Shale Gas bubble about to burst?

February 22nd, 2013

soap_bubbles-jurvetsonBubble Rain – Steve Jurvetson

Big thanks to Common Dreams and DeSmog Blog for getting word about these two reports:

Drill, Baby, Drill: Can Unconventional Fuels Usher in a New Era of Energy Abundance?

Shale and Wall Street: Was the Decline in Natural Gas Prices Orchestrated?

What are we getting into?  Lots of drilling, lots of fracking, plus lots of frac sand mines already running in Wisconsin and a few mines and many mining proposals here in Minnesota…  I’ve seen the problems with contamination of wells from fracking, and with earthquakes in Ohio from injection of fracking waste water.  From here, it seems likely that the destruction will catch up with the gas extractors and it will all blow up.


But in addition to the no-longer-possible-to-ignore physical problems of water contamination, earthquakes, and empoundment failures, there are economic problems too.  Electrical costs follow natural gas prices, and I’ve been watching this for a while, as gas prices drop, as electric prices drop into the toilet, i.e., Electric Monthly Update (next one due out Feb. 25, 2013).  It’s not just decreased demand sinking the electrical prices, there’s the impact of natural gas prices due to overproduction.

In the second tab immediately below, we show monthly and annual ranges of on-peak, daily wholesale natural gas prices at selected pricing locations in the United States. The range of daily natural gas prices is shown for the same month and year as the electricity price range chart. Wholesale electricity prices are closely tied to wholesale natural gas prices in all but the center of the country. Therefore, one can often explain current wholesale electricity prices by looking at what is happening with natural gas prices.

Now two reports have come out that you should put on your “MUST READ” list:

Drill, Baby, Drill: Can Unconventional Fuels Usher in a New Era of Energy Abundance?

And another:

Shale and Wall Street: Was the Decline in Natural Gas Prices Orchestrated?

This is important stuff — particularly if, indeed, it’s a bubble about to burst.  From this spot on the planet, it’s hard to imagine otherwise.

The “Key Takeaways” of Drill, Baby, Drill: Can Unconventional Fuels Usher in a New Era of Energy Abundance? (really, that’s how the author put it… “Key Takeaways”… editor, anyone?):


  • World energy consumption has tripled in the past 45 years, and has grown 50-fold since the adventof fossil oil a century and a half ago. More than 80 percent of current energy consumption isobtained from fossil fuels.
  • Per capita energy consumption is highly inequitably distributed. Developed nations like the United States consume four times the world average. Aspirations of growth in consumption by the nearly 80 percent of the world’s population that lives with less than the current per capita world average will cause unprecedented strains on the world’s future energy system.
  • Oil is of particular concern given the geopolitical implications of the concentration of exporters in the Middle East, Russia and West Africa and the dependency of most of the developed world on imports.
  • In the next 24 years world consumption is forecast to grow by a further 44 percent—and U.S. consumption a further 7 percent—with fossil fuels continuing to provide around 80 percent of total demand. Fuelling this growth will require the equivalent of 71 percent of all fossil fuels consumed since 1850— in just 24 years.
  • Recent growth notwithstanding, overall U.S. oil and gas production has long been subject to the law of diminishing returns. Since peak oil production in 1970, the number of operating oil wells in the U.S. has stayed roughly the same while the average productivity per well has declined by 42 percent. Since 1990, the number of operating gas wells in the U.S. has increased by 90 percent while the average productivity per well has declined by 38 percent.
  • The U.S. is highly unlikely to achieve “energy independence” unless energy consumption declines very substantially. The latest U.S. government forecasts project that the U.S. will still require 36 percent of its petroleum liquid requirements to be met with imports by 2040, even with very aggressive forecasts of growth in the production of shale gas and tight oil with hydraulic-fracturing technology.
  • An examination of previous government forecasts reveals that they invariably overestimate production, as do the even more optimistic projections of many pundits. Such unwarranted optimism is not helpful in designing a sustainable energy strategy for the future.
  • Given the realities of geology, the mature nature of the exploration and development of U.S. oil and gas resources and projected prices, it is unlikely that government projections of production can be met. Nonetheless these forecasts are widely used as a credible assessment of future U.S. energy prospects.
  • Future unconventional resources, some of which are inherently very large, must be evaluated not just in terms of their potential in situ size, but also in terms of the rate and full-cycle costs (both environmental and financial) at which they can contribute to supply, as well as their net energy yield.

And it continues along this vein in the Shale and Wall Street: Was the Decline in Natural Gas Prices Orchestrated?

  • 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.
  • Shale oil wells are following the same steep decline rates and poor recovery efficiency observed in shale gas wells.The price of natural gas has been driven down largely due to severe overproduction in meeting financial analysts’ targets of production growth for share appreciation coupled and exacerbated by imprudent leverage and thus a concomitant need to produce to meet debt service.
  • Due to extreme levels of debt, stated proved undeveloped reserves (PUDs) may not have been in compliance with SEC rules at some shale companies because of the threat of collateral default for those operators.
  • 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.
  • Exportation is being pursued for the differential between the domestic and international prices in an effort to shore up ailing balance sheets invested in shale assets.

So now that you’ve read these short snippets, think you or anyone else will be putting any money into the gas boom?

KARE 11 was down here in Red Wing yesterday, and they caught up with Alan.  “It makes a laughing stock of Red Wing, that the Mayor would do this, would think that he can get away with this.”  Here’s the video — City Council President Lisa Bayley said it very succinctly, “you have to choose one or the other.”  Showing a big file of emails, she said  “You have to be very, very careful, those two things just cannot touch.”  Egan looks like he’s feeling the heat, steadfastly saying there’s no problem, that “the people of Red Wing knew I lobbied for controversial subjects when they voted for me.”  “These mines, those family owned Minnesota businesses, are not looking at mining the bluff, they’re not looking at mining the area.”

maidenrocksand_stribPhoto of Maiden Rock frac sand mining operation across the river

Oh, right, Mayor Egan… get a clue!  This is NOT acceptable.  It’s time to resign.

MN mayor’s new ‘frac’ job stirring up controversy

Keep those emails coming to the Red Wing City Council members — tell them what you think of this:,,,,,,

And copy the Mayor and City Administrator too:,

Faux News 9 has a poll — weigh in!

Faux News – Red Wing mayor hired for frac sand lobbying poll!

On Minnesota Public Radio today:

Red Wing mayor lobbies for silica sand industry