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.

Marcellus Math: Fun with Frack-tions

It’s official: the Marcellus shale formation, stretching beneath the northern Appalachians, contains about 84 trillion cubic feet of gas – at least that’s what the US Geological Survey said this Tuesday. This is way higher than the figure they published nine years ago- some 42-times higher. Back in 2002 USGS calculated that Marcellus contained about 1.9 tcf of gas.

At the same time, the 84 tcf figure is way lower – some 326 trillion cubic feet lower – than the estimate published by the US Energy Information Agency on July 8, only six short weeks ago. Back then the Energy Department posited that Marcellus shale contained 410.3 tcf.

But yesterday said Philip Budzik, an operations research analyst with the Energy Information Administration, allowed that the folks at USGS are the experts in this matter. “They’re geologists; we’re not,” he said. From here on out, he promised, EIA will use the updated USGS estimate in their models and calculations.

So how did this number get so inflated? It all started back in 2009 when Penn State University geoscience professor Terry Engelder and a Fredonia, NY geology professor by the name of Gary Lash took some well production data and plugged it into a formula. Eureka! they gasped, looking at the numbers they generated. Those numbers indicated that the Marcellus shale could contain anywhere from 168 trillion to 516 trillion cubic feet of gas. That’s a lot of gas – about 80 to 250 times the government estimate.

Engelder’s magic number zipped around the world before the research could catch up. Pro-industry apologists used it to prove claims of potential energy security and secure leases. The NY DEC pasted it into theirMarcellus information pages. “Geologists estimate that the entire Marcellus Shale formation contains between 168 trillion to 516 trillion cubic feet of natural gas throughout its entire extent,” DEC wrote. But, they cautioned, “it is not yet known how much gas will be commercially recoverable from the Marcellus in New York.”

Pennsylvania’s Dept. of Conservation and Natural Resources had the higher estimate posted on their website as well. They added another report, a study co-authored by Kuuskraa and Stevens that estimates Marcellus shale gas recoverable reserves at 100 to 200 Tcf.

Industry PR folks didn’t let the fact that the revised USGS figure is 1/5 of the number they’ve been touting – they simply ignored that inconvenient fact and highlighted the increase over the previous USGS number.

On late Wednesday the Congressman from New York, Maurice Hinchey told the press that back in June he had sent a letter to the US Energy Information Agency questioning its shale gas reserve estimates. “And for good reason,” he said, referring to the USGS Marcellus downgrade.

Though Hinchey applauds the EIA for announcing it will adopt the USGS estimates, he remains  concerned about the process which lead to the original estimates.

“I have additional questions about how this change will impact the outlook for shale gas,” he said. “Considering the reckless way in which hydraulic fracturing has been carried out in other parts of the country, it is important that we understand all of the environmental and economic impacts that would result if drilling were to move forward in our state. That's why it is essential that the public, the markets and policy makers have unbiased shale gas reserve estimates.”

Numbers are important – especially for decision-makers involved in determining our country’s energy future, Hinchey said. “We’ve got to get this right.”