Along come the contrarians. As shale gas is hailed as the resource that will enable natural gas to be our long bridge to a low-carbon future, two people in one day call the thought a bubble that needs to be burst.
The director of a geoscience consulting firm told a Denver meeting that shale gas companies have been seriously overstating reserves that can be produced commercially. He said they are promoting two miracles, our colleague John Kingston reports: that producing shale gas can be both low-risk and high-reward, and that an exploration venture can have both high capital costs and low gas prices -- "and still make lots of money."
Arthur Berman, director of Labyrinth Consulting Services, said companies like highly promotional Chesapeake Energy have balance sheets marked by "a huge debt load, borrowed money and effectively borrowed money through equity offerings. They are always writing down assets, always selling assets, and they are more interested in booking reserves than making money." He spoke at the annual meeting of the Association for the Study of Peak Oil & Gas.
According to Berman, current shale operators underestimate the rate of decline from shale gas wells, and the cost of developing them. The end marginal cost is all that matters, he said, and at the $7-$8/Mcf price needed to be profitable, "shale gas would be quoted at a level more than imported LNG." Anything under that would make projects unprofitable.
On the other side of the picture, Peter Dea, president and CEO of Cirque Resources, conceded there have been some overstatements of reserves but that technology and efficiency improvements are still being developed and the industry will be profitable.
In the meantime, a Pennsylvania State University professor put out an "Energy Facts Weekly" in which he acknowledged that the shale gas is there "and the horizontal drilling technologies have been developed, but the issues of deliverability at the scale required at affordable prices are still largely unknown."
The Energy Information Administration projects that through 2020 shale gas will offset only 28% of declines in other sources of gas supply, Frank Clemente says. And he says the price clearly will not be low. He quotes Chesapeake Chairman Aubrey McClendon saying the price would probably be from $7.50 to $9.
"Unfortunately, we already know what $7 gas will do," Clemente says. "From 2000 to 2008, the price of natural gas to produce electric power averaged only $6.29. But the cost of electricity during the same period increased 44%. He also says shale gas wells have very high decline rates, which creates "a constant treadmill to find additional resources and drill new wells."
Plus, of course, he talks about the water and other environmental issues that many people have raised with hydraulic fracturing for the wells.
(Clemente's comments are somewhat at odds with fellow Penn State professor Terry Engelder, who recently said the Marcellus Shale's gas potential alone was "beyond imagination").
So ... with shale essential to the enthusiastic cheerleading around natural gas prospects right now, these gentlemen are either sour naysayers or prudent voices of reason.
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