Peak Oil: Natural Gas Truth v. “The Truth” Pt 7

This is the seventh and final part of a series [links below], discussing how the same “skate past the facts and hope no one notices” strategy typically employed by most Peak Oil deniers is not-so-surprisingly used by those cheerleading for shale gas development. What triggered this is a March 2012 article written by a Chevron Corporation executive, entitled “The Truth About Natural Gas From Shale.” [Quotes are from that piece unless noted otherwise.]

His stated purpose was quite clear:

Understandably, this natural gas boom has raised some questions and concerns about how this resource is developed, including questions about the process of hydraulic fracturing and the affects, if any, on the water table. While there is much debate and rhetoric surrounding this resource, often times a simple explanation of the process is left out of the discussion. In an effort to help raise awareness of how natural gas from shale is extracted, here is a brief explanation.

Those of us concerned about our energy future believe it’s vital to provide the public with information. It’s not enough to offer vapid assurances that all is well with energy supply and production. Yes, there’s certainly been some good news in the last year or so, and we readily acknowledge that. But that’s only one part of the story. Without context, a great disservice is being extended to the public.

We certainly respect that the vast majority of citizens cannot make or do not have the time or interest or inclination to understand what’s at stake. There is an ongoing, determined effort by too many to at best muddle the issues enough to draw little or no attention from the public to the challenges we face. “Public interest” does not appear to factor into their motivations. Too few are benefiting at the expense of too many. Sound familiar? (It’s not a coincidence.)

Being prepared, understanding the issues, knowing both the positive and the negative aspects of energy supply and production affords citizens their best opportunity to either contribute meaningfully as we address and adapt to the looming problems, or to engage their leaders in more substantive dialogue in order to direct more specific actions. Not knowing there are any problems makes it a wee bit difficult to accomplish any of this. The consequences will thus only be worse. Not a good option.

If nothing else, citizens should easily appreciate that there are two sides to most stories. Too many are telling too many others only one side of the story—and facts tend not to play much of a role.

As is the case in other areas of our business, our ability to operate depends on public confidence in our operations. This trust can only be earned through open, honest and timely dialogue with surrounding communities and operating at a high standard.
Natural gas from shale can provide the U.S. with reliable, affordable, cleaner and responsibly produced energy – but we must have a supportive policy framework to encourage this development. Doing so will help enhance the country’s energy security, strengthen local and state economies, and fuel job growth.

Nice sentiments, to be sure, and undoubtedly well-intentioned. If the shale gas production envisioned by Chevron and its peers could be realized as they describe, benefits would surely accrue to us all. But facts can screw up even the best of intentions.

How much gas is there, really?
There is deep uncertainty about the amount of natural gas in the ground and what it will ultimately cost to extract it. Despite this, drillers typically operate on unwavering optimism that borders on hubris: The common refrain about oil and gas men (they are indeed almost always men) is that they are ‘often wrong but never doubting.’
After attacking anyone who questioned the irrational exuberance surrounding shale gas, these oil and gas men have had to reckon with several new batches of data — first from the U.S. Geological Survey and then from the Energy Information Administration (EIA) —  that offer a more sober picture of this resource. Countless market analysts and news venues … [citing multiple sources – my comment] have also started corroborating doubts about the industry’s prospects and its early optimism.
The source of the industry’s tank-half-full optimism isn’t baseless: No one can deny that there is a helluva lot of gas in this country. But there isn’t nearly as much as the industry and federal regulators initially predicted — despite the fact that President Obama and others continue to cite overly optimistic figures. It’s also patently obvious that drillers have miscalculated how much of this gas can be extracted without going bankrupt. [1] [links/other references and sources are in the original article]

[T]he shale gas industry was motivated to hype production prospects in order to attract large amounts of needed investment capital; it did this by drilling the best sites first and extrapolating initial robust results to apply to more problematic prospective regions. The energy policy establishment, desperate to identify a new energy source to support future economic growth, accepted the industry’s hype uncritically….The stuff seemed too good to be true—and indeed it was.
The biggest losers in this misguided rush to anoint shale gas as America’s energy savior are members of the public, who need sound energy policy based on realistic expectations for future supply, as well as sound assessments of economic and environmental costs. [2]

Part 6 of this series [link below] highlighted several economic consequences to local and state economies which continue to get too little attention (road and infrastructure damage, increased demands for social and municipal services on already overburdened providers, etc.), and which never seem to find their way into the exuberant pronouncements by the fossil fuel industries.

Tara Lohan described some of the lesser known, infrequently-considered risks now being assumed by residents who’ve committed their properties to drilling:

Homeowners may also stand to lose. The Huffington Post reported, ‘Nationwide Mutual Insurance Co. has become the first major insurance company to say it won’t cover damage related to a gas drilling process that blasts chemical-laden water deep into the ground.’ The company released a memo that said:
After months of research and discussion, we have determined that the exposures presented by hydraulic fracturing are too great to ignore. Risks involved with hydraulic fracturing are now prohibited for General Liability, Commercial Auto, Motor Truck Cargo, Auto Physical Damage and Public Auto (insurance) coverage.
While the fracking industry promises to create jobs, those like Tish O’Dell, co-founder of the Cleveland-area group Mothers Against Drilling in Our Neighborhoods, wonder about what jobs will be lost from impacts to farming, tourism and dairies. She told Midwest Energy News, ‘If you were going to do a really serious study you would look at these things,’ she said. ‘If water is contaminated and fish die, what are the fishermen going to do? If you have parks where people go for peace and quiet, what happens when you turn it into an industrial landscape? If you have an organic dairy and the soil is polluted, what does that mean? These are all valid questions.’ [3] [links/other references and sources are in the original article]

Kurt Cobb also enlightened us about a related and potentially quite drastic financial burden likewise assumed by homeowners:

One fact ought to tell you all you need to know about the risks faced by homeowners signing leases for natural gas drilling on their property: Wells Fargo & Company, both the largest home mortgage lender in the United States and a major lender to the country’s second largest producer of natural gas, Chesapeake Energy Corp., refuses to make home loans for properties encumbered with natural gas drilling leases.
This salient fact comes from an article (PDF) written for the New York State Bar Association Journal by attorney Elisabeth N. Radow. Written in the form of an even-tempered legal brief, Radow relates one astounding finding after another. Perhaps most relevant to homeowners who either have signed drilling leases or who may be asked to sign them in the future is this: ‘Signing a gas lease without lender consent is likely to constitute a mortgage default.’ You read that right. Default. [4] [links/other references and sources are in the original article]

These last two observations sum it up much better than I could:

[S]cientific studies are not the only indications that something is deeply wrong with the IEA’s assessment of prospects for shale gas production and accompanying economic prosperity. Indeed, Business Insider reports that far from being profitable, the shale gas industry is facing huge financial hurdles. ‘The economics of fracking are horrid,’ observes US financial journalist Wolf Richter. ‘Production falls off a cliff from day one and continues for a year or so until it levels out at about 10 per cent of initial production.’ The result is that ‘drilling is destroying capital at an astonishing rate, and drillers are left with a mountain of debt just when decline rates are starting to wreak their havoc. To keep the decline rates from mucking up income statements, companies had to drill more and more, with new wells making up for the declining production of old wells. Alas, the scheme hit a wall, namely reality.’ [5] [links/other references and sources are in the original article]

‘It looks like we’re finally kind of coming to the end of that story. All of the reasons companies had for continuing to drill [gas] wells are beginning to come off.’ [Comment by Adam Sieminski, Administrator of the U.S. EIA.]

Facts … and reality. Perhaps we should give them greater consideration going forward?

Peak Oil Matters