, includes assisting the Queensland Bulk Water Authority in organizing a program of catchment basin protection, assisting the United States Forest Service (Region 5) in developing and carrying out an ecosystems service strategy to fund the ecological restoration of California's national forests, advising a network of Mid-Atlantic environmental and civic groups on insuring that the use of hydrofracking to obtain natural gas from shale formations is done in a sustainable fashion, developing and carrying out an ecosystems service strategies to restore the Tisza River flood plain in Hungary, and helping design a new generation of water resource management institutions for the Province of Alberta.

Mr. Appleton is Senior Fellow at The Cooper Union Institute for Sustainable Design and Adjunct Associate Professor at the Cooper Union where he teaches an advanced concepts seminar on the problem of sustainability and its economics. He has lectured widely and contributed to publications on these and other topics concerning environmental preservation and sustainable development.

Mr. Appleton is a graduate B.A. (Honors) of Gonzaga University in Spokane, Washington (Political Science and Mathematics) and of Yale Law School in New Haven, Connecticut.

Let's take a look at the price for this shale gas hype.

We would have to expect up to 2,000 fracking wells in Ireland. 1 in 150 wells have proven (!) to produce "major Failures" such as groundwater contaminations. Statistically we would have to count with around 13 of such cases. It could be less. But it also could be more. Groundwater contaminations are long term damages and are a real threat to flora, fauna and to human health. Aquifers are subterraneously connected. Therefore possible groundwater contaminations are not just local, they are spreading into wider areas.

The carbon footprint of shale gas can be worse than burning coal. It is not a "clean bridge fuel" as the industry is trying to sell us. In fact, it is a dirty delaying fuel, delaying investments into clean renewable energy sources.

Similar findings by scientists from NOAA and the University of Colorado. Air sampling reveals high emissions from gas field. Compare to other claims of the industry, about 4% of the gas is lost to the atmosphere.

CH4 emissions from gas fracking

Our ground and drinking water is in jeopardy. Dr. Theo Colborn, the president of the Endocrine Disruption Exchange and one of the foremost experts on the health and environmental effects of the toxic chemicals used in fracking, explains us why:

More => Chemicals involved in the fracking process - Tamborans claims

The alternative

There have been natural gas filling stations for vehicles on the Continrnt for more than two decades. Despite the cheaper price of this fuel the demand has not gone up in recent years. One of the reasons why the automobile industry hasn't jumped into this business is their realistic appraisal of the role of natural gas as fuel.

So we see the evidence that shale gas can only play a minor role in Europe. It is worse than coal when it comes to its greenhouse effect. It is causing a risk to health and lives. It is a very limited and finite resource. In fact, fracking is the "tarsand of the gas industry", probably worse.

Instead of wasting time and resources to focus on shale gas as (short term) "bridging fuel", the investments should be directed into renewable energy sources and electrifying our transport system. This will inevitably be the future for our energy supplies anyhow. Instead of taking the risk of causing irreversible damage to our eco systems for short term profits of a few and very doubtful benefits for the country, we should take the chance to develop our renewable resources where Ireland is more than advantaged in Europe. This will also create many more sustainable jobs in the country, and without any doubt, will secure sustainable energy supplies for a predictable price.

BTW, jobs

A new report published by Cleveland State University, Maxine Goodman Levin College of Urban Affairs, comes to the result that in Ohio fracking boom has not brought jobs. Another study by Janette Barth, Senior Economist, Pepacton Institute LLC, evaluating the economic benefits of shale gas exploration in New York State, comes to the following conclusion:

"The entire Marcellus Shale region in New York may be at risk both economically and environmentally. While the environmental risks have been a focus of concern, many stakeholders have assumed that a positive economic impact would result. In reality, the economic impact may very well be negative. And the likelihood is that gas drilling would adversely affect other economic activities such as tourism and sport fishing and hunting. To some extent gas drilling and these other industries are likely to be mutually exclusive. The net effect is what must be considered."

[Download full text here]

One in five kilograms of baby milk powder sold on planet earth is coming from Ireland. Dairy products are one of our main exports. If Ireland is losing its reputation for its healthy farming, healthy cows eating proper grass from clean fields, we are putting into jeopardy tens of thousands of jobs. Farmers, and involved companies like Pfizer, are very concerned about hydraulic shale gas fracturing in Ireland.

In U.S. Pennsylvania we can already see that Shale gas development threatens dairy industry.

Shale Gas Research Ireland - AgriFood Study

Farming - Not Fracking!

Tractor Run 2013

Listen to Farmers, Don't Fracture Our Communities.

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