Tuesday, June 3, 2014

Washington‘s Shale Boom Going Bust | New Eastern Outlook

To read the headlines, it seems that the USA has emerged out of the blue to the point of becoming the world’s oil and gas production giant. All thanks to the Shale Revolution. Recently President Obama made various noises that the US could solve the Ukraine gas dependency on Russian gas because of the spectacular growth of extracting natural gas, and more recently, oil, from shale rock formations across the US. There’s only one thing wrong with this picture—“It ain’t gonna happen…”

The surface numbers are indeed impressive to a layman or politician. According to US Government Energy Information Administration data, between 2005 and 2010 the contribution from shale gas to total US marketed gas production rose from less than 2% to more than 20%. And 2011 set an all-time record for US production as the result of shale gas growth.

However the shale gas comes from a small number of areas with significant and viable shale rock formations that have trapped gas and oil in the interstices of the sedimentary shale rocks. The main shale gas areas are the Barnett shale in Texas’

Fort Worth basin; the Fayetteville and Woodford shales of the Arkoma basin in Arkansas and Oklahoma; the Haynesville shale on the Texas Louisiana boarder; the Marcellus shale in the Appalachian basin, and the most recently exploited, the Eagle Ford shale in southwest Texas.

Two metrics widely used in describing shale well performance are the initial production (IP) rate and the production decline rate which together determine the ultimate recovery (UR) from a well, an essential number in determining economic viability. A group at MIT university in Massachusetts carried out an analysis of production data from the major US shale regions. What they found is sobering. While initial production from most shale gas plays was unusually high, an essential component of the Wall Street shale gas bubble hype, the same gas regions declined dramatically within a year. They found “in general, shale well output tends to drop by 60% or more from the Initial Production rate level over the first 12 months. The second is that the available longer-term production data suggests that levels of production decline in later years are moderate, often less than 20% per year.”

Translated, that means on average after only four years, you have only 20% of your initial gas volume available from a given horizontal drilling investment with fracking. After seven years, only 10%. The real volume shale gas boom appeared in 2009. That means in the fields where significant drilling was present by 2009 are already dramatically depleted by 80% and soon by 90%. The only way oil or gas drillers have managed to maintain production volume has been to drill ever more wells, spending ever more money, taking on ever more debt in hopes of a sharp rise in the depressed US domestic gas price. As a whole shale energy companies spend more than they are making in net profit, creating a bubble of “junk” bond debt to keep the Ponzi game going. That bubble will pop the second the Fed hints interest rates will rise, or even sooner.

Complete story at - Washington‘s Shale Boom Going Bust | New Eastern Outlook

CC Photo Google Image Search Source is upload wikimedia org  Subject is West Texas Pumpjack

No comments:

Post a Comment

All comments subject to moderation.

Recommended Reading via Amazon

If you're seeking more information about how the world really works, and not how the media would want you to believe it works, these books are a good start. These are all highly recommended.

If you don't see pictures above, you likely have an adblocker running.  If so, here are the links.

1. The Shock Doctrine - Naomi Klein
2. Confessions of an Economic Hit Man - John Perkins
3. Manufacturing Consent - Edward Herman, Noam Chomsky
4. Gladio - NATO's Dagger at the Heart of Europe - Richard Cottrell
5. Profit Over People - Noam Chomsky
6. Soviet Fates and Lost Alternatives - Stephen Cohen
7. The Divide - American Injustice in the Age of the Wealth Gap - Matt Taibbi

How this works.  Follow one of the links.  Should you decide to buy that item, or any item, I get a small percentage, which helps to maintain this site.  Your cost is the same, whether you buy from my link or not.  But if the item remains in the cart too long, I don't get a thing.  
Related Posts Plugin for WordPress, Blogger...