June 27, 2011

How much gas is there, anyway?

I wrote a bit about the economic uncertainties of shale gas drilling a while ago, but dueling articles in the New York Times and Ithaca Journal have me thinking that these questions are a long way from solved.

This morning's Journal trumpets two 'gushers' of wells in Pennsylvania that "illustrate the enormous potential of the Marcellus Shale natural gas field."

Meanwhile, yesterday and today, the New York Times posted two articles questioning how rich the field, and shale gas generally, really is - Insiders Sound an Alarm Amid a Natural Gas Rush and Behind Veneer, Doubt on Future of Natural Gas. The first explores skepticism in industry, the second skepticism in government:

But the gas may not be as easy and cheap to extract from shale formations deep underground as the companies are saying, according to hundreds of industry e-mails and internal documents and an analysis of data from thousands of wells.

In the e-mails, energy executives, industry lawyers, state geologists and market analysts voice skepticism about lofty forecasts and question whether companies are intentionally, and even illegally, overstating the productivity of their wells and the size of their reserves. Many of these e-mails also suggest a view that is in stark contrast to more bullish public comments made by the industry, in much the same way that insiders have raised doubts about previous financial bubbles. (From Insiders....)

One official says the shale industry may be "set up for failure." "It is quite likely that many of these companies will go bankrupt," a senior adviser to the Energy Information Administration administrator predicts. Several officials echo concerns raised during previous bubbles, in housing and in technology stocks, for example, that ended in a bust.

Energy Information Administration employees also explain in e-mails and documents, copies of which were obtained by The New York Times, that industry estimates might overstate the amount of gas that companies can affordably get out of the ground.

They discuss the uncertainties about how long the wells will be productive as well as the high prices some companies paid during the land rush to lease mineral rights. They also raise concerns about the unpredictability of shale gas drilling.(From Behind Veneer....)

Update: The Times has published another article, looking at the Securities Exchange Commission's role in this. The closing quote: "Welcome back to Alice in Wonderland." Update again: And another, on Congressional calls for an investigation. But One in Nine prefers the industry line.

There's also a piece about response to the NYT articles, with Congressman Ed Markey (D-MA) asking the EIA to explain its calculations.

The Journal and NYT pieces take very different tones, but I suspect that the underlying difference is timeframe. Gushers, to put it simply, don't always last, and natural gas wells seem to be even more abrupt than oil wells. Today's gusher may be tomorrow's empty well, or may require regular (and expensive) hydrofracking to keep anything coming out of it.

Unfortunately, I don't think we're going to have real answers to these questions for a few years at least. I'm not at all surprised that the industry would oversell the prospects and celebrate as loudly as possible when they strike a gusher - they want investors and leases, after all. We'd probably all be wise to stay cautious about claims about the prospects.

Posted by simon at June 27, 2011 5:12 PM in
Note on photos