Is the Fracking Boom Really Just a Bubble?

The explosion of domestically produced oil and gas through fracking has produced tremors both in the ground surrounding a number of wells as well as in the economy. Suddenly, the whole energy picture has been turned on its head. Instead of an energy importer, we’ve became an energy exporter.

Oil and gas production are both up by double-digits compared to a decade ago. Fears of running out of oil have been replaced by fears of a production glut. We may soon have more oil than we need. This will do little to encourage developers to slow down, despite the numerous concerns that have been raised about the safety and environmental impact of this form of resource extraction, not to mention climate change.

Instead development is going full speed ahead for a number of reasons, including:

  1. Replacement of natural gas for coal as a carbon reduction strategy
  2. Post-Fukushima move away from nuclear
  3. Geopolitical shift to raise America as an energy power relative to OPEC and Russia
  4. Dreams of a lucrative LNG export market
  5. Resurgence of American manufacturing based on low cost energy.
  6. A return to the belief that we will never run out of oil

A recent post by questions the extent to which these claims are based in reality and how much is simply wishful thinking. IS this really the beginning of a new petroleum era, or is a desperate last gasp by the oil industry, an attempt to retain their pre-eminent position in the world economy?

Notice that there is no mention here of climate change. The idea that gas is cleaner than coal—which is true—seems to be enough to satisfy many people that we are doing something despite the fact that, while helpful, it is far from sufficient to reverse the rising levels of atmospheric carbon.

Despite the chronically over-optimistic forecast of the DOE’s Energy Information Administration (EIA), the folks at Post Carbon Institute (PCI) decided to take a look at the data themselves to see if they came to the same conclusion. This, after the EIA, in 2011, responding to United States Geological Survey (USGS) numbers, cut its estimate of recoverable shale gas in the Marcellus field by 80% and Poland by 99%.

That was followed by another downward revision by EIA, of the amount of recoverable tight oil in California’s Monterey Formation, by 96%.

It’s worth asking the question, are we being played?

What PCI found, after examining production data, geological profiles, and technological opportunities for 80,000 wells representing close to 90% of US oil and gas production, was, in a nutshell, that the so-called “shale revolution” was more of a temporary blip on the radar screen, than something we should be planning our long-term energy policy around. The report, entitled “Digging Deeper: A Reality Check on US Government Forecasts for a Lasting Tight Oil and Shale Gas Boom,” finds that government estimates are overly optimistic.

To summarize the key points:

  • All tight oil plays will peak before 2020.
  • Production estimates from the two top plays, the Bakken and Eagle Ford, are high by 28%.
  • Production estimates from the top seven shale gas plays are high by 39%.
  • Four of the top seven shale gas plays are already in decline.
  • By 2040, tight oil production will be will be less than a tenth of EIA projections, and shale gas production will be less than one-third the government estimate.
  • Approximately, 130,000 new gas wells will need to be drilled in order to meet EIA projections by 2040.

The fact that is commonly overlooked is the very high depletion rates of shale gas wells. The wells tend to give out quickly, and those being exploited today might be considered the low hanging fruit. That means the price of gas is certain to go up, perhaps dramatically, as time goes on and more and more wells, going ever deeper into the earth will need to be drilled.

These omissions and inaccuracies do not serve us well. It would certainly serve the industry and those in government that support it, to try to get as many sectors of the economy as possible, hooked on natural gas, now, when prices are cheap. Having made huge capital investments along these lines, those sectors will have little choice but to hang on as prices go up.

In the mean time, cleaner, safer and more predictable renewables are being overlooked in the rush to get in on the gas glut. It’s time for people to get the correct information that recognizes the gas bubble for what it is, so that government and business leaders can plan accordingly.

As for the rationale behind the full speed ahead approach, I would offer the follow considerations.

  1. Yes, gas is slightly cleaner than coal (when methane leaks are considered) but that’s not nearly enough of a carbon reduction to slow warming.
  2. Moving away from nuclear makes sense, but there are a number of viable alternatives.
  3. We can raise our standing in the world by becoming energy independent with renewables.
  4. A number of other countries, such as Australia, are also experiencing natural gas booms,and they are also planning to become  major gas exporters So who are we going to export all that gas to?
  5. This is also happening with renewables at even lower costs.
  6. It’s only a matter of time.

To be clear, I am not against using gas in the short term. I don’t see that we have much choice, really. But I think we need to think harder about the long term, rather than simply doing what we’ve always done. Because that will only get us to where we already are.

Article by RP Siegel of Justmeans, appearing courtesy 3BL Media.

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