Hydraulic fracturing, or fracking, has long been touted as the answer to U.S. energy woes. Boosters claim fracking provides a cheap and easy way to tap vast and previously unreachable natural gas deposits trapped in shale rock formations. But according to a report published by The New York Times over the weekend, some natural gas industry insiders have privately expressed doubts about those rosy predictions.
The Times’ report drew, among other things, on hundreds of industry e-mails written by energy executives, industry lawyers, and state geologists. In those emails, the authors voice doubts about energy companies’ forecasts for natural gas production, and some even questions whether energy companies are intentionally – and maybe illegally – misstating both the productivity of their wells and the size of their reserves.
According to some of the emails reviewed by The New York Times:
• “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.â€
• “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.
• Energy companies are having an “Enron moment” and “want to hide the truth,” according to an email written in February by a retired geologist from a major oil and gas company.
A separate analysis of data from 10,000 natural gas wells indicates that these insiders might be onto something, according to the Times. While the gas is there, it is not so certain that it can be extracted cheaply. According to that analysis, which looked at production in the Barnett shale in Texas, the Haynesville shale in East Texas and Louisiana and the Fayetteville shale in Arkansas, less than 20 percent of the area heralded by companies as productive will likely be profitable under current market conditions.
According to the Times, shale gas drilling is a relatively new practice, and energy companies’ predictions are based on limited data and some guess work. For the most part, the drillers have predicted that production will drop sharply after the first few years but then level off, with many wells producing for decades. But the Times’ analysis indicated that many wells in shale gas fields don’t level off, but instead decline steadily.
If the article is right, and the natural gas boom really is a bust, it will have devastating implications for the economy. That’s already happened in Fort Worth, Texas, where at one time, oil and natural gas companies were offering people bonuses as high as $27,500 per acre for signing drilling leases. The companies also promised new jobs, and in the words of one advertisement that ran during the natural gas rush, “capital investment and royalties and revenues that pay for public roads, schools and parks.”
Sadly, that bright future never materialized. According to the Times, during the Great Recession of 2008, natural gas prices plunged. In Fort Worth, drillers rescinded many of the high lease offers they had presented to residents, royalty checks dwindled and tax receipts fell.
The revelations in The New York Times’ article come at a critical juncture for the shale gas industry. Right now, federal and state lawmakers are considering granting the industry huge taxpayer funded subsidies, based on promises that shale gas development will provide low-cost energy for decades to come. In the Northeast, fracking – along with the toxic waste it generates – could soon come to vital watersheds in New York and Pennsylvania that provide drinking water to millions along the east coast. But if shale gas really is incapable of delivering the benefits the industry has for so long promised, one has to ask if it is really wise to take on the environmental and economic risk it requires.
