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Wall Street's Shale 'Fraud' Exposed
Via Jim Quinn's Burning Platform blog,
U.S. energy independence, we're told, is at our fingertips thanks to the so-called “shale revolution”. Offsetting declines in conventional oil and gas production, shale gas and tight oil (shale oil) are being heralded as the means by which the U.S. will become energy independent – a net exporter of natural gas and once again the world’s largest oil producing nation.
But two new reports by Post Carbon Institute and Energy Policy Forum show that the hype simply doesn’t stand up to scrutiny.
KEY FINDINGS, SHALE GAS
- High productivity shale gas plays are not ubiquitous: Just six plays account for 88% of total production.
- Individual well decline rates range from 80-95% after 36 months in the top five U.S. plays.
- Overall field declines require from 30-50% of production to be replaced annually with more drilling – roughly 7,200 new wells a year simply to maintain production.
- Dry shale gas plays require $42 billion/year in capital investment to offset declines. This investment is not covered by sales: in 2012, U.S. shale gas generated just $33 billion, although some of the wells also produced liquids, which improved economics.
KEY FINDINGS, TIGHT OIL (SHALE OIL)
- More than 80 percent of tight oil production is from two unique plays: the Bakken and the Eagle Ford.
- Well decline rates are steep – between 81 and 90 percent in the first 24 months.
- Overall field decline rates are such that 40 percent of production must be replaced annually to maintain production.
- Together the Bakken and Eagle Ford plays may yield a little over 5 billion barrels – less than 10 months of U.S. consumption.
KEY FINDINGS, THE FINANCIAL PICTURE
- Wall Street promoted the shale gas drilling frenzy which resulted in prices lower than the cost of production and thereby profited [enormously] from mergers & acquisitions and other transactional fees.
- Industry is demonstrating reticence to engage in further shale investment, abandoning pipeline projects, IPOs and joint venture projects.
- Shale gas has become one of the largest profit centers in some investment banks, in direct parallel with the decline of natural gas prices.
- Due to extreme levels of debt, stated proved undeveloped reserves (PUDs) may have been out of compliance with SEC rules at some shale companies because of the threat of collateral default for some operators.
- With natural gas prices far higher outside the U.S., exports are being pursued in an effort to shore up ailing balance sheets invested in shale assets.
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The "Post Carbon Institute", what a fracking joke.
C'mon guys. These two groups are anti carbon energy. They will say and print anything they can to discredit any form of carbon energy.
So, we should all jump back on the "happy wagon," the cornucopians' cabon-a-plenty bandwagon?
We know that the energy sector is full of truthful leaders, especially all the ones pulling purse strings...
But, hey, does it really matter? We're going to consume and trash the planet until we collapse. I'm fine with this (as it maps EXACTLY to facts/reality/history [what all life forms do); it's the hiding behind all sorts of lame-ass shit about not have an affect on our environment and or being able to keep doing these things forever that make me point the finger back.
Is this a bigger fraud than bitcoin?
I doubt it.
Go ahead, Jim Quinn. You have been wrong all along. Continue disbelieving, while the Bakken goes from 1 MMBD to 2 MMBD and the Eagle Ford and Marcellus/Utica have similar doubling of production. Don't believe all that dry shale gas that is shut in because of low gas prices (caused by the success of shale gas drilling), is just waiting for an export market. Working in the industry, I can see where there are other undeveloped shales, and even in the current areas, the thickness of the shales means that MILLIONS of more hz wells or laterals at deeper levels can be drilled to increase production. Just bury your head in the sand with all the other anti-hydrocarbon fraudsters that dismiss shale oil and gas production. By the way, what contributed more in value to the US economy since 2005: a) Google, Facebook plus every other tech IPOs since then, or b) shale gas and oil development and all the associated infrastructure to handle it? If you guessed b) you were right and it wasn't even close! We will continue to make increasing profits while you, Jim Quinn, sit there with your thumb up your ass writing artilces that have no basis in fact.
As someone in the industry, can you give us the real numbers. Yes, production is increasing as the number of wells increase. However, are the production drop figures on existing wells incorrect? Is there not as steep a dropoff in existing well production as is being reported? There are a great number of sources reporting this to be the case. Are they all wrong?
You are correct, Midnight Rider, that the decline is steep. There is no argument about that from anyone in the industry. However, the wells stabilize at a lower level of production (maybe 10-20% of IP) and stay at that level for many years. The wells pay out and earn a positive return* based on the initial year of production. With the number of wells drilled, this becomes a valuable and stable base. However, what is being ignored is the number of new wells that can be drilled to replace the declining wells, both in terms of new acreage development and within existing wells because of the thickness of the shales. The companies involved in shale development have been using a manufacturing process to drill and frac thousands of wells per year. This is proven, not a concept.
* Keep in mind that it is currently uneconomic to drill for dry gas because of low gas prices. All drilling is now in liquids rich shales that are economic based on the value of liquids tied to WTI. Once the export of US natural gas as LNG begins, this will increase US prices and restart the drilling for dry gas.
Thanks for your comment
I think that, like most things, it's the initial ramp-up that gets the most money circulating. Once the construction is done and the infrastructure is in place then it's a matter of drawing down the depreciation. I don't see the infrastructure getting significantly cheaper such that it will help ease the inevitable margin squeeze from the loss of end customers (being less able to afford most everything, as the forces of contraction continue).
"Once the export of US natural gas as LNG begins, this will increase US prices and restart the drilling for dry gas."
I appreciate your ability to identify possibilities, but this isn't the certainty that we might make it out to be (it's a bit of a sales job). I have no doubt that there will be ramped up pressure to do this, which will undoubtedly help lube the financial skids, but where are the customers?
Hi Seer,
You are correct, infrastructure never gets cheaper, but that infrastructure is owned not by the producer, but by an MLP. A large producer is committed to utilize the capacity provided by the owner/buider (the MLP), as a ship-or-pay arrangement. Same if someone builds a gathering system for you. The producer has to keep drilling to satisfy the volume requirements.
Re: LNG exports. I haven't been following this as closely as I should, but check out Chenier - they are currently building liquefaction facilities and export terminals and will be shipping LNG in about 2016-17. They are spending hundreds of millions of dollars so this is not just a sales job. There are other companies in various stages of building liquefaction plants and terminals as well, but as I said, I'm not up to speed. But all I hear is LNG exports are very close to becoming a reality. SPOILER ALERT: American consumers are going to be pissed to find out that their electricity bills are increasing because of higher gas prices as a result of LNG exports.
When it does go completely to shit you won't be around to acknowledge your short-sightedness. Such is human hubris...
Isn't the issue gas vs oil? Oil is hard to produce from shale, and depletes quickly, while gas keeps producing because it is much easier to liberate? I have zero trust in eco groups-they lie, period. But smart people keep laughing at the "shale oil boom" and I'm inclined to listen. I haven't looked at any real data, since I presume it is confidential, so its hard to know.
It is Wall Street's SOP to be selective in using their expert report to underpin the sale of their latest snake oils.
On the other hand, just ask any Oil Analyst who will use the Energy Policy Forum as a credible source to even sell toxics. The well decline rates at 80% plus for the first 24 months is an exaggeration. Major oil companies that buy into these physical assets (not the WS papers) are not stupid. Technologies are improving by the day to enhance productivity but not environmental safety.
Truth is somewhere in btw the hype of shale gas as promoted by WS and the real economics that is an improvement to energy costs from the standpoint of the major producers but not a revolution.
Take a cue from the dot.com burst and just avoid the WS papers touted.
Good to see that someone has a sense of balance.
Same article has been repeated consistently over and over for about the past three years.
Everytime you look at the facts you find shale oil production growing at around 1 million barrels per day year over year.
Most people that are not consistently wrong in there projections of shale oil production predict US shale oil will peak at 8 million barrels a day then decline down a stable 5-6 million barrels a day over a period of 30+ years. Thats 50ish billion barrels total not 5 billion.
Are you talking about the volumes of contaminated ground water?
It's betting and fleecing. That's all...
If I hear the words "shale play" one more time I'm going to vomit...
It's the Show! The Shale Play, coming soon to a theatre near you! And ALL Is part of the Big Ponzi.
this is one of the best articles I have read on this site to date. Not to mention I have had first hand experience with this - and it is nearly spot on.
So, based on your expert analysis how should one invest?
Post Carbon Institute.
Come on guys. Even their name shows their bias.
And?
I'm biased toward facts. (a general statement)
Spot the idiot...
post oil? No fucking way PERIOD! Cannot compete with the energy density and transportability PERIOD!
Who would want to DISCOURAGE US energy independence? Hmmmmm-how about the Saudi's and other members of OPEC?
And the enviroMENTALists, and global warming idiots.
Fear the shale monster! Bankers and the fed printing 7 trillion are just trying to help our economy recover! Bwwwaaaaaa.
So the biggest problem with shale is it requires Americans to invest billions of dollars in profitable investments every year, to employ hundreds of thousands of Americans, to provide a product Americans need?
The horror!
This article brings to evidence obscure facts, unknown to the general public. Thanks for that.
Yet, it fails to report the impact that Gov subsidies have on the continuation of the Shale business.
Without those subsidies, *nobody* would go and drill/frack!
It would really be interesting to know about this and how subsidies are continuing to promote Shale & Fracking.
"This process converts kerogen in oil shale into shale oil by pyrolysis,hydrogenation, or thermal dissolution."
"For ex situ processing, oil shale is crushed into smaller pieces, increasing surface area for better extraction. The temperature at which decomposition of oil shale occurs depends on the time-scale of the process. In ex situ retorting processes, it begins at 300 °C (570 °F) and proceeds more rapidly and completely at higher temperatures. The amount of oil produced is the highest when the temperature ranges between 480 and 520 °C (900 and 970 °F). The ratio of oil shale gas to shale oil generally increases along with retorting temperatures.[19] "
The amount of oil shale in the US makes ex situ extraction prohibitive and means in situ would have to be used
"For a modern in situ process, which might take several months of heating, decomposition may be conducted at temperatures as low as 250 °C (480 °F). Temperatures below 600 °C (1,110 °F) are preferable, as this prevents the decomposition oflime stone and dolomite in the rock and thereby limits carbon dioxide emissions and energy consumption...[24]"
Here is one example of "In situ technologies"[edit]Wall conduction in situ technologies use heating elements or heating pipes placed within the oil shale formation. The Shell in situ conversion process (Shell ICP) uses electrical heating elements for heating the oil shale layer to between 650 and 700 °F (340 and 370 °C) over a period of approximately four years.[46] The processing area is isolated from surroundinggroundwater by a freeze wall consisting of wells filled with a circulating super-chilled fluid.[21][28] Disadvantages of this process are large electrical power consumption, extensive water use, and the risk of groundwater pollution.[47] The process was tested since the early 1980s at the Mahogany test site in the Piceance Basin. 1,700 barrels (270 m3) of oil were extracted in 2004 at a 30-by-40-foot (9.1 by 12.2 m) testing area.
We are not told how deep the area mined was or the final cost per 1700 barrels.
But you can read all about it at
http://en.wikipedia.org/wiki/Shale_oil_extraction
One of things you come away from fracking shale oil in situ is exactly how the future Earth will resemble MORDOR.
You should check this research out from Oxford, it essentially confirms your views, but is well supported by other facts: http://www.oxfordenergy.org/wpcms/wp-content/uploads/2014/03/US-shale-ga...