Wednesday, April 10, 2013

Shale gas—an idea that smells of failure and fraud

Regular readers know I have been highly skeptical about getting natgas from shale.
  1. It is an expensive and highly polluting way to get at gas.  Worse, the pollution goes into the groundwater which is MUCH more valuable than whatever tiny bubbles of methane that can be found.  
  2. Shale deposits are very small which means the production life of fracked wells is very short.
Expensive to find and recover mixed with short production lifespans is a combination virtually certain to lose someone a large pile of money.  And the idea that fracking will lead to energy independence is nothing short of lunacy.  But energy independence is a seductive sales pitch in a land where the population has had their world-views absolutely shaped by the language of war-mongers.  Here in the Midwest, corn-based ethanol was touted as another road to energy independence.  Just one problem—the energy in ethanol is less than in the high-grade petroleum used to make it.

Here is the view of shale gas from the Gazprom CEO—a guy who has conventional gas to sell the world.  But just because he has a vested interest in seeing shale gas fail, this does not make him wrong.  As someone who thinks shale gas is an even crazier idea than corn-based ethanol, I find it refreshing that an oil guy can be so brutally honest.

American shale gas project is a bubble about to burst – Gazprom CEO

March 30, 2013   Mladen Antonov

The extraction of shale gas in the US is unprofitable and this “soap bubble will burst soon,” believes the CEO of Russian gas giant Gazprom Aleksey Miller.

“Currently, there aren’t any projects that we know of where shale gas production would be profitable,” Miller stated, adding that “absolutely all the boreholes” are in the red.

There is an opinion that the whole thing is just a “soap bubble,” Gazprom head pointed out in an interview with Rossiya 24 TV channel.

The US “is not a competitor” for the Russian energy giant, Miller stated.

“We are skeptical about shale gas,” he said, as cited by Interfax. Therefore, Gazprom sees “no risks” for itself in the development of shale gas energy in the US. America still remains a country with a deficit of gas – it is the largest gas market and the largest consumer of this fuel, Miller said.

According to experts, the increase in volume of shale gas production corresponds with the dip in natural gas extraction on US territory, Gazprom CEO noted.

Apparently, one of the reasons behind the development of shale gas production in the US is to ensure the country’s “energy security,” Miller suggested. He added that Russia has exactly the same technologies. For instance, it extracts gas out of coal in Kuznetsk Basin in southwestern Siberia.

Earlier this month, the head of another Russian energy giant – Lukoil – also expressed some skepticism over the excitement around “shale gas revolution.”

“Of course, it is a great achievement on the part of US engineers that America is now producing oil and gas from shale. In order to do it, they had to drill very tricky wells and do hydraulic fracturing,” Lukoil President, Vagit Alekperov told RT. That way the US managed “to cut the cost of producing this gas and liquid hydrocarbons from these layers.”

“Undoubtedly, this is an achievement, but I wouldn’t call it a revolution,” the head of the oil company stated.

Shale gas is an unconventional sources of natural gas, stored in fine-grained organic-rich rocks. Different types of sedimentary rock contain natural gas deposits – such as sandstones, limestones or shales. Compared to conventional gas sources, shale reservoirs are more difficult to produce from because often the gas is trapped within thick, horizontal rock layers, in relatively low concentrations.

The production of shale gas in the US began at the beginning of this century and has increased rapidly since. In 2010, shale gas represented more than 20% of the country’s gas production, according to the International Energy Agency(IEA). The development of shale gas production was prompted by soaring gas prices in the early 2000s as well as by technological advances – particularly concerning hydraulic fracturing.

The agency estimates that by 2035 around 40% of the world’s gas might be unconventional, and shale gas will by far be the greatest part of it. more
Engdahl is calling fraud.  When an idea so obviously destined to fail keeps getting sold to the rubes, it's pretty easy to spot the con game.

America's shale energy revolution is another Ponzi fraud

William Engdahl is an award-winning geopolitical analyst and strategic risk consultant whose internationally best-selling books have been translated into thirteen foreign languages. March 21, 2013

Some say America’s shale energy revolution will provide gas for a century and create millions of new jobs. The only problem with this picture - it’s built on myths, lies and Wall Street hype.

Much has been said about the proven environmental costs of injecting millions of gallons of ultra-toxic chemicals into shale and fracturing the gas free, how it often contaminates underground water aquifers and can induce earthquakes. Little however has been said of the fact that the costs and economics of shale gas in the USA are actually negative.

In reality it is becoming increasingly clear that the shale revolution is a new Ponzi fraud, carefully built with the aid of the same Wall Street banks and their “market analyst” friends, who brought us the 2002-2007 US real estate securitization bubble.

The USA shale gas boom took off after Dick Cheney and friends managed to win a major loophole in new energy legislation in 2005 exempting the oil and gas industry from the Clean Water Act, the only exempt industry. With soaring US gas prices, and no environmental restraint, shale gas extraction ballooned fourfold from 2007, the first year data was tracked, to 2011, to comprise almost 40% of total dry natural gas extraction in the USA that year. In 2002 shale gas was a mere 3% of total gas.

What few outside the industry knew was that the dynamics of the complex shale formations led to dramatic initial gas volumes followed by even more dramatic declines. Shale Gas, unlike conventional gas, depletes dramatically faster owing to its specific geological location. It diffuses and becomes impossible to extract without the drilling of costly new wells.

The key shale gas players and the Wall Street bankers backing the shale boom have grossly inflated the volumes of recoverable shale gas reserves and hence its expected duration. Independent conservative estimates are that recoverable shale gas is about half what the industry claims on its financial statements. In brief, the gas producers have built the illusion that their unconventional and increasingly costly shale gas will last for decades.

Real well extraction data are now available that show shale gas wells decline at an exponential rate, and will run out far faster than being hyped. This has already led to a fire sale of newly-bought shale gas leases by the major players to Chinese, Japanese, French and other gullible foreign energy investors to buy their future reserves, a sure sign of trouble. In 2012, USA shale gas operators poured $40 billion into drilling 7,000 shale gas wells. But the value of all shale gas produced that year was a mere $32.5 billion. Oops…

A sign of the end of the short-lived shale gas bubble is Chesapeake Energy the premier shale gas exploiter. Its stock shares fell from $80 in 2008 to just above $20. It’s selling shale assets to pay down debt and its debt is rated “junk.” As one industry analyst puts it, having America’s second largest natural gas producer almost completely walk away from the shale gas business is a great indication that today’s natural gas price bubble is on the verge of popping. Aubrey McClendon, Chesapeake founder has been forced to resign on April 1 under heat of an SEC investigation. more

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