The Farce Of The "Golden Age Of Gas"

Tue, 2012-04-03 05:59Laurel Whitney
Laurel Whitney's picture

The Farce Of The "Golden Age Of Gas"

Oil and gas industry insiders revealed earlier this year the high probability that we're headed into a shale gas bubble. But that's not what the industry's CEOs and PR departments want you to hear.

“The reality of at least 100 years’ worth of shale gas abundance has been supported by virtually every credible third-party expert…The collective market cap of these energy leaders approaches $2 trillion – ask yourself: do I believe Rolling Stone and Arthur Berman or the world’s biggest and most successful energy companies?”

So spouts off Chesapeake Energy in a press release earlier this month responding to a Rolling Stone article which likened fracking to a huge industry Ponzi scheme. Arthur Berman is an energy consultant based in Houston, and not swayed by the industry's vibrant plumage they are putting on display to the nation.

The energy companies want the public to believe in the “Golden Age of Gas”- as it has been dubbed- where the supplies are bountiful and the profits are high. While it's true that there have been economic booms in some areas that have gas reserves, the numbers are showing that these booms will not be long lived. Meanwhile, the falling price of gas along with the inherent public health risks and environmental devastation that comes along with it makes the gas rush less profitable in the long run. But the gas industry wouldn't have you believe that.

It's reminiscent of a scene from a 1920's movie- the wife walks into her bedroom to find her husband with another woman. Instead of confessing, the husband says, “It's not true! You gonna believe what you see, or what I tell ya?” If you add a wad of cash to that scene, then you essentially have the gas industry- that you should believe what they say because they are powerful and have money, even if the numbers plainly show a different story.

And what do the numbers say? That in fact production in the Barnett, Haynesville, and Fayetteville shales are indeed half of what the industry claims (and recall USGS reduced their estimate of available gas in the Marcellus by 80% last year). The following table shows the productions numbers for each, as calculated by the report “US Shale Gas: Less Abundance, Higher Cost”, put out by Arthur Berman and Lynn Pittinger:
  

 

Output is declining in all the formations, and while it's somewhat natural, the wells won't last for the “100 years” the industry reports show. The 100-year long gas boom may turn out to be little more than a decade. According to how industry analysts calculate the longevity of a well, they use a curve that extends the life of a well atypical of how long the well usually lasts. When using a better fit model of calculation, call the “Two-Stage Decline”, a well that the industry claims will last 50 years actually may only last 12.
  




Furthermore, natural gas prices have taken a hit, while reaching a low this month at only $2.30/thousand cubic feet. At one point it was as high as $13, but with the current low selling price and the added costs of buying land, drilling, and completion costs, the economics don't quite match up to the industry rhetoric.

Many companies are in fact losing money and not making much of a profit.

But so long as companies can keep moving from formation to formation - first Barnett, then Fayetteville, then Haynesville, then the Marcellus, and now Eagle Ford, Texas - they can artificially inflate the prosperity of gas fracking, despite the fact that they are all actually in decline.

But hey, are you going to believe what you see or what they tell you?
  

 

Comments

The electric power industry is believing that they can now buy large quantities of natural gas at low prices. The consequence of their belief is that old coal plants are being converted to natural gas and new coal plant plans are being scrapped.

While natural gas is not the ultimate solution, the CO2 output per MW generated is about half that of coal; a step in the right direction.

Long term, though, should they place heavier emphasis on solar and wind?

Well, that depends on the progress of the various energy storage technologies. Right now, all are too expensive to rely on a majority (I don't know the percentage) of power from intermittent power sources.

But, if Berman is right, when the fracking has peaked earlier than desired/projected, it opens a door to biogas. Right now, there are many competing techniques in development and production for creating synthetic gas from plant matter and from various waste streams as well as recovery of methane from landfills and livestock operations. I would hope that by then, the biogas technologies could provide a solution at a low cost.

(The advantage of biogas is that the CO2 released in its combustion is CO2 that has been drawn from the atmosphere in recent months, years, or decades. It is recycling CO2 already in circulation and not affecting the level of atmospheric CO2 at the decadal scale.)

One additional observation is that not all renewables are intermittent. One example is solar thermal using molten salt. A 200MW facility with two towers is now proposed for Colorado's San Luis valley not very far from the Great Sand Dunes national monument. Other examples include tidal generation and geothermal, even ground source geothermal that works almost anywhere.

Battery technology is lagging what we really need to really cut off the gas.  Most of the renewables are intermittent, and what we really need is some way to store energy for later use.  We are talking about needing a lot of storage capacity.

The electric grid in North America, for example, is divided into several islands that do not exchange power.

There is work underway to allow real time exchange of power among these regions (see map here), but it will be challenging to switch such large amounts of power reliably. When the West can send power East and vice versa, less storage would be necessary and less overhead generating capacity would be needed.

That means lower CO2 emissions and lower costs at the same time.

Elements of industry are moving forward towards diverse solutions while the policy lags behind.

It's market experimentation in action, searching through all kinds of approaches and converging on what works in the real world. Would that policy were there to accelerate things along the scientific consensus.

Perhaps once clean tech and renewables reach a critical mass, the policy will follow.

North America has the following grids:

(1) Eastern Power Grid

(2) Quebec Power Grid

(3) Texas Power Grid

(4) Western Power Grid

(5) Whatever most of Mexico has; the northern border regions in the west are part of WPG.

 

Each of those separate grids maintains synchrony separately.  However, there are DC interties between the grids as well as within at least WPG.  The DC interties only are capable of wheeling rather modest amounts of electricity,  Most electricity is consumed rather close to the generating station.

 

http://www.youtube.com/watch?v=dKxiI96U9TM

For some reason, maybe it's just me, but when I see the word Chesapeake at a glance, my brain interprets it as Cheapskate. 

Maybe it's a Freudian slip.

 

 

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