Peak Oil: Peeking Behind A Curtain

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In recent months, Gail Tverberg in particular, along with Steven Kopits and Ron Patterson, have examined both the financial and production details as they pertain to the various shale formations now serving as the fossil fuel industry’s current energy supply and production savior. They provide us all with invaluable information about the prospects for maintaining a Business As Usual future. [For more, see these: 1. 2. 3. 4.]

Pointing out the investment challenges [Kopits] the industry faces as it attempts to at least sustain recent production totals—which are giving indication of some questionable trends [Patterson]—while making the clear connection to the prospects for continuing growth [Tverberg], the big picture suggests that the rosy and abundant scenarios suggested by industry officials and media may not be quite so rosy and abundant after all.

Last year, an excellent report by Deborah Rogers: Shale and Wall Street: Was The Decline In Natural Gas Prices Orchestrated?, offered a look into some of the investment practices and decisions of (primarily) gas and oil production companies. The picture she painted suggested at a minimum some very curious efforts and decisions were employed in developing the financial infrastructure enabling shale gas and oil production.

But not to worry; it appears that some on Wall Street made out just fine! What a relief, Right?

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.
U.S. shale gas and shale oil reserves have been overestimated by a minimum of 100% and by as much as 400-500% by operators according to actual well production data filed in various states.

That information, among other findings in Ms. Rogers study, details a fascinating piece to the puzzle of current and future production efforts which did not garner nearly the amount of publicity it should have. The information she presented helps paint a broader picture of what’s involved and needed to at least sustain production totals in a world where conventional crude oil peaked a decade ago—clever expanded definitions of “crude oil” notwithstanding. Given what occurred, all is not well.

Industry is demonstrating reticence to engage in further shale investment, abandoning pipeline projects, IPOs and joint venture projects in spite of public rhetoric proclaiming shales to be a panacea for U.S. energy policy….
It is imperative that shale be examined thoroughly and independently to assess the true value of shale assets, particularly since policy on both the state and national level is being implemented based on production projections that are overtly optimistic (and thereby unrealistic) and wells that are significantly underperforming original projections.

That doesn’t sound nearly as pleasant as industry officials would like the story told, does it? Reality tends to muck up those nice scenarios, which is why we too often get such small doses of the important information we all need to understand what lies ahead (and what does not). It also appears Ms. Rogers left out more than a little bit of the fluff which usually pads the facts.

Shale development is not about long-term economic promise for a region. Such economic promise has failed to materialize beyond the first few years of a shale play’s life in any region of the U.S. today that has relative shale maturity.

Well that’s not a good thing! Nor is this conclusion, after highlighting the less than majestic job creation totals touted by fracking proponents, the ghastly well decline rates, and a paucity of bidders for asset, all of which:

suggest a recognition within the industry of the questionable economics and short life span of shales.

It’s actually just another confirmation that those counting on shale development to provide endless economic joy for regions embracing those efforts might come up a wee bit short in the forecasting department.

That’s all fairly important information. I wonder why we don’t hear more about that?