Shale Gas Over-hyped, Under-performing

Over-exuberance about the promise of shale gas is overshadowing the falling profitability and declining productivity of shale gas wells. That’s the message Deborah Rogers is bringing to communities scattered across the Marcellus shale region, and she should know – she’s been analyzing productivity of Barnett shale gas wells around her home in Fort Worth, TX.

Rogers, a former stockbroker for Merrill Lynch, has served on the Advisory Council for the Federal Reserve Bank of Dallas since 2008. She became concerned when the numbers didn’t add up: estimates of reserves didn’t match the actual production-generated tax revenues that Fort Worth and neighboring municipal governments received.

When she started digging into the data she learned that less than six percent of Barnett shale wells met “minimum economic thresholds”. The industry claims that natural gas offers a cheap and abundant energy source that will last 100 years. But data from the Barnett shale gas play show a well failure rate that is increasing over time, says Rogers.

Even as companies drill more wells, the amount of gas produced has been declining. She points to audited records from the City of Fort Worth: in 2008 the city took in $50 million in income from wells drilled on city-owned properties. By 2010 the income was $38 million – based on four times as many wells.

Geologists are finding shale gas reserves to be less homogeneous than once thought.

Unfortunately, all those wells bring heavy environmental and health costs to the communities. Air quality data collected by the Texas Commission for Environmental Quality (TCEQ) show high levels of  two carcinogens, benzene and formaldehyde. Air tests also measured hydrogen sulfide, a potent neurotoxin, at levels 400 times what is usually found in urban air. TCEQ’s conclusion: gas drilling “contributes more air toxins than all cars, trucks and airplanes in the region combined,” says Rogers.

The gas industry continues to promote the conversion of vehicles and power plants to natural gas, claiming this domestic source of energy will result in a cleaner environment. At the same time they are quietly pursuing an export market, seeking permits to convert import terminals to expert terminals. This is happening just as American companies are looking to bring production back home, says Rogers. The promise of cheaper energy costs has car manufacturers ramping up production of gas-powered vehicles and other manufacturers bringing their factories back to the US.

It’s a squeeze play, Rogers says. “It’s only a business transaction for the companies. Their job is to find, extract and sell minerals to the entity paying the highest price.”

But, hey – if you don’t believe her analysis you just have to look at the recent news from the US Energy Information Administration (EIA). On January 23 the agencylowered its estimates of recoverable shale gas reserves in the US and slashed their estimate of  Marcellus reserves by 66 percent. That same day Chesapeake announced that they are cutting drilling andproduction of gas – due to low prices. 

You can read more about what Rogers said here.