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A June 26 New York Times article raising questions about the true cost and prospective profits of developing shale gas has set off a firestorm of public scrutiny and controversy within the industry. ASPO-USA Director Art Berman was consulted for and quoted in the article, and has been featured in follow-up interviews and commentary (including this segment on CNBC’s “The Kudlow Report“).
ASPO-USA has been leveraging the opportunity to focus media attention on a fundamental premise of ASPO-USA’s work-that fossil fuels, including natural gas, face mounting supply challenges amidst rising demand, and America should not bet our future on hopes of endless cheap energy.
NYT reporter Ian Urbina followed the initial story with a series of articles examining information reported to and by natural gas industry, investors, the Securities and Exchange Commission, and the Energy Information Administration. Urbina also highlighted calls by lawmakers and others for more rigorous oversight and greater transparency of information regarding shale gas development.
The original article, “Insiders Sound an Alarm Amid a Natural Gas Rush,” examined whether enthusiasm among industry observers and investors was justified:
“Natural gas companies have been placing enormous bets on the wells they are drilling, saying they will deliver big profits and provide a vast new source of energy for the United States.
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.”
The article goes on to explore how speculative investment and land prices have increased dramatically over large areas where shale gas resources have been identified, but that profitable development may be limited to much smaller core areas.
Production from hydraulically-fractured shale gas wells have also tended to drop off steadily, which also hinders economic viability of these shale plays. Most importantly, the article suggests that prices will need to increase substantially for shale gas resources to be viable, which would alter the economic calculation for a wide variety of industry plans both inside and outside the energy industry.