A pair of new reports from the Post Carbon Institute and the Energy Policy Forum suggest that the explosion in unconventional natural gas drilling isn't all it's cracked up to be. As studies and reports of water and air contamination continue to surface, these two reports outline less-talked-about problems like projecting more gas than really exists and a potential financial bubble.
As drilling hype continues, communities around the country are fighting the ramp-up of natural gas drilling and associated infrastructure. A major concern? Fossil fuel companies are leveling old-growth forests and plowing through wetlands and the highest-quality streams with the cleanest water to build pipelines that may eventually wind up sending the gas overseas because the market is flooded in the U.S.
The two latest reports come from a former oil and gas geologist and a Wall Street analyst, collectively busting these myths.
Myth #1: The "Shale Revolution" is here to stay.
Former oil and gas geologist J. David Hughes, a fellow at the Post Carbon Institute, recently published a piece in the highly regarded journal Nature showing that industry estimates of shale-gas production are not accurate and won't last as long as anticipated. Despite politicians-even President Obama-touting U.S. natural gas shale reserves that will power American for 100 years, the reality is that the destruction created by pipelines and fracking sites may not be worth it in the long run. "I see supplies of shale gas declining substantially in the next decade unless prices rise considerably. A more realistic debate around shale gas and tight oil is urgently needed-one that accounts for the fundamentals of production in terms of sustainability, cost, and environmental impact," Hughes wrote in Nature>
In his analysis, based on data for 65,000 shale wells, Hughes found that four of the top five shale-gas plays have experienced falling productivity since 2010, with one spot's average well delivering just a third of gas it did in 2010 in the year 2012. "Wells decline rapidly within a few years," he wrote. "Those in the top five U.S. plays typically produced 80 to 95 percent less gas after three years."
Myth #2: Natural gas prices will stay low.
The shale-gas drilling frenzy was actually promoted by Wall Street, which flooded the market with too much gas, resulting in prices lower than the cost of production, former Wall Street analyst Deborah Rogers points out in her Energy Policy Forum report. These bottomed-out prices resulted in big paydays for Wall Street, thanks to mergers and acquisitions.
The low prices aren't sustainable, though. As Hughes points out, drilling companies are investing more to keep production up to prop up share prices than it's bringing back in sales. In 2012, U.S. shale gas generated just $33 billion. To break even in shale-gas plays, gas prices would have to rise.
"Over time, the best shale plays and their sweet spots are drilled off, so the costs of keeping up supply will increase," he writes. "Much of current shale-gas production is uneconomic, and will require higher gas prices just to maintain production, let alone increase it."
Myth #3: Shale gas is bringing game-changing job creation.
"Job creation" attributed to the natural gas drilling boom relies heavily on indirect jobs, including professions like strippers and prostitutes, according to former Wall Street analyst Deborah Rogers.
These are "not the sort of jobs that most people think of when they hear optimistic numbers from the oil and gas industry," Rogers writes in her report. When you look at jobs directly attributed to both onshore and offshore drilling, the number is much lower, just 1/20 of 1 percent of the overall U.S. labor market since 2003, according to the Bureau of Labor Statistics.
Other reports have found a boom-and-bust situation in many areas with previous heavy shale gas activity. Meanwhile, other flourishing job sectors with more promising sustainable, long-term growth face major threats by gas drilling, including organic food and farming and ecotourism.