Reports: Shale Gas Bubble Looms, Aided by Wall Street

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Two long-awaited reports were published today atย ShaleBubble.orgย by theย Post Carbon Instituteย (PCI)ย and theย Energy Policy Forum (EPF).ย 

Together, the reports conclude that the hydraulic fracturing (โ€œfrackingโ€) boom could lead to a โ€œbubble burstโ€ akin to the housing bubble burst of 2008.

While most media attention towards fracking has focused on the threats to drinking water and health in communities throughout North America and the world, there is an even larger threat looming. ย The fracking industry has the ability – paralleling the housing bubble burst that served as a precursor to the 2008 economic crisis – to tank the globalย economy.

Playing the role of Cassandra, the reports conclude that โ€œthe so-called shale revolution is nothing more than a bubble, driven by record levels of drilling, speculative lease & flip practices on the part of shale energy companies, fee-driven promotion by the same investment banks that fomented the housing bubbleโ€ฆโ€ a summary details. โ€œGeological and economic constraints โ€“ not to mention the very serious environmental and health impacts of drilling โ€“ mean that shale gas and shale oil (tight oil) are far from the solution to our energyย woes.โ€

PCI‘s report is titled โ€œDrill Baby, Drill,โ€ authored by PCI Fellow and former oil and gas industry geoscientistย J. Dave Hughes, whileย EPF‘s report is titled โ€œShale Gas and Wall Street,โ€ authoredย by EPF Director and former Wall Street financial analystย Deborah Rogers.

โ€œ100 Years of Natural Gasโ€? Uhย huhโ€ฆย 

In President Barack Obama’s 2012 State of the Union address, he repeated the fracking industry’s favorite mantra: there are โ€œ100 yearsโ€ of natural gas sitting beneathย us.

โ€œWe have a supply of natural gas that can last America nearly 100 years, and my administration will take every possible action to safely develop this energy,โ€ he stated.ย 

Hughes concludes that the โ€œ100 yearsโ€ trope serves as a disinformation smokescreen and at current production rates, there are – at best – 25 years under theย surface.

Industry proponents rely on a figure known as โ€œtechnically recoverable reservesโ€ when they promote the potential of shale basins. The figure that actually matters though, is production rates, or what the wells actually pull out of the reserves whenย fracked.

In the case of U.S. shale gas, the booked reserves are operating on what Hughes coins a โ€œdrilling treadmill,โ€ suffering from the law of โ€œdiminishing returns.โ€ย 

Hughes analyzed the industry’s production data for 65,000 wells from 31 shale basins nationwide utilizing the DI Desktop/HPDI database, widely used both by the industry and the U.S. government. Heย sums up the quagmire he discovered in doing so, writing,ย ย ย 

Wells experience severe rates of depletionโ€ฆThis steep rate of depletion requires a frenetic pace of drillingโ€ฆto offset declines. Roughly 7,200 new shale gas wells need to be drilled each year at a cost of over $42 billion simply to maintain current levels of production. And as the most productive well locations are drilled first, itโ€™s likely that drilling rates and costs will only increase as time goesย on.

The reality, he explains, is that five shale gas basins currently produce 80 percent of the U.S. shale gas bounty and those five are all in steep production rateย decline.

And shale oil? More of theย same.

Over 80 percent of the oil produced and marketed comes from two basins: Texas’ Eagle Ford Shale and North Dakota’s Bakken Shale, both of which are visible from outer spaceย satellites.

โ€œ[T]aken together shale gas and tight oilย requireย about 8,600 wells per year at a cost of over $48 billion to offset declines,โ€ Hughes writes. โ€œTight oil production is projected toโ€ฆpeak in 2017 at 2.3 million barrels per day [and be tapped by about 2025]โ€ฆIn short, tight oil production from these plays will be a bubble of about ten yearsโ€™ย duration.โ€

At current production rates, Hughes concludes, there is 5 billion barrels of shale oil located underneath the Bakken and Eagle Ford, which equates to a measly ten months worth of oilย at current runaway climate change-causing U.S. oil consumptionย rates.

PCI accompanied Hughes’ report with 43 charts and graphsย and a digital U.S. map with the production data of all 65,000 fracking wells in the lower 48.

Wall Street’sย Complicity

Roughly 17 months ago, activists from around the country set up encampments outside of Wall Street, coining themselves Occupy Wall Street. As Rogers’ report demonstrates,ย they had the right target inย mind.

Rogers opens the report on a defiantย note.ย 

โ€œThe recent natural gas market glut was largely effected through overproduction of natural gas in order to meet financial analystโ€™s production targets,โ€ย she wrote. โ€œFurther, leases were bundled and flipped on unproved shale fields in much the same way as mortgage-backed securities had been bundled and sold on questionable underlying mortgage assets prior to the economic downturn ofย 2007.โ€

In its early days operating in the U.S., the industry cloaked itself as a โ€œmom-and-popโ€ shop start-upย venture.

Rogers unpacked the reality behind this rhetorical ploy, writing that Wall Street firms areย โ€œintricately married to [shale gas and oil corporations]โ€ฆWith the help of Wall Street analysts acting as primary proponents for shale gas and oil, themarkets were frothed into aย frenzy.โ€

In other words, there are two spheres of economics unfolding: day-to-day in-field shale oil and gas production economics and Wall Street high finance economics. It’s the insane economics of Wall Street investors fueling the economic decisions of those working in the field, in what Rogers describes as a โ€œfinancial co-dependency.โ€

Faulkner: โ€œThe past is never dead. It’s not evenย past.โ€

Are we witnessing another โ€œInside Jobโ€ of the sort Charles Ferguson portrayed in his Academy Award-winning documentary film by thatย namesake?

In his 1951 classic play, โ€œRequiem for a Nun,โ€ William Faulkner wrote, โ€œThe past is never dead. It’s not evenย past.โ€

These are the words of a sage, particularly given the past century of โ€œThe Great American Bubble Machine,โ€ asย Rolling Stone investigative journalist Matt Taibbi has documented of Wall Street’s behavior financing multiple economic spheres that have led to near system-wideย collapse.

At the very least then, if it all โ€œhits the fan,โ€ we can’t say we weren’tย forewarned.ย 

Photo Credit:ย Ioana Davies (Drutu) /ย Shutterstock.com

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Steve Horn is the owner of the consultancy Horn Communications & Research Services, which provides public relations, content writing, and investigative research work products to a wide range of nonprofit and for-profit clients across the world. He is an investigative reporter on the climate beat for over a decade and former Research Fellow for DeSmog.

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