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Wed Sep 10, 2014, 04:50 AM

Forbes: The Popping of the Shale Gas Bubble

Bill Powers "I write about oil and gas."
Forbes 9/03/2014

Shale gas plays in the United States, as of early 2010. (EIA)

For much of the past decade we have been inundated by reports of how the wonders of technology, specifically horizontal drilling and hydraulic fracturing, have unleashed a new era for energy supplies. Industry leaders have touted that shale gas, along with burgeoning shale oil production, will lead to America’s energy independence, kindle a manufacturing renaissance, lower bills for everyday Americans and create millions of much-needed jobs. While there is little doubt that booming shale gas production, along with a very deep recession put an end to the natural gas price spike of 2008, much of the accepted conventional wisdom about the longevity of the shale gas bonanza is wrong. America’s shale gas resources and reserves have been grossly exaggerated and today’s level of shale gas production is unsustainable. In fact, due the distortions of zero interest rates and other factors, an enormous shale gas bubble has developed. Like all bubbles, this one will pop sooner than expected and when it does, the aftermath will be very unpleasant.

By now I am sure you are saying to yourself, ‘Who is this guy?’ He certainly does not know what he is talking about since everybody who is somebody has been saying the exact opposite for a long time. From the US government’s Energy Information Administration (EIA), to Pulitzer Prize-winner author Daniel Yergin to T. Boone Pickens, to Michael Lynch; all these experts have supported the notion that we have a surfeit of natural gas just waiting to be harvested. How can they be wrong? Similar to the prevailing belief about the housing bubble before it burst, much of today’s thought regarding natural gas supplies has come from people with a vested interest in selling the dream of a ‘Shale Gale’ that will eliminate foreign energy imports, boost employment and increase GDP. However, reality is far different from what has been portrayed in the mainstream media. In my book, Cold, Hungry and in the Dark: Exploding the Natural Gas Supply Myth, published a year ago, I examine many of the reasons for this disconnect. Unlike much of the hyperbole published about shale gas, my book contains nearly 600 footnotes and much empirical evidence supporting my thesis. Cold, Hungry and in the Dark overwhelmingly refutes the idea that increasing shale gas production will create a “new era” in America’s economy and instead shows that a severe deliverability crisis quietly looms on the horizon. And, no, I am not an environmentalist with an ax to grind against the oil and gas industry. I am an independent analyst who has covered the energy industry for more than 15 years, an author and contrarian.

Make no mistake; shale gas production over the past 12 years has been nothing short of phenomenal. From a standing start a dozen years ago, shale gas production has grown to account for nearly 50 percent of America’s gas production. However, the shale gas boom is rapidly maturing and we are quickly approaching a point where shale gas production heads into decline. In fact, the majority of shale gas basins in America are already exhibiting declining production.

Before discussing how the coming natural gas crisis will unfurl, let’s debunk some of the most commonly held myths about the shale gas.

1) The US has a 100-year supply of shale gas. While many grandiose claims about the potential supply of shale gas, such as ‘the US has a 100-year supply’, have been made in recent years; almost none have ever been supported by any empirical evidence....

Future Fuel Now

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Reply Forbes: The Popping of the Shale Gas Bubble (Original post)
nationalize the fed Sep 2014 OP
FBaggins Sep 2014 #1
GliderGuider Sep 2014 #2
FBaggins Sep 2014 #3
GliderGuider Sep 2014 #4

Response to nationalize the fed (Original post)

Wed Sep 10, 2014, 10:09 AM

1. It's worth noting how far wrong he has been to date.

By now I am sure you are saying to yourself, ‘Who is this guy?’ He certainly does not know what he is talking about...

One could certainly be forgiven for saying that... since that's where the evidence points.

Peak Production in Haynesville
by Bill Powers
Editor, Powers Energy Investor
June 22, 2010

In my December 1, 2009 issue I identified the Haynesville shale in Louisiana and Texas as one of the few areas in North America likely to grow natural gas production over the following 19 months. While the Haynesville may continue to grow from its current level of production of approximately 1.80 billion cubic feet per day (bcf/d) (this figure is the estimated combined production from the Haynesville in both Louisiana and Texas), it now appears that production growth from the play has stalled. While still a very large field by nearly every metric, to many of the vocal proponents of shale gas, the Haynesville has become a major disappointment. Some early estimates for production from the field were well north of 6 bcf/d. The peaking of production from the Haynesville shale has significant implications for North American natural gas supplies and will soon be recognized as a contributing factor to the end of shale gas production growth in the U.S.


Based on the independent research I have done, I fully agree with Ben Dell of BernsteinResearch, one of the most vocal critics of the hype surrounding shale plays, who believes that operational results from the Haynesville have now peaked and are set to decline. Here is a quote from a recent research piece he put out:

His claim was "Haynesville production is unlikely to grow materially from today’s level"... back when it was only producing 1.8 bcf/d. Haynesville actually peaked at closer to 10Bcf/d two years ago and still produces more than the 6 Bcf/d he claimed would never happen.

Then there's this from the same time period:

Stage Set for Ferocious Rally in Natural Gas

Due to a misunderstanding of the changing North American natural gas supply/demand balance, most investors and many on Wall Street believe natural gas prices will continue to wallow near current levels for much of the next two years. Conventional wisdom will shortly be proven wrong once again. In fact, the improving fundamentals of the North American natural gas market have set the stage for a ferocious rally in natural gas over the next 18 months. Investors who can look beyond today’s gloomy outlook stand to profit handsomely from the UNG and long term options on the UNG as natural gas prices rise and the contango of the futures curve flattens out and heads towards backwardation.

Probably the largest reason for the negative sentiment towards natural gas is the belief that shale gas is plentiful and will keep prices near current levels or lower for years to come. I see several flaws in this line of thinking. While shale gas production has grown approximately 16-fold over the last five years and accounts for 13% of total U.S. natural gas production, future gains in shale gas production are going to be very hard to come by, if not impossible, with the country’s largest shale gas field, the Barnett shale, now in decline.


Let's look at the three key claims:

1) UNG is set for a "ferocious rally" over the next 18 months (from late June 2010 - when the price was about $63).
In reality? It closed 18 months later at under $26 and still hasn't recovered (it's under $22 today). Imagine what happened to investors who took his advice and purchased options. They lost everything (instead of doubling their money as he predicted).

2) There won't be significant gains in shale gas production (it was then about 5 trillion cubic feet per year). In reality? It doubled over the next two years. Today? Heck... the Marcellus alone produces as much as he thought was the national peak just four years ago.

3) The Barnett shale had peaked and was in decline.
In reality? Production in the Barnett revesed course and increased over the next couple years. It appears to be on the downward slope now (though still higher than his presumed peak)... but that may just be a function of more productive plays taking some of the capital (or the continued low price of gas shifting production to liquids).

We could go on all day. There's no evidence that he's learned from his mistakes.

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Response to FBaggins (Reply #1)

Wed Sep 10, 2014, 10:27 AM

2. OK, now tackle J. David Hughes on the topic.



From the Executive Summary of his report:
Shale gas production has grown explosively to account for nearly 40 percent of U.S. natural gas production; nevertheless production has been on a plateau since December 2011 —80 percent of shale gas production comes from five plays, several of which are in decline. The very high decline rates of shale gas wells require continuous inputs of capital—estimated at $42 billion per year to drill more than 7,000 wells—in order to maintain production. In comparison, the value of shale gas produced in 2012 was just $32.5 billion.

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Response to GliderGuider (Reply #2)

Wed Sep 10, 2014, 11:28 AM

3. That's not particularly difficult.

All you have to do is go far enough back to look at whether what he claimed turned out to be true. He is on firmer ground when discussing the environmental impact... but as a predictor of production? Not so much.

His 2011 "Will Natural Gas Fuel America in the 21st Century" is barely three years old and it's already clear that his assumptions/predictions are off.

In the section on "A reality check on the EIA"... he found it ridiculous to assume that shale gas production would climb to 45% of production in 2035 or that annual production (then at around 5tcf/a) would climb as high as 10 tcf/a by their 2028 prediction.

In reality. It was wise to question their predictions because they were far off...

... the only problem with that is that they were far off in the other direction. It's already over 10 trillion cubic feet per year just three years into that 20+ year estimate. Similarly, what was 20% of production at the time... he has already had to confess (in the 2013 piece you cite) that it was 40% last year.

And let's keep in mind... the real limiting factor right now (apart from the obvious environmental concerns) is that the US can't export much natural gas. If prices doubled or tripled (still well below global prices), production would skyrocket.

Here's that EIA prediction that he attempted to refute in 2011. You like charting data... where are we now on that graph?

Then you might review "The North American Red Queen: Our Natural Gas Treadmill" thread from TOD back in 2006 that was based on his presentation to ASPO.

Oh... and let us not forget his predictions for Canadian oil sands production a bit less than a decade ago.

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Response to FBaggins (Reply #3)

Wed Sep 10, 2014, 11:49 AM

4. Thanks.


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