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Natural Gas Revolution Is Overblown, Study Says

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NATURAL GAS FRACKING STUDY
A rig is seen September 29, 2010 near Stanley, North Dakota drilling into the Bakken Formation, one of the largest contiguous deposits of oil and natural gas in the U.S. (Getty Images) | Getty File

A veritable explosion in the number of natural gas wells in the United States in the late 2000's resulted in only modest gains in production, a new study finds, suggesting that the promise of natural gas as a bountiful and economical domestic fuel source has been wildly oversold.

The findings, part of a broader analysis of natural gas published Thursday by the Post Carbon Institute, an energy and climate research organization in California, is one of a growing number of studies to undermine a natural gas catechism that has united industry, environmental groups and even the Obama White House in recent years.

It also comes on the heels of another study, published Monday, lending credence to claims that modern natural gas drilling techniques are contributing to methane contamination of drinking water wells in surrounding communities.

According to the author of Thursday's study, David Hughes, a geoscientist and fellow at the institute, the bedrock assumptions of the natural gas revolution -- that new drilling techniques have cracked open deep layers of shale and made available a 100-year supply of clean, domestic energy that could displace dirty coal and oil -- are simply not true.

"The real takeaway here is scale," Hughes said in a telephone interview. "If you look at the production estimates as the government is making them now, you're talking about a near quadrupling of shale gas by 2035."

The estimates come from the Energy Information Administration, which suggested in its most recent projections that shale gas would account for 45 percent of all natural gas production in the U.S. by 2035 -- up from roughly 14 percent currently.

But the actual productivity profile of new, unconventional wells -- often tapped at tremendous expense -- is far less clear than is normally portrayed, Hughes said. Studies at existing fields, or plays, suggest that many shale wells tend to be highly productive in their first year, and then decline steeply -- sometimes by as much as 80 percent or more -- after that, requiring new wells to be plumbed.

Indeed, while the number of active gas wells, which has nearly doubled since 1990, to half a million, has increased in the U.S, production per well has declined by nearly 50 percent over the same period, Hughes said, suggesting that as the industry converts increasingly to shale gas, more and more wells will be needed to maintain even a baseline level of production -- much less to create a substantive increase.

If that's the case, Hughes said, then those hoping that the shale gas boom might one day provide enough natural gas to replace coal for electricity generation, or oil as a transportation fuel, will be sadly disappointed. Indeed, he said, the number of new wells that would be needed to meet these goals would create a dystopian landscape of well pads and gas pipelines that few people would want to inhabit.

"If that were to happen, for those people living in Pennsylvania and New York, well, they haven't seen anything yet," Hughes said, referring to those states now sitting atop major shale gas deposits.

Mr. Hughes also highlighted the growing number of environmental costs that come with natural gas development. These include everything from water intensity and heavy truck traffic to the risks of localized pollution associated with hydraulic fracturing, or fracking -- the high-pressure injection of water, sand and chemicals underground to break up rock formations and release gas.

More broadly, questions have been raised about the greenhouse gas footprint of natural gas development over its lifecycle, with at least one study suggesting that it may be no better than coal.

Dan Whitten, a spokesman for America's Natural Gas Alliance, an industry lobby group, said in an e-mail message that the report was retreading old ground and amounted to a smear campaign on natural gas.

"This report is recycling the widely discredited claims of anti-drilling activists on greenhouse gas emissions," Whitten said. "Their estimates run counter to the accepted scientific consensus and have been heavily criticized by climate scientists and others who are interested in a fact-based debate about our energy choices as a nation."

Whitten also argued that it is now "the established scientific consensus" that the U.S. has "vast domestic supplies of natural gas that can play a growing role in meeting our country’s energy needs for generations."

He also said that no one was seriously suggesting that coal or transportation fuel be entirely replaced by natural gas, and that such arguments amount to "unrealistic scenarios" presented by Hughes simply to be knocked down.

"Most experts in our energy debates understand and agree that it will take all kinds of energy to meet our nation’s growing future needs," he said. "From our initial review, no new ground was broken with this report. As such, it doesn’t change the fact that the vast supplies of clean natural gas right here in North America give our country a chance to substantially improve energy security, clean our air and improve our economy."

But while the resource is inarguably vast, Hughes is not alone in suggesting that the industry is overstating how much can be economically pulled out of the ground.

Arthur E. Berman, a geological consultant and director of Labyrinth Consulting Services, Inc., also argues that natural gas is not as abundant or as inexpensive as is commonly believed.

"I do not dispute for a minute that the resource size for natural gas is huge. There's a lot of gas in place in shales," Berman said in a telephone interview. "The question for me is how much can be produced for a profit?"

Berman says that reserves -- meaning the amount of natural gas that is actually commercially available to produce -- will last only about 22 years. This is partly because shale gas plays once touted to be monstrous in size have typically contracted to core areas of production a mere fraction of the originally advertised size.

Hughes, meanwhile, cited Berman and and other analysts who also say that gas, at roughly $4 per thousand cubic feet (mcf), is too cheap for companies to recoup the costs of producing it.

From Thursday's study:

Analysts like Arthur Berman suggest the marginal cost is about $7.50/mcf compared to a current price of about $4.00/mcf. Others, such as Kenneth Medlock (2010), suggest that the break-even price ranges from $4.25/mcf to $7.00/mcf. The Bank of America (2008) has placed the mean break-even cost at $6.64/mcf with a range of $4.20/mcf to $11.50/mcf. One thing seems certain: Shale gas, which appears to be the only hope for significantly ramping up U.S. gas production, is expensive gas, much of which is marginally economic to non-economic at today’s gas prices.

And yet, with easier-to-reach, conventional sources of gas largely depleted, the ability to pull gas from deep layers of shale rock has been touted as a game changer, and the notion was quickly embraced by a broad cross-section of social, political and business interests.

Writes Mr. Hughes:

First, the shale gas industry was motivated to hype production prospects in order to attract large amounts of needed investment capital; it did this by drilling the best sites first and extrapolating initial robust results to apply to more problematic prospective regions. The energy policy establishment, desperate to identify a new energy source to support future economic growth, accepted the industry’s hype uncritically. This in turn led Wall Street Journal, Time Magazine, 60 Minutes, and many other media outlets to proclaim that shale gas would transform the energy world. Finally, several prominent environmental organizations, looking for a way to lobby for lower carbon emissions without calling for energy cutbacks, embraced shale gas as a necessary “bridge fuel” toward a renewable energy future. Each group saw in shale gas what it wanted and needed.

And at least for now, the 100-year slogan continues.

"A lot of times, things are right underneath our feet, and all we need to do is change the way we're thinking about them," says Erik Oswold, an ExxonMobil geologist, in an ad circulating on the online video service Hulu. "A couple decades ago, we didn't realize just how much natural gas was trapped in rocks thousands of feet below us. Technology has made it possible to safely unlock this cleaner burning natural gas. These deposits can provide us with fuel for 100 years."

President Obama, delivering a speech on energy policy at Georgetown University on March 30, echoed the industry's mantra.

"Now, in terms of new sources of energy, we have a few different options," the President said. "The first is natural gas. Recent innovations have given us the opportunity to tap large reserves -- perhaps a century’s worth of reserves, a hundred years worth of reserves -– in the shale under our feet."

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