For the past three or four years media sources in the U.S. trumpeted the “game-changing” new stream of natural gas coming from tight shale deposits produced with the technologies of horizontal drilling and hydrofracturing. So much gas surged from wells in Texas, Oklahoma, Louisiana, Arkansas, and Pennsylvania that the U.S. Department of Energy, presidential candidates, and the companies working in these plays all agreed: America can look forward to a hundred years of cheap, abundant gas!

Some environmental organizations declared this means utilities can now stop using polluting coal—and indeed coal consumption has plummeted as power plants switch to cheaper gas. Energy pundits even promised that Americans will soon be running their cars and trucks on natural gas, and the U.S. will be exporting the fuel to Europe via LNG tankers.

Early on in the fracking boom, oil and gas geologist Art Berman began sounding an alarm (see example).  Soon geologist David Hughes joined him, authoring an extensive critical report for Post Carbon Institute (“Will Natural Gas Fuel America in the 21^st Century?”), whose Foreword I was happy to contribute.

Here, one more time, is the contrarian story Berman and Hughes have been telling: The glut of recent gas production was initially driven not by new technologies or discoveries, but by high prices. In the years from 2005 through 2008, as conventional gas supplies dried up due to depletion, prices for natural gas soared to $13 per million BTU (prices had been in $2 range during the 1990s). It was these high prices that provided an incentive for using expensive technology to drill problematic reservoirs. Companies flocked to the Haynesville shale formation in Texas, bought up mineral rights, and drilled thousands of wells in short order. High per-well decline rates and high production costs were hidden behind a torrent of production—and hype. With new supplies coming on line quickly, gas prices fell below $3 MBTU, less than the actual cost of production in most cases. From this point on, gas producers had to attract ever more investment capital in order to maintain their cash flow. It was, in effect, a Ponzi scheme.

In those early days almost no one wanted to hear about problems with the shale gas boom—the need for enormous amounts of water for fracking, the high climate impacts from fugitive methane, the threats to groundwater from bad well casings or leaking containment ponds, as well as the unrealistic supply and price forecasts being issued by the industry. I recall attempting to describe the situation at the 2010 Aspen Environment Forum, in a session on the future of natural gas. I might as well have been claiming that Martians speak to me via my tooth fillings. After all, the Authorities were all in agreement: The game has changed! Natural gas will be cheap and abundant from now on! Gas is better than coal! End of story!

These truisms were echoed in numberless press articles—none more emblematic than Clifford Krauss’s New York Times piece, “There Will Be Fuel,” published November 16, 2010.

Now Krauss and the Times are singing a somewhat different tune. “After the Boom in Natural Gas,” co-authored with Eric Lipton and published October 21, notes that “. . . the gas rush has . . . been a money loser so far for many of the gas exploration companies and their tens of thousands of investors.” Krauss and Lipton go on to quote Rex Tillerson, CEO of ExxonMobil: “We are all losing our shirts today. . . . We’re making no money. It’s all in the red.” It seems gas producers drilled too many wells too quickly, causing gas prices to fall below the actual cost of production. Sound familiar?

The obvious implication is that one way or another the market will balance itself out. Drilling and production will decline (drilling rates have already started doing so) and prices will rise until production is once again profitable. So we will have less gas than we currently do, and gas will be more expensive. Gosh, whoda thunk?

The current Times article doesn’t drill very far into the data that make Berman and Hughes pessimistic about future unconventional gas production prospects—the high per-well decline rates, and the tendency of the drillers to go after “sweet spots” first so that future production will come from ever-lower quality sites. For recent analysis that does look beyond the cash flow problems of Chesapeake and the other frackers, see “Gas Boom Goes Bust” by Jonathan Callahan, and Gail Tverberg’s latest essay, “Why Natural Gas isn’t Likely to be the World’s Energy Savior”.

David Hughes is working on a follow-up report, due to be published in January 2013, which looks at unconventional oil and gas of all types in North America. As part of this effort, he has undertaken an exhaustive analysis of 30 different shale gas plays and 21 shale/tight oil plays—over 65,000 wells altogether. It appears that the pattern of rapid declines and the over-stated ability of shale to radically grow production is true across the U.S., for both gas and oil. In the effort to maintain and grow oil and gas supply, Americans will effectively be chained to drilling rigs to offset production declines and meet demand growth, and will have to endure collateral environmental impacts of escalating drilling and fracking.

No, shale gas won’t entirely go away anytime soon. But expectations of continuing low prices (which drive business plans in the power generation industry and climate strategies in mainstream environmental organizations) are about to be dashed. And notions that the U.S. will become a major gas exporter, or that we will convert millions of cars and trucks to run on gas, now ring hollow.

One matter remains unclear: what’s the energy return on the energy invested (EROEI) in producing “fracked” shale gas? There’s still no reliable study. If the figure turns out to be anything like that of tight “fracked” oil from the North Dakota Bakken (6:1 or less, according to one estimate), then shale gas production will continue only as long as it can be subsidized by higher-EROEI conventional gas and oil.

In any case, it’s already plain that the “resource pessimists” have once again gotten the big picture just about right. And once again we suffer the curse of Cassandra—though we’re correct, no one listens. I keep hoping that if we’re right often enough the curse will lift. We’ll see.

7 Comments on "Gas Bubble Leaking, About to Burst"

Plantagenet on Tue, 13th Nov 2012 12:44 am 



The claim that Obama is lying when he promises America had 100 years of NY supply is silly. Mr. Heinberg needs to rewind his VHS tape and listen attentively to what President Obama is saying.

BillT on Tue, 13th Nov 2012 1:55 am 



Hahaha…yes, puppet Obama is an expert on…Bullshit.

This fall was obvious from the start from the few who know that we are NOT going to go back to BAU, ever. The low gas fruit has been picked. As usual, a few got in first, and then got out at the peak with their bundle. Now the suckers are left to worry about if they will still own their homes next year.

There may well be enough natural gas or oil in the ground to last 100 years, after we collapse and there is little demand. EROEI boys, EROEI.

Arthur on Tue, 13th Nov 2012 8:30 am 



Playing the devil’s advocate… I do not follow Heinberg’s reasoning. He tells us that ‘everybody is losing his shirt’…. because there is too much gas produced which hurts prices. Sounds like a problem that could easily be solved by the authorities in that they do not handout too many concessions to drillers so the prices remain high. Heinberg says no eroi study is available. Well then, let’s wait until that data is available before we draw conclusions.

Again, I am against fracking. We should all take Denmark or Germany as an example. Gas and oil are running out anyway, where the sun will shine another two billion years. We must seriously undertake transition NOW.

“A fossil-free future? The Danes just do it!”

http://www.europeanenergyreview.eu/site/pagina.php?id=3960

(Needs simple email registration)

BillT on Tue, 13th Nov 2012 10:34 am 



But, in America there are no limits set on permits. Anyone can do anything if they have the money. The housing bubble happened because 5,000+ developers built thousands of houses not checking to see if there were other developers building thousands of houses in the same area at the same time. This has been going on for decades. It takes about 3-5 years to turn a farm into a build-able development. If the economy changes, it’s build it or lose the many millions already invested in land, utilities, streets, etc. (ALL required BEFORE construction starts.) So, too many wells only means that each company gambled that they would not have too much competition. Again, it is a use it or lose it situation. Hense, the bubbles and the gas glut, then the bubble bust, then high prices again. Next bubble please?

Arthur on Tue, 13th Nov 2012 1:45 pm 



Well then, sounds like the classic case of the pork cycle:

http://en.wikipedia.org/wiki/Pork_cycle

Although I am strongly convinced that we are living peak conventional oil as we speak, I do not have a clear picture yet of what to think of the potential of this fracking movement in terms of extending the current plateau into the future. Is it years or decades? Hope to find out in the coming months.

Heinberg: “In any case, it’s already plain that the “resource pessimists” have once again gotten the big picture just about right. And once again we suffer the curse of Cassandra—though we’re correct, no one listens.”

I think Heinberg is crying ‘victory’ too soon, and is assuming too much. Maybe he is right, maybe not. Like how does he know that all the ‘low hanging fracking fruit’ is already picked? My (limited) understanding tells me that onconventional oil could be more evenly distributed than the conventional oil in oil fields. So even if a well depletes fast, if there tens of thousands of wells to be exploited, than the show could go on for a long time.

BillT on Tue, 13th Nov 2012 2:26 pm 



Arthur, I hope not! I have 12 grand children living in the US. I want them to have air to breathe and water to drink without being chained to some corporate supplier. But, it looks bad.

DC on Tue, 13th Nov 2012 3:48 pm 



Perhaps one of the reasons that fraking being pushed as hard has less to do with any actual ‘need’ for the stuff, as it is, was to try and take the steam out of wind and solar. In the past, when momentum for wind and solar started to pick up in the west, the US would simply order OPEC to flood the market and drive the price(of oil) down. I suspect flooding the market with frak gas is more or less the same idea at work. S.A. can no longer be called on to flood the world with $10.00 a barrel oil like in times past. Now the frak craze has other rationales, but its certainly is a nice little bonus that artificially cheap frak gas helps hinder and slow the spread of non-fossil fuel energy systems. There are trying to have it both ways. They know when the FF run out or become prohibitively expensive, then there will little left to use to manufacture and distribute solar panels or turbines.

This more than anything explains why the Oil Cartel is so interested in burning through what is left so quickly. When the crunch really comes, they are going to argue we cant ‘afford’ to manufacture alternatives, and must use whats left to keep the current system, diesel trucks, nuclear plants, wall-mart, whathaveyou, fuelled at all costs.