Shale skeptics take on Pickens as gas fuels policies

Decade Low

The surge in supplies pushed prices down to a decade low last year below $2 per million British thermal units -- a price that only added to gas’s appeal as consumers and industry switched to the cheaper fuel to save money.

T. Boone Pickens, the billionaire who advocates a plan to replace imported oil with domestic gas, says it should become the preferred fuel in vehicles. At the same time, the continental U.S. may see as many as six gas export projects built, sending as much as 10 billion cubic feet a day by the end of 2022, the head of Freeport LNG Development LP said in an interview last month.

Decline rates cited by the skeptics already have been incorporated into many supply estimates, said Erica Bowman, chief economist at America’s Natural Gas Alliance, an industry group whose members include Chesapeake Energy Corp., Apache Corp. and Devon Energy Corp.

Affordable Prices

“We have a very large, abundant supply of natural gas, and we have it at prices that are very affordable, and honestly, we have so much supply that we need the demand outlets,” said Bowman.

Skepticism about shale’s potential was raised as early as 2009, when Berman drew rebukes from Chesapeake and Devon for his work questioning the projections for shale gas as overly optimistic. Berman, who was among the first to point out the steep declines in production after a well is drilled, continues to sound the warning bell for policy makers about what he sees as unrealistic estimates.

“They’ve got sugar-plum fairies dancing in their heads about this infinite supply and how much money we’re going to make and the net for the U.S. economy,” Berman said in a July 2 phone interview.

Decline Rates

Wells drilled before 2012 in the top U.S. shale gas areas indicate an average field decline of 37% a year, according to data compiled by Hughes. That includes 47% in the Haynesville Shale in Louisiana and 29% in Pennsylvania’s Marcellus Shale.

Gas prices rose this year to more than $4 per million Btu before subsiding to a current level of about $3.60. As lower- quality wells raise the cost of production and tighten supplies, gas may rise to $6.50 in 2018 and to $8 or more in 2022, with spikes into double-digit prices possible within five years, Hughes says. Powers, the author, also said gas prices may surge into the double digits in the future.

Jeremy Grantham, who co-founded global investment manager GMO LLC, is another sharing that bullish view, estimating in an April report that gas prices may triple from last year’s low in five years, to about $6 or $7.

Gas remains far from parity with oil on an energy- equivalent basis, Pickens said, which would require gas prices of about $16 per million Btu when oil is $100 a barrel.

“I’ll never see $16 natural gas in my lifetime,” Pickens, 85, who scoffs at the pessimism of skeptics, said in a July 12 interview.

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