Tuesday, June 28, 2011

Fracking Fraud

Fracking is supposed to be a new great source of natural gas wealth, but the oil may not be as easy to reach as proponents have said.  The New York Times, through open record requests,  has looked at the e-mail of industry insiders that have raised question and concerns about the process.  The piece goes so far as to say that their concerns mirror those of insiders before the financial bubble burst.

Ian Urbina, New York Times, 26 June 2011 via the (Pittsburgh) Post-Gazzette

"Money is pouring in" from investors even though shale gas is "inherently unprofitable," an analyst from PNC Wealth Management, an investment company, wrote to a contractor in a February e-mail. "Reminds you of dot-coms."

"The word in the world of independents is that the shale plays are just giant Ponzi schemes and the economics just do not work," an analyst from IHS Drilling Data, an energy research company, wrote in an e-mail on Aug. 28, 2009.
"Our engineers here project these wells out to 20-30 years of production and in my mind that has yet to be proven as viable," wrote a geologist at Chesapeake in a March 17 e-mail to a federal energy analyst. "In fact I'm quite skeptical of it myself when you see the % decline in the first year of production."
"In these shale gas plays no well is really economic right now," the geologist said in a previous e-mail to the same official on March 16. "They are all losing a little money or only making a little bit of money."
A former Enron executive wrote in 2009 while working at an energy company: "I wonder when they will start telling people these wells are just not what they thought they were going to be?" He added that the behavior of shale gas companies reminded him of what he saw when he worked at Enron.

Note that there are so many damming quotes, I am having to heavily cherry pick
The story notes that based on the site with longest production history, The Barnett Shale, many wells will not be financially viable within ten to fifteen years. When they looked at seven year data ending in 2009 on more than 9,000 wells, less than 10% had recouped their costs by their seven year mark. 
The data show that while there are some very active wells, they are often surrounded by vast zones of less-productive wells that in some cases cost more to drill and operate than the gas they produce is worth. Also, the amount of gas produced by many of the successful wells is falling much faster than initially predicted by energy companies, making it more difficult for them to turn a profit over the long run.
But the industry is outwardly still bullish on its prospects, and the hope for a cheap source of fuel for decades to come has pushed both the Federal and State Governments to plan subsidies for the industry.  The industry is hitting back with a claim of new gas wealth, because....they get better at it as they get more practise.  Talking about news that should already be baked into the cake!  In any case, if you read closely the story appears to be talking about only two wells with better than intended results; maybe it is more but that is not what a careful reading actually says; the two wells can each supply all of 1000 households a year.  Take what you can get, but 2,000 households barely handles the smallest of bedroom communities to Raleigh, or Durham around here.

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