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Page added on August 13, 2014
Michael Lynch: Peak Shale Gas Proves As Wrong As Peak Oil
Since the beginning of the shale gas boom, there have been skeptics and uncertainties, which is hardly surprising for a new type of production. How much could be recovered, what were the costs, could processes be transferred from one shale to another, and especially, what impact would high production decline rates have. Quite a bit of analysis has been done by any number of companies and scholars (broadly speaking), and many of the worries have been dismissed, not least because of continuing increases in production and an apparent ceiling on prices near $5/Mcf.
Some continue to sound alarms, however, and it seems worth revisiting them. For one thing, shale gas was described as a “bubble,” which, after the 2008 financial collapse, causes some fear and trembling on Wall Street. Stories of high debt levels and companies selling off leases and reserves have provided some ammunition to such claims. Analysts like Arthur Berman and Bill Powers have made particularly apocalyptic projections.
On closer inspection, this seem clearly to fall into the “chicken little” school of petroleum supply forecating. (Arthur Berman is an actual member of the peak oil school, which doesn’t give one confidence in his lack of bias.) Aside from his insistence that the price needed to be about $6/Mcf, which is hardly unreasonable, he has predicted a huge decline in production that has not occurred as of yet.
English: Schematic cross-section of the subsurface illustrating types of natural gas deposits (Photo credit: Wikipedia)
Especially by relying on decline rates at individual wells, he calculated that every year 22 bcf/d of production needed to be replaced just to maintain production at flat levels. [1] Yet after prices dropped to $1.89/Mcf in 2012, and rigs drilling for gas dropped from 933 to just over 300 now, production actually continued increasing, rising another 8% in two years. Either the production technology has increased phenomenally or his calculations are flawed (possibly a combination).
Bill Powers, for his part, argued that shale gas reserves are grossly estimated, amounting to a five-to-seven year lifespan (that is, of total production, not just shale) instead of the 100 years that the EIA estimated. And he argues that we face“a gas crisis, a supply crunch that will lead to much higher prices similar to what we saw in the 1970s” [2]
Now granted that it’s only been two years since he said that, but if shale gas were so limited, we should be seeing some strong negative effects in production or well productivity. Instead, the opposite is happening, again implying analytical shortcomings.
23 Comments on "Michael Lynch: Peak Shale Gas Proves As Wrong As Peak Oil"
dmtk on Wed, 13th Aug 2014 7:16 am
Peak production can not be wrong. It will happen sooner or later.
“Peak gas is wrong” means that drillers will be able to increase production indefinitely. Which is absurd.
Peak gas is inevitable.
Also look at the debt of shale companies:
http://www.eia.gov/todayinenergy/detail.cfm?id=17311
Juan on Wed, 13th Aug 2014 7:39 am
“it’s only been two years since he said that, but if shale gas were so limited, we should be seeing some strong negative effects in production or well productivity”
The strong effect is the debt. If the price goes down the debt will rise even more.
shortonoil on Wed, 13th Aug 2014 7:56 am
“Arthur Berman is an actual member of the peak oil school, which doesn’t give one confidence in his lack of bias.”
Michael Lynch is a paid corporate shrill who would sell his integrity for 30 pieces of silver; which doesn’t give one confidence in his lack of bias. Living in a glass house is not a safe thing to do if you like to throw stones.
Davy on Wed, 13th Aug 2014 8:16 am
Micheal lynch is an academic economic insider with far too many years in the distortions of position, tenure, and industrial academic complex. He made a comment a few weeks ago here on PO talking up his accomplishments as if that would impress us here given our sceptisism of the status quo BAU Cornucopian view that markets, technology, innovation, and substitution will always overcome resource issues. This man is a paid advertiser. Marketing is a modern form of snake oil salesmanship. Marketing is now another form of propaganda and news manipulation used by the lobbyist, politicians, and so called experts that make up TPTB globally. We are being bombarded by marketing mass media that in effect is doing cultural conditioning as significant as our education system.
JuanP on Wed, 13th Aug 2014 8:38 am
I guess I am no longer the only Juan here. ;(
paulo1 on Wed, 13th Aug 2014 8:39 am
Davy,
re: “We are being bombarded by marketing mass media that in effect is doing cultural conditioning as significant as our education system.”
True true true. And people are being dumbed down and placated with gadgets. The ‘company store’ is now monsanto products, HF sweet crap, i-gadgets and bigger entertainment systems. Classrooms are over crowded and students almost impossible to teach. The curriculum does not change to suit reality, and kids are still imbued with the “you must attend university paradigm or you will be a loser”. Debt is encouraged at all levels.
This western world is becoming a pressure cooker of expectations vrs decline. What will Forbes be writing when numerous Fergusson MO erupt?
Paulo
JuanP on Wed, 13th Aug 2014 8:42 am
Dear Editor in Chief, can you block articles by Michael Lynch in the future. You are doing this site no favours by posting his smelly crap here. I skipped the article. This comment is the last minute of my life I will waste on this guy.
Baldwincng on Wed, 13th Aug 2014 9:05 am
Growth in US gas production from Marcellus all one (excluding New York) is possibly the major energy development of the last 50 years
http://theenergycollective.com/todayinenergy/454986/marcellus-region-production-continues-growth
No one predicted it, ok the likes of Art Berman look like they are off the pace, they could not have anticipated the technology breakthrough. Before end 2015 they will have to admit it and change their stories!
shortonoil on Wed, 13th Aug 2014 10:04 am
“No one predicted it, ok the likes of Art Berman look like they are off the pace, they could not have anticipated the technology breakthrough. Before end 2015 they will have to admit it and change their stories!”
You are buying into the technology hype. Most, including Berman, believe that the breakeven point on shale gas is about $8.00/ MMcf. We have not done any extensive analysis of shale gas because an average annual well decline rate of 65% sort of says it all. An exercise in futility is not our thing. But, the latest EIA report says it all. No one is making money on shale in general (except perhaps for a few Bakken wells). Shale gas is just another energy losing exercise of moving money from the investors pocket to a few producers. When the FED can longer afford to hand out free money, shale gas will run out of steam, and the FED’s balance sheet is growing by the day. They are now, without a doubt, the largest holder of completely worthless assets on the planet.
http://www.thehillsgroup.org/
Pops on Wed, 13th Aug 2014 10:57 am
If fracing is opening up tight shale to release trapped hydrocarbons, it makes sense that the lightest HCs will be most easily released – that is methane – a one carbon molecule.
After the initial bump in gas production and fall in price, drillers switched to areas containing more light oil (“wet gas”) because it’s price was and still remains high.
But, there is a lot of gas released in those plays as well. So I think there are two dynamics involved: gas is easier to frack and fracing for oil releases a lot of gas.
What happens when the frac oil depletes and with it goes that incidental gas?
Bill Powers on Wed, 13th Aug 2014 11:46 am
Hi everyone,
I see that Lynch used to work for IHS, does anyone know who employs him now? Funny how he does not point out that gas production in Barnett, Haynesville, Antrim, Eagle Ford and Woodford has peaked and that the Fayetteville is on a plateau. He also confuses efficiency gains with the drilling of wells following a leasing boom and then putting those wells in inventory. The game of growing production while dropping rigs and claiming efficiency gains was the calling card of Aubrey McClendon while he was at CHK. Enough said about that. I guess Lynch thinks that the Marcellus is going to grow forever.
Lastly, he said that I believe shale gas reserves have been grossly overstated. They have been and still are! Let’s see. The EIA has massively chopped its shale gas TRR and nearly every shale gas company has taken material write downs and continue to do so even with NG near $4. Just look at Shell.
Thanks,
Bill Powers
Author, Cold, Hungry and in the Dark: Exploding the Natural Gas Supply Myth
JuanP on Wed, 13th Aug 2014 12:22 pm
Bill, ML posted a comment on this site about two weeks ago boasting of his experience, titles, and degrees. We all picked on him so badly he never posted again.
You are not going to impress many people on this forum by talking up your CV, instead of defending your arguments logically with facts and numbers. We can spot BS from a mile away here on PO and related subjects.
rockman on Wed, 13th Aug 2014 1:23 pm
Juan – Did he every answer my question: how many successful oil/NG prospects had he generated so far in his career?
I really don’t know but he may fall in he category of: Those that can…do. And those that can’t write critical articles about those that do.”
JuanP on Wed, 13th Aug 2014 1:29 pm
Rock, he never came back! 😉
BC on Wed, 13th Aug 2014 8:49 pm
there will be false prophets everywhere in the last days
Jimmy on Thu, 14th Aug 2014 12:00 am
This mountebank has an interesting CV. I bet he never took a physics class.
Keith_McClary on Thu, 14th Aug 2014 1:11 am
Jimmy on Thu, 14th Aug 2014 12:00 am
-“This mountebank has an interesting CV. I bet he never took a physics class.”
Or saw the episode of Sesame Street “brought to you by the numbers finite and infinite”.
MKohnen on Thu, 14th Aug 2014 1:11 am
Be careful questioning Michael Lynch:
“He was sent from heaven by God to lead the unbelievers into the light of the fossil fuels revolution. He is the chosen one, delivered to MIT, an institution he lead out of the dark ages until he brought his blazing intellect to IHS so that it could shine forth as the beacon of FF truth.”
I mean, you did read his CV, didn’t you?
alokin on Thu, 14th Aug 2014 2:56 am
No Juan I actually like reading these articles because of the comments that follow. For people like me, not in the oil business it is very enlightened, with the comments of course.
westexas on Thu, 14th Aug 2014 6:24 am
It’s interesting to look at some regional declines in US oil and gas production, e.g., marketed Louisiana natural gas production (the EIA doesn’t have dry processed data by state).
According to the EIA, the observed simple percentage decline in Louisiana’s annual natural gas production from 2012 to 2013 was 20%. This would be the net change in production, after new wells were added. The gross decline rate (from existing wells in 2012) would be even higher. This puts a recent Citi Research estimate in perspective.
Citi estimates that the gross underlying decline rate for overall US natural gas production is about 24%/year. This would be the simple percentage change in annual production if no new sources of gas were put on line in the US. In round numbers, this requires the US to add about 16 BCF/day of new gas production every year, just to maintain about 24 TCF/year of dry processed natural gas production. To put 16 BCF/day in perspective, dry processed natural gas production from all of Texas was probably at about 18 BCF/day in 2013.
Based on the Citi report, the US would have to replace 100% of current natural gas production in about four years, just to maintain a dry processed gas production rate of 24 TCF/year for four years.
Or, based on the Citi report, the US has to replace the productive equivalent of all of the 2012 dry natural gas production from the Middle East, in a little over three years (3.3 years), in order to maintain a dry production rate of 24 TCF/year. Over a 10 year period, we would need to put on line three times the 2012 production rate from the Middle East, in order to maintain current production for 10 years.
westexas on Thu, 14th Aug 2014 6:28 am
Michael C. Lynch (August, 2009): ‘Peak Oil’ Is a Waste of Energy
http://www.nytimes.com/2009/08/25/opinion/25lynch.html?pagewanted=2&_r=3&emc=eta1
Excerpt:
“Oil remains abundant, and the price will likely come down closer to the historical level of $30 a barrel as new supplies come forward in the deep waters off West Africa and Latin America, in East Africa, and perhaps in the Bakken oil shale fields of Montana and North Dakota. But that may not keep the Chicken Littles from convincing policymakers in Washington and elsewhere that oil, being finite, must increase in price.”
rockman on Thu, 14th Aug 2014 7:06 am
“…the historical level of $30 a barrel as new supplies come forward…” And this was the basis for the shot I took at Mr. Lynch by asking how many successful oil/NG wells he has generated in his career. I don’t know and he hasn’t responded so I’ll assume few if any. I’ve sat across the table from management many hundreds of times in my career and pitched drilling projects. The geology etc. is part of the discussion but in the end it always comes down to rate of return. And a key factor is the future price platform one assumes for oil/NG.
So take any play, such as the shales, and do the economics at $30/bbl and $90/bbl. If the $30/bbl basis is economic then the prospect will be drilled. If it takes $90/bbl to make it happen and one forecasts $30/bbl the play won’t develop. So the only way he could justify his prediction was to assume that $30/bbl worked. But that leads to the simple question: if that were true why weren’t the shales, like the Eagle Ford, being heavily drilled 20 years ago? We had the technology to do so in the 90’s…we did it in then by horizontally drilling the fractured Austin Chalk play in Texas. We drilled the AC at $30/bbl because the ROR was acceptable. We didn’t develop the EFS then because the ROR wasn’t acceptable.
If the EFS and Bakken ROR at $30/bbl didn’t justify spending the $billions we see today then predicting a future boom in such projects as all that increased production knocks the price of oil down to “historic levels” makes no sense. As has been said for generations you can’t have your cake and eat it to: you can’t have $30/bbl oil and a shale drilling boom. If you could we would have seen it begin 20 years ago.
Nony on Thu, 14th Aug 2014 6:39 pm
Bottom line…this guy is right on about peak gas. And your little saint Hubbert screwed up HUGELY on his peak gas predictions.