The US Shale Gas Boom Will End

Don’t follow the herd… 

rexfeatures_1877392a.jpgBy John Richardson

ISN’T it amazing how we keep getting caught out by the unexpected, from the global financial crisis to  China is entering a period of much-lower growth?

No, not really. As long as we keep being driven by the short attention-span of financial markets and the demands of quarterly financial reporting, we will keep being shocked by supposedly unexpected events. If we gave ourselves the freedom to think outside the box, we could make more accurate predictions.

The other problem is the understandable desire to run with the herd.

For example, “in those early days (in 2010) 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,” writes Richard Heinberg, in this article from oilprice.com.

“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!”

It is far from being the end of the story as Heinberg neatly outlines.

Innovation in shale gas only happened because US natural-gas prices were at historic highs.

The recent collapse in prices to record lows led Rex Tillerson, CEO of ExxonMobil, to commen recently: We are all losing our shirts today. . . . We’re making no money. It’s all in the red.”

Natural-gas producers do not operate as charities. They are already consolidating, and further consolidation is inevitable, which will drive prices higher.

The shale gas process has also proved to be a lot more expensive process than people realised, requiring lots of holes to be drilled to reach the gas “sweet spots”.

As Heinberg adds: “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 organisations) are about to be dashed. And notions that the US 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 subsidised by higher-EROEI conventional gas and oil.”

The blog therefore thinks that quite a few of the US shale gas-based petrochemicals projects should not happen. This is the result of not only the uncertain economics of shale gas, but also because of the demand outlook.

But at least the financial sector, as the New York Times points out, has made a fortune from hyping up the shale-gas Ponzi scheme.

Now isn’t that a nice thought to warm our hearts as we approach the weekend?

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