Guest Post: Shale Gas Will Be The Next Bubble To Pop

Tyler Durden's picture

Submitted by James Stafford of,

The “shale revolution” has been grabbing a great deal of headlines for some time now. A favourite topic of investors, sector commentators and analysts – many of whom claim we are about to enter a new energy era with cheap and abundant shale gas leading the charge. But on closer examination the incredible claims and figures behind many of the plays just don’t add up. To help us to look past the hype and take a critical look at whether shale really is the golden goose many believe it to be or just another over-hyped bubble that is about to pop, we were fortunate to speak with energy expert Arthur Berman.

Arthur is a geological consultant with thirty-four years of experience in petroleum exploration and production. He is currently consulting for several E&P companies and capital groups in the energy sector. He frequently gives keynote addresses for investment conferences and is interviewed about energy topics on television, radio, and national print and web publications including CNBC, CNN, Platt’s Energy Week, BNN, Bloomberg, Platt’s, Financial Times, and New York Times. You can find out more about Arthur by visiting his website:

In the interview Arthur talks about:

•         Why shale gas will be the next bubble to pop
•         Why Japan can’t afford to abandon nuclear power
•         Why the United States shouldn’t turn its back on Canada’s tar sands
•         Why renewables won’t make a meaningful impact for many years
•         Why the shale boom will not have a big impact on foreign policy
•         Why Romney and Obama know next to nothing about fossil fuel energy

Interview conducted by James Stafford of How do you see the shale boom impacting U.S. foreign policy?

Arthur Berman: Well, not very much is my simple answer.

A lot of investors from other parts of the world, particularly the oil-rich parts have been making somewhat high-risk investments in the United States for many years and, for a long time, those investments were in real estate.

Now these people have shifted their focus and are putting cash into shale. There are two important things going on here, one is that the capital isn't going to last forever, especially since shale gas is a commercial failure. Shale gas has lost hundreds of billions of dollars and investors will not keep on pumping money into something that doesn’t generate a return.

The second thing that nobody thinks very much about is the decline rates shale reservoirs experience. Well, I've looked at this. The decline rates are incredibly high. In the Eagleford shale, which is supposed to be the mother of all shale oil plays, the annual decline rate is higher than 42%.

They're going to have to drill hundreds, almost 1000 wells in the Eagleford shale, every year, to keep production flat. Just for one play, we're talking about $10 or $12 billion a year just to replace supply. I add all these things up and it starts to approach the amount of money needed to bail out the banking industry. Where is that money going to come from? Do you see what I'm saying? You've been noted suggesting that shale gas will be the next bubble to collapse. How do you think this will occur and what will the effects be?

Arthur Berman: Well, it depends, as with all collapses, on how quickly the collapse occurs. I guess the worst-case scenario would be that several large companies find themselves in financial distress.

Chesapeake Energy recently had a very close call. They had to sell, I don't know how many, billions of dollars worth of assets just to maintain paying their obligations, and that's the kind of scenario I'm talking about. You may have a couple of big bankruptcies or takeovers and everybody pulls back, all the money evaporates, all the capital goes away. That's the worst-case scenario. Energy became a big part of the election race, but what did you make of the energy policies and promises that were being made by both candidates?

Arthur Berman: Mitt Romney, particularly, talked about how the United States would be able to achieve energy independence in five years. Well, that's garbage.

Anybody who knows anything about oil, gas and coal, knows that that's absurd. We were producing a little over 6 million barrels a day thanks to an all-out effort in the shale oil play. We consume 15 million barrels of oil a day and that leaves the gap of 9 million barrels per day. At the peak of U.S. production, in 1970, the U.S. produced 10.6 million barrels per day. Like I said, either the guy doesn't know what he's talking about, or is making a big joke of it.

Obama didn’t talk so much . . . He's a hugely green agenda kind of president and I'm not opposed to that, but he's certainly not for the oil and gas business. It wasn't until he got serious about thinking about his re-election that he decided to take credit for what really happened. Japan recently announced that they are going to be phasing out nuclear power. What are your views on nuclear? Are we in a position to abandon this energy source?

Arthur Berman: No. Japan is a special case. The disaster at Fukushima, the nuclear reactor, was right on top of a major fault. So, that was a dumb place to put it.

To wholesale abandon nuclear power because one reactor was incredibly stupidly planned, to me seems like a bit of a . . . well, I can't tell people how they should react, but if I were a Japanese citizen, and the truth was that we have no oil, we have no coal, we have no natural gas, the next question is, "Well, if we get rid of nuclear, what are we going to do?"

It's a really good question to ask. If you don't have anything of your own, how are you going to get what you need? The answer is that they have to import LNG and that's very expensive.

Right now, natural gas is selling in Japan for $17 per million BTUs. You can buy the same BTUs in Europe for $9 today, or in the US for $3.25 What about Germany’s decision to also phase out nuclear power?

Arthur Berman: For Germany to abandon nuclear… that decision is truly delusional because they haven't had any problems over there. Nor is Germany particularly earthquake prone or tsunami prone. They have forced themselves into a love relationship with Russia. What are your views on Canada's tar sands? Are they a rich source of oil that the U.S. needs to exploit? Or do you think they're a carbon bomb, which could do irreparable damage to the climate?

Arthur Berman: Well, that's a very good question. I suppose they're both, as are virtually all things that burn. Right? They're a very rich source of oil. And they're dirty. It requires a lot of natural gas heating to convert them into some usable form, a lot of processing, but here's the thing, if the United States doesn't buy that oil from Canada, do you think Canada's just going to say, "Oh. Okay. Nevermind. We'll forget about all this."

No. They're going to sell it somewhere else. They'll probably sell it to Asia. So, the issue of the carbon bomb doesn't get resolved by the United States not taking the oil.

So, to me, that's off the table. Yes. I think it's an incredibly sensible play to get your oil from a neighbour, and a neighbour who you trust, and it doesn't require overseas transport and probably getting involved in periodic revolutions and civil uprisings. Is there any technology, any development you see coming in the future that can help us get where we need to be? Is conservation really the only answer or do you have any hopes for some of the alternative energy technologies, such as solar or, even, some of these more advanced technologies such as Andrea Rossi’s E-cat machine?

Arthur Berman: Oh. I have all the enthusiasm for technology that you could ask for. I'm a scientist and I love technology but I heard a very good presentation several years ago on your exact question and the man who gave a talk said, "I'm going to give you a rule to live by. If it's not on the shelf today, then a solution is no sooner than ten years in the future." So, when you talk about E-cat and you talk about algae and all this kind of stuff, it's not on the shelf today. So, that means it's in some sort of pilot stage of testing.

Work harder guys. Work harder and faster because you've got a lot of work to do. So, yes, I'm enthusiastic. I think there are some great ideas out there but I don't see any of them helping us in the coming five to ten-year period. Environmentalists talk about the evil of fossil fuels, but have they really done their research to see how vital it is to pretty much everything that we base our modern lives upon?

Arthur Berman: Well, that's exactly right. My oldest son and his family until recently lived in California, and in California people think electricity comes from the wall. They don't have any idea that most of their electricity comes from horrible coal-fired power plants in New Mexico and Arizona. As long as they don't have to see it, they don't have a problem.

But, in this world, and in this life, we're all connected and if you see something you don't like, there's a good possibility that whatever they're doing there has something to do with something you're using. So, this is an issue. Arthur, thank you for taking the time to speak with us. For those readers who may be interested in contacting Arthur please take a moment to visit his website:

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bank guy in Brussels's picture

Thorium reactors bitchez's picture

I hope the shale gas bubble burst soon. Drillers are poisoning my neighbors with the assistance of state regulators. Isn't government marvelous?


The Pennsylvania Department of Environmental Protection produces incomplete lab reports and uses them to dismiss complaints that Marcellus Shale gas development operations have contaminated residential water supplies and made people sick, according to court documents.

10mm's picture

That's because there is a PRO Shale administration in Harrisburg who is full steam ahead regardless of the ramifications.

Ginsengbull's picture

Meanwhile, Harrisburg is bankrupt.

goldfish1's picture

Arthur Berman doesn't mention Diablo Canyon nuclear reactor in San Luis Obispo, California is built on a major fault. Why not?

AGuy's picture

Nor what to do with the Million+ tons of spent fuel rods still sitting in virtual every major population center. Every spent fuel pool is a load gun, especially considering the NRC only mandates three days of backup generator diesel fuel to keep the SFP cool. An Earthquake does need to destroy the reactor to create a disaster. It just needs to disable the infrastructure in the region that prevents refueling for the backup generators. While the majority of CA residents will probably survive a big quake. They may not survive if the SPF start cooking off and they can't be evacuated because of damage to the roads and bridges.



10mm's picture

Comment is in regards to the State,not the city.State Capitol is in Harrisburg.'s picture

That's because we live under a system in which a pro whatever administration can rule over all others. It's not as if some administrations are owned and others are not. They are all owned by someone. The problem is government.

kaiserhoff's picture

Shale gas is the answer. It's Barry Hussein and his all commie-faggot band who are the problems.'s picture

It is the answer to the question, "Why is my well contaminated with lithium, cobalt, chromium, boron and titanium?"

This just in's picture

Some people happen to like their water crunchy.  

Ignatius's picture

"Why the United States shouldn’t turn its back on Canada’s tar sands"

I'm sure as long as Canada will allow Alberta to be turned into one huge tailing pond that the U.S. will continue to buy their oil and gas.

Matt's picture

The Obama Administration blocked the Keystone XL pipeline and seems to be resisting allowing more pipes to carry more oil down, so instead pipes are being built to send oil, and possibly LNG, to Asia.

CrazyCooter's picture

And, don't forget the subtle detail, the XL pipeline from Cushing to the gulf coast. Fast tracked by Obama. Hah!

Do the math.



Ginsengbull's picture

Remember the pcb's in the trout?


The Commonwealth knew exactly where that was coming from, but feigned ignorance.


Remember 3 mile island, and Centralia mine fire?

sun tzu's picture

remember whale oil and kerosene lamps?'s picture

Remember that no one has aright to pollute the property of others.

Ginsengbull's picture

Not so much in Pennsylvania.


But I still have a carbide miners lamp.

SoCalBusted's picture

poor well design, mainly casing between ground level and below aquifer

AGuy's picture

No such thing as a safe casing. Perhaps a correctly designed casing will last decades. Unfortunately casing must last "Forever". If they don't cause containmation for 20 years its still someone problems 20, 30, or 40 years from now. A study done a about a year ago. shows that all cases fail over time, no matter how robust they are built.


Gully Foyle's picture

Hmm, nukes are bad, gas is bad and a bubble, middle east war threatens oil.

Wind and solar fails.

Anyone notice a pattern here?

How every energy route is being closed or at the very least tightened.

Wonder why that is?

(Biden 2016 rise my minions we have dark work to do)

Bicycle Repairman's picture

Mr. Berman appears to be talking his book.  His nuclear power comments are particularly naive.

Pinto Currency's picture


Now why would a country abandon nuclear power just because it realizes that a single failure like Fukushima can not only wipe out that entire country but also put a serious dent in the population of the entire northern hemisphere?  Those Japanese are entirely irrational.


CrazyCooter's picture

Those Japanese are entirely broke.

Fixed it for you.



ShrNfr's picture

Oddly, the population of the world has increased greatly since the open air testing of all sorts of nukes in the 1950/60s. I am glad we don't do that any more, but "a serious dent in the population" is not a serious threat. If so, social security and medicare would not be in the deep shit it is at the moment. Nuke safety is very, very important, don't misunderstand me. It is just that your statement is incorrect.

ShrNfr's picture

Oddly, the population of the world has increased greatly since the open air testing of all sorts of nukes in the 1950/60s. I am glad we don't do that any more, but "a serious dent in the population" is not a serious threat. If so, social security and medicare would not be in the deep shit it is at the moment. Nuke safety is very, very important, don't misunderstand me. It is just that your statement is incorrect.

archon's picture

Obviously, the only responsible thing to do for the sake of the planet, is to live in the stone age, and cook our meat over open flames.  Oops, sorry, I mean eat our meat raw, since open flames will cause global warming...'s picture

It is not responsible to pollute residential water wells owned by other people.

Ginsengbull's picture

No meat, strained soy bean curds.

jballz's picture

No soybeans. Monsanto GMO frankenfood doused with pertrochemicals.

Sun dried soylent green. Organic only.

CrazyCooter's picture


I used to toot this horn for soooo long, and it seemed like no one ever listened. I rarely, if ever, see an elightened fellow that knows that the only way the human race will have high energy consumption, per capita, in 200+ years is precisely what you reccomended.

Folks need to get long plow mules or long Thorium MSRs!



ISEEIT's picture

Space based solar bitchez.

But for all us guvmint nigga's.......?

It's whatever they find us worthy of.

AGuy's picture

"Space based solar bitchez."

Not going to work. Not only is getting mass to Low earth orbit astronomically expensive ($10K per pound). Large arrays are vunerable to micro-meteors. Micro-meteors mostly orignate from outgassing of comets. These micro-meteors travel at 10's KM/s, and will smash up an large solar arrays in a short time.


Meremortal's picture

So, we can look forward to more people sitting at computers made from oil and griping about oil, while turning on heat from nat gas and griping about gas, driving cars full of parts made from oil and running on fuel made from oil, while griping about oil.


OK, nothing new then.

Errol's picture

Is there a pilot plant-sized thorium reactor in operation anywhere in the world?  If not, you won't see any in commercial operation in 10 years, either.

ZFiNX's picture

I can't believe you can write this as the Middle East goes off. Israel is doing exactly what they do before every war and you think the gas bubble is going to POP. If you ask me the industry is still feigning injury while insiders load up. Get ready for WWIII and natural gas MFers.'s picture

If the gas isn't there it isn't there.

forexskin's picture

chesapeake has been taking production off line - they can't make a living with NG at $3 - $4. There is lots of NG here, but its not profitable just now. their solution? go deeply into debt to bring cheaper production on line - but the money people f**ked up and missed the downside, which is the very high rate of production decline. thus CHK is having a more and more difficult time servicing its debt.

they'll probably go BK within a year, and another major will step in to buy their assets for pennies on the dollar - once again, the energy cartel will add to their strong position on CHK's carcass.

CrazyCooter's picture

A'yup. If you google " CrazyCooter gas" you will find a fair number of posts, back when I had time, that say what was said upthread.

NOTE: GoogleTip: when you google and do "" plus some phrase, your search results will only be from that site. THE BEST way to find what you want on ZH archives.

Anyway, the article and comment is 100% true.

To quickly restate, these companies (e.g. Cheasapeak) were simply the classic stock vehicle to suck in the idiots, fund big infrastructure build out/asset aquisition/etc, only to be blown up so the real players can buy on the cheap.

If you like to short stocks, do your homework, but this is a watermellon getting ripe!

The business models never worked, it was all fueled on debt and 8 bucks per million cubic feet is required to break even (it's under 2 bucks right now). There is enough production history now where some assets are going to get bid and others will not.

Fracking will be around, and so will shale gas, but only after the idiot investors have been bled dry. Oh, and at much higher prices. Places that moved infrastructure over to this energy source are going to get HAMMERED with utility costs.

Oh, and know one saw it coming.



kekekekekekeke's picture

Ugh this is sad I am in the OKC area I think about getting a job at Chesapeake sometimes but I think I missed the glory days 

sangell's picture

If this guy is right then coal companies should be the place to be. Funny no one who is putting their noney where their opinion is seems to believe him.

CrazyCooter's picture

Um, like the Powder River Basin?

Translation: almost 30% of US coal supply. One location. Why?

Why is a big question, takes you down the rabbit hole ...



SoCalBusted's picture

Coal is dead in the US (export market should be fine).  With current administration, more and more coal fired power plants are going to go off line or converted to nat gas.