‘The Shale Gale Is a Retirement Party’, So concludes an expert analyst of the natural gas boom. Brace for bust by Andrew Nikiforuk, March 27, 2013, TheTyee.ca
Now don’t get [Arthur] Berman wrong. With more than 30 years of technical experience in the oil and gas industry, the consultant recognizes the intensive mining of shale gas and shale oil across the continent as significant events. He clearly supports the industry. But he’s the kind of thoughtful and critical guy that quotes Samuel Johnson or Tao Te Ching in his presentations. As such, he has persistently challenged corporate gold rush economics that crushed natural gas prices as well as persistent government ignorance about the resource’s longevity, volume and cost. His blunt refusal to cheerlead for the industry has also earned him some grief. The magazine World Oil cancelled his long-running column in 2009 after Berman repeatedly questioned the accuracy of inflated shale gas reserves in the absence of real production data. The editor got sacked too.
It all began six years ago when the savvy geologist started to question the economics of shale gas drilling in Texas as well as a manufacturing model that promised endless energy. After checking real geology and real production numbers he warned that industry had overhyped the potential of many fields while ignoring falling prices, rising costs and sharp depletion rates. Nevertheless, the shale boom became a verifiable mania in the mid-2000s. With heavy promotional hoopla and flush with easy credit from Wall Street, companies such as Chesapeake and Encana individually acquired land bases as large as the State of West Virginia. Then they compulsively drilled them with repeated fracture treatments. … Two of the loudest shale gas promoters, Chesapeake and Encana, have suffered major train wrecks due to the shale gas glut. Their CEOS have resigned. They’ve not only reduced drilling but have tried to sell off a billion dollars worth of assets to cover their unsustainable debt loads. They are not alone. BP has written off nearly $2 billion in assets. In addition Quicksilver has temporarily suspended drilling in the Horn River shale play due to low natural gas prices. Even Rex Tillerson, the bombastic CEO of Exxon Mobil, admitted last year that the company was “losing our shirts” on shale gas investments. …. Nevertheless, industry and industry-funded academics often boasted that the so-called shale gale could spew enough methane to meet North America’s energy needs for 100 years. But real-time depletion rates and problematic geology (not all shale resources are equal) have totally rewritten those optimistic claims.
The Marcellus shale formation in Pennsylvania and New York, for example, was supposed to hold 410 trillion cubic feet of gas or nearly 20 years worth of natural gas. (The U.S. burns about 22 TCF a year). But in 2011 the U.S. Geological Survey slashed that estimate by 80 per cent to 84 trillion cubic feet, or a four-year supply. Other studies “show that commercially recoverable per-well shale gas reserves may be considerably smaller than some believe.” … Given such poor thermodynamics, shale gas is a temporary phenomenon and another sign of peaking supply in hydrocarbons explains the consultant. “But it is not sustainable. By 2020 or 2025 it will be pretty much played out. And what comes after that?” … “Shale plays are not a renaissance or a revolution. This is a retirement party.” … B.C.’s shale gas industry, for example, is entirely subsidized by low royalties, free water and tax-payer funded roads and other infrastructure. All horizontal drilling in Alberta gets a hefty royalty break, too, in addition to free water. [Emphasis added]