Why the Great Shale Rush in the Eagle Ford may be over sooner than you think
Published: March 14, 2012
The disconnect raises serious questions about energy investments on the horizon, says Houston-based energy consultant Arthur Berman, particularly as industry and public officials start to advocate for the conversion of public transit and 18-wheelers into natural-gas powered fleets, or dumping dirty coal-fired power plants for those that run on natural gas (which produce half the greenhouse gas emissions). "Is it 11 years or 100 years? Which is it?" Berman asked. "Policy makers believe what they're told and make policy based on that, so if it turns out to be otherwise, well then shoot, we'll have a problem."
Berman, a petroleum geologist who's spent years studying the industry also sits on the board of directors for the Association for the Study of Peak Oil and Gas, and says a close look at other shale booms illustrates how promises of a multi-decade natural gas boom in the Eagle Ford should be viewed skeptically. For instance, Berman found that not only have reserves claimed by industry in other shales been routinely overstated, so has the productivity data of some of those individual wells.
Berman and petroleum engineer Lynn Pittinger dialed back to 2003 to study North Texas' Barnett shale, finding that the average natural gas recovery per well proved to be around 1.3 billion cubic feet (bcf), well below operator claims of up to 2.65 bcf per well. They found similar results in the Fayetteville and Haynesville shales, noting in some cases how companies had even artificially inflated average well production data by dropping played-out wells from their calculations, writing it all up in their 2011 summer report, "U.S. Shale Gas: Less Abundance, Higher Cost."
The study hit just as industry insiders spilled hundreds of internal emails and documents to The New York Times that appeared to show energy execs, geologists, and market analysts worrying whether shale-heavy companies were intentionally — maybe even illegally — overstating well productivity and the size of their reserves. Actual reserves, Berman contends, appear to be about half what industry claims. So where did that promise of 100-year natural gas reserves originate? Nelder's Slate piece tracked it back to a spring 2011 report by the Potential Gas Committee, an organization of petroleum engineers and geoscientists out of the industry-friendly Colorado School of Mines. The group's president works with Third Day Energy, LLC, an Austin-based outfit buying and exploiting oil and gas properties along the Texas Gulf Coast, while its chairman also serves as vice president for a Denver natural gas production, processing, and marketing company.
In fact, companies have been losing money producing natural gas. On an averaged annual basis, shale gas has been unprofitable for four years, Nelder noted, when the price of natural gas started its nosedive, from about $13 per thousand cubic feet down to this month's decade-low price around $2.30. Securities and Exchange Commission filings, Berman said, indicate that for most companies the break-even price would have to be somewhere around $7 per thousand cubic feet. "So if you make some investment, a personal or corporate investment or even a municipal investment in natural gas powered vehicles, and you think the price is going to stay what it is today, you're going to be pissed," Berman said.
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