Shale skeptics take on Pickens as gas fuels policies

Where others see a U.S. energy revolution of cheap and abundant fuel, David Hughes sees a short-term bubble that will bring higher economic and environmental costs.

The Canadian geoscientist, founder of the consulting company Global Sustainability Research, is part of a movement pushing back against conventional wisdom that the U.S. is on the verge of energy independence amid surging oil output and a 100- year supply of natural gas. Projections of 2,384 trillion cubic feet of gas supplies provide false confidence because they don’t adequately account for the cost of production declines of as much as 47% a year that come with drilling in shale, Hughes said.

While President Barack Obama endorses the use of more gas as a power-plant fuel and the U.S. considers expanding exports to exploit the current glut, shale skeptics such as Hughes and Bill Powers, a director of Calgary-based energy producer Arsenal Energy Inc., warn that consumers and industry will feel the pain of rising prices when supplies fall short of estimates they say are based on a mistaken belief that the torrid growth seen in the past five years will continue.

“Human nature doesn’t change, and we extrapolate recent trends far into the future even if those trends are woefully unsustainable,” said Powers, author of “Cold, Hungry and in the Dark: Exploding the Natural Gas Supply Myth.” Advances in shale-gas technology won’t continue forever, he said, “and we’re probably seeing them reach their maximum potential as far as production growth goes.”

Fast Fade

Wells drilled into the hard rock of shale produce a burst of oil and gas after being hydraulically fractured -- a technique that cracks the rock to release hydrocarbons. The flow rapidly diminishes as gas must migrate farther through the rock to reach the fracturing site where it can enter the well. To counter the declines, companies drill more wells, longer wells and intensify the fracking process, all of which can raise costs.

About $42 billion must be spent every year just to offset decline rates in shale gas wells that generated revenue of about $33 billion in 2012, Hughes estimated in a report earlier this year for the Post Carbon Institute, which advocates options for a more sustainable world. Proceeds from higher-priced petroleum liquids contained in the most lucrative wells have helped offset the deficit for now, though the industry faces higher costs from increasingly uneconomic wells as the best prospects are exhausted, he said.

Wrong Assumptions

To Hughes, cheap gas and abundant gas are “mutually exclusive” in the long term. Instead of providing a reason to accelerate fossil fuel use, new supplies of crude and gas from shale fields just give the U.S. more time to develop alternative energy solutions, he said.

According to Arthur Berman, a Houston-area geologist and director of Labyrinth Consulting Services, basing U.S. policy on what he sees as overly optimistic supply and low-price projections is foolish.

Shale production mushroomed in the past decade as producers expanded the use of horizontal drilling and fracking to wrest oil and gas from previously impermeable rock. Gas output in the U.S. climbed 25% from 2007 to a record last year, according to U.S. Energy Information Administration data.

In April, the Potential Gas Committee, which issues a biennial report with support from the Colorado School of Mines, said the U.S. had a technically recoverable resource base of 2,384 trillion cubic feet of gas at the end of 2012, while other estimates claim the resource can last 100 years, the committee said on its website.

Page 1 of 3 >>

Copyright 2014 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

Comments
comments powered by Disqus