Shale Gas Hype: Subprime 2.0?

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If my RSS reader is any guide, most of the press about shale gas has focused on two issues. First, shale gas is in considerable supply, cheap to produce, and burns far cleaner than other fossil fuels. Second, shale gas does not look so hot environmentally, all in. Fracking can pollute ground water (and potable water is our most scarce resource) and releases enough methane to make shale gas as detrimental as coal. Still, it has been treated as the Great Hope for America’s energy woes, a way to turn the US into an exporter, and maybe it will cure cancer too. Obama touted 100 years of shale gas reserves, and manufacturers envision an American revival based on cheap fuel.

The problem is that the good part of this story is largely wrong. Shale gas supplies are overestimated, and it is not as cheap as it has been touted to be. The big reason is that shale gas wells, unlike oil wells, peter out really quickly. The result is that the viability of shale gas as a solution to America’s high energy consumption level is only on an interim basis. Shale gas is more likely to be a stopgap, a 25 year solution rather than a 100 one.

As with the housing bubble, analysts and journalists who understand the economics are giving clear warnings, but they don’t seem to be getting much of an audience. For instance, Jeff Goodell in Rolling Stone wrote in March:

At the same time, scientists began to conclude that America’s reserves of natural gas have been overhyped. In January, the Energy Department cut its estimate of the amount of gas available in the Marcellus Shale by nearly 70 percent, and a group affiliated with the Colorado School of Mines warns that there may be only 23 years’ worth of economically recoverable gas left nationwide. Even worse, new studies suggest that because of fugitive emissions of methane from wellheads and pipelines, natural gas may actually be no better than coal when it comes to global warming.

In February, no doubt annoyed by Obama’s State of the Union claim of 100 years of shale gas, aeberman of The Oil Drum wrote a detailed post explaining in some detail what the supply side looks like. One key fact: the US is already at the point where it is drilling less productive wells:

In 2001, the U.S. natural gas decline rate was about 23% and the annual replacement requirement was 12 Bcf/d when total consumption was 54 Bcf/d. Today, the decline rate is estimated to be 32% and increased consumption of gas means that approximately 22 Bcf/d must be replaced each year.

And the broader implications:

The shale revolution did not begin because producing oil and gas from shale was a good idea but because more attractive opportunities were largely exhausted. Initial production rates from shale are high but expensive drilling and completion costs make economics challenging…

Shale plays have produced a land grab business model in which hundreds of thousands of acres are acquired by each company. Unprecedented lease costs have become the norm often based on limited information and science.

Operators have indulged in over-drilling these plays for many reasons but adding reserves, holding leases and company growth are among the main factors particularly with the low cost of capital. The inevitable result has been the collapse of prices as supply exceeded demand. Most analysts forecast that the future will be much like the present, and that natural gas will be abundant and cheap for decades to come. There are, however, strong and consistent indicators that natural gas supply may be less certain than most observers believe and require a higher price to be developed economically. Natural gas demand is growing as fuel switching for electric power generation continues, and will be increased by environmental regulation in the coming years. The U.S. will shift more of its future energy needs to natural gas in many sectors of the economy. The best justification, in fact, for the land grab and over-drilling spree is expectation of higher prices. Those companies that grabbed the land and held it by production will profit greatly once the true supply and cost of shale gas is recognized.

In March, Wolf Richter also explained why the super low shale gas prices ($2.28/MMBtu) were not a sign of a great new energy source, but lack of producer discipline:

Natural gas is dirt cheap, hovering at a 10-year low. In the US, that is. In other parts of the world, natural gas is four, five times more expensive—a rare discrepancy in a globalized economy…

But there is a problem: price. Natural gas is too cheap…drilling activity is collapsing. In 2008, the peak of the drilling bubble, there were at one point over 1,600 rigs drilling for natural gas in the US. During the financial crisis, the rig count fell off a cliff, then recovered a bit, but now is in free fall again. Last year at this time, there were 882 rigs drilling for gas. Two weeks ago, the count was down to 691. Last week it was down to 670 rigs (Baker Hughes).

Fracking has turned into a massacre for producers…at current prices, drilling activity will continue to shrink while production at wells drilled over the last two years is plunging. At some point, the massive amount of gas in storage will be drawn down below a normal level. But production can’t be cranked up from one week to the next. Perceived or real shortages will drive up the price, but not to an equilibrium where producers barely break even and consumers enjoy low-cost energy. It will be a spike. We’ve been through this before.

But why the comparison to subprime? The biggest producers are more land/lease speculators than energy companies, in terms of how they seek to make money. And they’ve been speculating in a highly leveraged manner. Per John Dizard of the Financial Times:

Even before the most recent gas price crash, the shale gas producers were spending two, three, four, and even five times their operating cash flow to fund their land, drilling, and completion programmes.

The widely accepted claims of huge volumes of cheaply produced energy did not square with this deficit financing…

Too much money was borrowed, on complex and demanding terms. Wall Street should have provided reality checks to the shale gas people; instead, they just provided cashier’s cheques with lots of zeroes at the end….Prices will have to adjust upwards, a lot, to cover not only past debts but realistic costs of production.

There is an echo of the late residential real estate financing bubble in the shale gas story. Consider the parallels.

Institutional investors sought to capture excess return while “hedging away”, or simply avoiding, classic sectoral risks (whole loan default risk, dry hole and gas price risk). The ultimate effect is their assumption of larger, less initially visible, and less manageable risks (securitisations backed by unenforceable foreclosures, very large, quickly-depleting, high cost shale operations).

The same institutional investors could not find enough “investment grade” risk to fill those baskets in their portfolios (triple A or double A operating company bond issuers, investment grade energy company equity). In the case of the energy industry, the rise of national oil companies reduced the opportunities for integrated majors or even conventional-prospect-oriented smaller public companies.

US national policy tilted the capital markets’ risk/reward calculation to a favoured set of investments (subprime/ “non-traditional” mortgages, gas substitution for coal, or gas-fired backup for renewables).

The promoters had a “story” for institutions (home mortgages have a low historic default rate/ shale gas fields have little, if any, dry hole risk, and are a way to ‘manufacture’ gas).

The lead companies in the industry devised complex structured products, often priced by OTC derivatives (tranched home equity asset-backed securities, impenetrable joint venture agreements and scantily disclosed hydrocarbon hedges).

The issuers’ apparent risk mitigation was validated by expert opinion (rating agencies/ sellside geology consultants).

The sad bit isn’t just that we seem to be playing the same tired scripts over and over, but that finance now seems to be based on deeply flawed incentives and risk sharing that encourage the manufacture of bad loans. I focused on current readings to contrast them with the hype, but consider: Dizard (not an energy expert, he’s only as good as his sources) was issuing warnings in 2010. As he points out, journalists, again in a parallel to the housing bubble, have been as remiss as the promoters.

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  1. redleg

    Exploration isn’t cheap. It’s far more profitable to find ways to extract a higher fraction of the existing plays (directional drilling, fracking, etc) than it is to find new sources or invent new energy technologies. But higher extraction rates means higher depletion rates. Lower prices now will mean much higher prices later. Since it takes 3-10 years to bring production from a new play to market, the price of gas should start going up soon due to diminishing supply from lack of exploration.

    1. rjs

      fracking also consumes a lot of energy; diesel to run the rigs & pumps, trucking water to your well location, etc…we’re burning a lot of expensive oil to get that cheap gas…

    2. Art Eclectic

      “Lower prices now will mean much higher prices later.”

      If the past 20 years are any guide, everyone will move forward will all possible speed because they’d rather have the lower prices now and somebody else will pay the higher prices later.

  2. LadyLiberty

    I am more concerned about having to bail out our banks again because of the EU contagion

    Hedge Funds Betting Against the Eurozone: Why You Should Worry

    JIM O’NEILL: If The Greek Election Reignites Fears Of Contagion, The Federal Reserve Might Have To Get Involved

    1. Susan the other

      Blurb late last nite on BBC. They interviewed a Greek whose name I missed on the debt Germany still owes Greece because the Nazis took all of Greece’s gold during the war and have not acknowledged this theft. It is a debt the Greeks want repaid with interest. Germany is just ignoring the situation. But it is one of those stories that won’t go away.

      1. Jesse

        I sympathize heavily with the Greek people (as do most people on this site), but it’s pretty obvious that they’re suddenly remembering all this at a time they owe quite a bit of money and are heavily dependent on countries like Germany.

        This is 70 years ago we’re talking about. Would you be okay with countries that the USA invaded 70 years ago suddenly remembering a time we ripped them off? Should we pay compensation to Mexico for taking half their country 160 years ago? How about giving money to the Spaniards for taking Puerto Rico after the Spanish American war?

        1. Stanley

          Why sure, we still owe American natives what we stole. Didn’t President Johnson threaten to bomb Greece a’ways back in the 60s? Have some sympathy for fraudulent mimosa.

  3. seenohearno

    With hydraulic fracturing, too much attention has been paid to the act of fracturing itself. Pumping pressurized chemicals into the ground carries risks, not only to groundwater contamination but induced seismic activity. But the more immediate environmental risk is the storage of these chemical laden fluids in surface retention ponds. Leaks from these ponds are much more likely to contaminate aquifers that people use.

    Too little attention has been paid to the life cycle of these chemicals (benzene, ethylene gycol, and other carcinogens). It’s a bit of smoke and mirrors played by the industry to only focus on one part of it.

    1. alex

      Good point. While fracking has become a fearful buzzword, it seems the actual fracking part may be the least environmentally unsound part of these operations. Please, more regulation, before this becomes another industry destroyed by its own greed.

    2. redleg

      The goal of fracking is to liberate hydrocarbons from rock that does not allow fluids to flow through it. Successful fracking liberates orders of magnitude more hydrocarbons and natural byproducts than are injected during fracking. All of these things, except for the water and sand, are hazardous. Given the volume difference between the inputs and outputs of a fracking project, concentrating on what comes out (from the wellhead and into the
      overlying strata

      1. redleg

        …into both the overying strata and from the wellhead) may be more enforceable than what is pumped into the well.

        Where’s an edit button when you need one?

  4. Conscience of a Conservative

    While the engineers make some good intellectualarguments that shale gas is environmentally safe, my gut tells me the reality is somewhat different. But on to my main point…
    Your two talking points that natural gas reserves are overstated and that we aren’t pricing in the true cost seems rehashed from the oil industry(e.g. Hubbard’s peak keeps getting talked about and then there’s the cost of the Iraq war as a hidden cost).

    In the end we need energy. Solar is not going to happen for another ten years. It’s not viable yet. Hydro destroys our get the point.

    So in the end we just need to make sure the practice of extracting shale gas is properly regulated and then we need to exploit its use more. I’d like to see more natural gas powered vehicles instead of electic vehicles(which often are indirectly powered by coal and cost way too much to buy even wiht subsidies).

    1. Carla

      “we just need to make sure the practice of extracting shale gas is properly regulated”

      It would be reassuring if we had a shred of evidence that in 2012, we are capable of properly regulating ANYTHING.

      1. alex

        You ask too much. I fear this is another industry that will be killed (with some justification) due to _lack_ of regulation.

    2. Klassy!

      Isa there a chance just for once we could promote conservation? This seems to be off the table since the Carter administration.

      1. alex

        It’s not an either/or situation. The belt and suspenders approach of both encouraging conservation (e.g. the more stringent CAFE regs) and looking for new energy sources makes perfect sense.

      2. Susan the other

        We experimented this last winter (which was mild) and the previous winter which was pretty cold. We kept the thermostat at 60 the first year and saved about a third on our bill; the house stayed comfy; we wore sweaters. This last winter we kept the thermostat at 55; again comfy but we added another layer of clothing and sox, and we saved almost half from the days when we cranked the heat to 72. Now we like it – the cooler indoor air. They say you shouldn’t let the house drop below 50 in winter because there is the danger of frozen pipes. But pipes can be wrapped with heat tape, etc.

    3. wunsacon

      >> Solar is not going to happen for another ten years. It’s not viable yet.

      10 years — that’s all?? That’s right around the corner. Thanks for the good news.

      To me, that means we should stop finding new ways to pollute our neighborhood, conserve energy for 20 years (instead of 10, because it will take time to blanket the neighborhood with solar), and sink a lot more money into solar research. Set up dozens of X prizes.

      1. curlydan

        Unfortunatley, it seems like solar has been just 10 years away since I was a kid in the 1980s.

        Nicole Foss at seems to have a good perspective on solar and wind–it just doesn’t have the return to make it economically viable.

        Conservation (still an anathema in the U.S.) is key for me.

        1. alex

          PV prices have been dropping by 15%/year for years now.

          That’s an unabashedly pro-solar site, so feel free to counter it (though your link isn’t specific enough to ensure finding the article you’re referring to). Nevertheless the cost dropping info jibes with everything else I’ve heard about solar prices.

          curlydan: it seems like solar has been just 10 years away since I was a kid in the 1980s

          Back in the 1960’s they started talking about flat screen TV’s being just around the corner. So they were off by a few decades – doesn’t mean the technology will never be practical.

      2. Conscience of a conservative

        Solar can’t work, until battery technology catches up. Michiu Kaku claims about ten years. And past that point, we’ll probably figure out Fusion. All these gov’t programs are to get us over the next ten or so years..

        1. Jon

          “Solar is the energy of the future, and it always will be.”

          (probably not wholly true, but one of the more pithy comments I’ve heard in some time.)

    4. ScottW

      NPR had a story this morning about the utter lack of inspectors for the existing Oil/Gas wells in Colorado and Wyoming. In Wyoming, an inspector was responsible for 5,000 wells. So, no one inspects them for 5 years or more. The obvious question, of course not asked by NPR, is if this is such an economic boom why is there no money to hire an adequate number of inspectors? Colorado was going to hire 2 more, but that is no where near the number needed. Yet another example of subsidizing the natural gas industry by not charging them for the number of inspectors needed to police their industry.

      1. eclair

        ScottW remarks on the lack of sufficient inspectors to monitor well.

        In Colorado, whenever citizens want to empower local governments to more closely monitor fracking operations, the state regulatory agency, Colorado Oil and Gas Conservation Commission (COGCC) trumpets the narrative that the State has the most stringent regulations in the USA. So we don’t need no local control. Can you say “captured regulatory agency?”

        We have heard stories of the COGCC threatening cities and counties that attempt to impose more stringent controls on fracking operations, with expensive legal suits. Such operations are heavy industry – noisy, bright lights, polluting, operating 24/7. But local governments are unable to control them with zoning regulations.

        And, this is exclusive of the water use and pollution problems. Oil and gas companies are already competing with farmers for water rights leases. Colorado has only a limited amount of water and the thoughts of ground water being polluted by carcinogenic, neurotoxic and hormone disrupting chemicals, is infuriating residents.

    5. bluntobj

      One of the fun things about regulation now is that it’s the primary means of securing competitive advantage among corporations.

      By all means, regulate! We will see that those regs will be used to secure monopolistic markets by the largest speculative corporations/investors. No company need fear regulation, as today’s regulators will be tomorrows employees and consultants.

      Just saying “regulate” or “do not regulate” is no longer enough. A solution must encompass strict liability, tort reform, and removing the acquisition of competitive advantage by government regulation. This may require direct LobbySpeak free legislation that is very similar to the criminal code.

      Unfortunately, no solution will be forthcoming, as feeding at the government trough is preferable by all parties except the people directly impacted by NGE.

  5. Michael Marsh

    Better off to leave the stuff in the ground than to waste money on exploration. The market for gas is simply not strong enough to warrant the expense.
    Finally, the public calls against fraking suggest that there should be a more appropriate time to invest in the NG industry. Public protests cost industry money, why waste it fighting against your customers.

  6. Max424

    I’d take coal liquefaction over this crap.

    At least we can attempt to grapple with global warming. Right? For example, we can respond to rising sea levels by having coastal peoples relocate (or drown in Category 9 hurricanes, or die by the billions in refugee camps –it all depends on your expectations of the ferocity of climate change and …wait for it… future global leadership!).

    But this poison stuff, it’s insidious. It seems like it will slip incrementally* into the global bloodstream; whence it will grow exponentially -yet somehow unnoticed- and kill the host (which includes us).

    Yup, I believe Cormac McCarthy will be proved right, it’s poison that’s going to get us the end. In fact, I don’t think of The Road as a written warning, but more as an extra-extended weather forecast for planet earth.

    *Incremental and therefor easily within the parameters of acceptable market risk levels. In other words, unnoticed.

    1. Literary Critic

      Coal liquification makes a ton (understatement) of CO2. Sasol’s S. African plant is the largest point source of CO2 in the world. Carbon sequestering has been proposed as the solution to that, but truth be told we really don’t have a way to do that either.

      Basically,if NG – and also 3rd generation nuke plants – go by the wayside, we are in deep doodoo.

      1. wunsacon

        >> Carbon sequestering

        Tangentially, some environmentalist once made the point that “coal *IS* sequestered carbon”. :-)

  7. Eric

    I believe the US is moving to export it’s Nat Gas. If so, it should increase the price domestically and drop the price some over seas. That should support continued exploration and production. Course, it also means we will be using up our domestic supplies faster.

  8. Norman

    Look on the bright side, the dollars are still flowing into the R&D in this countries colledges, so, at some point, we shall have a viable solution to our energy needs, providing of course, the idiots in Washington don’t blow the world to pieces first, in their madness to be # 1.

    1. alex

      Unfortunately you need more than university R&D. While valuable, it usually produces laboratory curiosities that are ripe for scaling up, but that scaling up won’t be done by universities alone. It just isn’t, was never meant to be, and probably shouldn’t be, their shtick.

  9. Skeptical

    Oil Drum contention that, “shale revolution did not begin because producing oil and gas from shale was a good idea but because more attractive opportunities were largely exhausted,” seems to overlook a more decisive factor.

    Shale gas drilling took off in 2005 after the Bush Administration got Congress to exempt shale gas drilling from the Clean Water Act. The drilling took off after gas producers became confident that they could conceal the chemicals used in fracking, and could escape liability for spoiling America’s fresh water resources.

    All estimates of economically recoverable shale gas resources are speculative, because there is no extended operating history for shale gas operations anywhere.

    1. bluntobj

      Another prime example of gaining competitive advantage through government regulation.

  10. Crazy Horse

    Three years ago I and an associate conducted a study to develop ways to capture the waste heat energy from natural gas compressor stations. You see, NG doesn’t just flow through pipelines, it must be pressurized. Every 150 kilometers or so it must be re-pressured to overcome friction losses. A main compressor station will have five or six gas turbines the size of those that power a 747 running 24 hours a day. The energy used to transport NG from the wellhead to destination is as much as 10% of the energy contained in the gas at wellhead.

    Those hundreds of thousands of miles of miles of pipelines that deliver the NG to the final point where it is used are far from flawless, I am not aware of any accurate figure on direct loss, but it is likely substantial.

    Add to that the direct escape during the drilling process.

    And, now that the price of NG is below the cost of production, it is frequent practice to simply burn the gas off at the wellhead rather than invest in the capital to transport it to where it can be sold at a loss.

    Bottom line is that NG is likely a worse contributor the the greenhouse effect on a end user BTU basis than coal.

    re the NG “business”: The industry leader, Chesapeake Energy is and always has been basically a real estate Ponzi scheme. Buying and selling gas leases is at the core of its business model. Drilling and producing NG are analogous to tract housing “development” where the houses are merely the means for turning raw dirt into money. Chesapeake’s CEO was recently caught with his hand in the cookie jar, granting a huge loan to himself which he probably immediately laundered through a blind Panamanian trust or Corzined in one way or another. So many ways to fleece the sheeple when fraud is not a punishable offense—.

  11. Susan the other

    Lots of money is being invested and will be lost in these arcane deals. Only rich, sophisticated investors should be allowed. If some pension fund manager-nitwit puts up any money it will be lost and the pension fund will not have an opportunity to write it off against profits. The reason natural gas is hedged is because financiers know how uncertain and temporary it all is. So where is the solution – Investing in clean, sustainable energy? It will not be coming from natural gas, coal, or oil no matter how marketable they are. It will only come from research and application and it should be well underway now but it isn’t. Ultimately clean energy will come from synthetic photosynthesis; bioenergy; geothermal (as in the entire state of Nevada); cold fusion; solar, including passive solar; wind farms and residential windmills. We know this stuff works. Why isn’t it getting off the ground?

    I don’t believe there is any need at all to rush into natural gas development because I don’t think we are “running out of oil.” There is only a push to manufacture big profits for some. And we now see it was for export all along.

    1. Literary Critic

      “We know this stuff works. Why isn’t it getting off the ground? ”

      We know this stuff works they same way we know NG fracking works, amd before then, that the Hydrogen Economy works.

      The annoying thing is that we have a myth based energy plan. There isn’t much of the basic scientific and engineering facts, enviromental impact studies, and validated ooperating cost info available to make real informed decisions.

      We have it down to a science with coal power plants, but anything else seems to be closly held info amongst a few operators and industry suppliers. (protecting their own interest)

      I have a sneaking suspicion that we have solar fraud going on now, and although wind is technically more promising, only 5% of the population live in “good wind” areas. That means we need regional grids to move it to market – but that’s another thing we aren’t doing for whatever the reasons.

      1. Crazy Horse

        Best that you stick to literature, Critic.

        The “science” of coal production is as advanced as the wigwam burner at the sawmill when I was growing up 60 years ago. The industry moves coal from Wyoming to burner on a 150 year old device called a railroad car. Carbon capture technology is impossible at a scale that could be significantly deployed. No new plants are being built in the US, not because of over regulation, but because they are capital intensive and cannot compete with wind or solar over the full expected life span of the plants. According to the secretary of energy of the state of Wyoming the remaining supply of economically extractable coal is closer to 40 years than the 200 that gets bandied about by industry flacks. What do you think the price will be as that cycle plays out?

        The solar fraud that the Koch brothers have planted in your mind is just that– a fraudulent propaganda bomb. The cost of silicon PV solar panels has dropped like a rock over the past decade, to the point where it is directly competitive with electricity generated by fossil fuel in expensive markets like Hawaii. Science (as opposed to delusional beliefs)is churning out new materials based upon nanotechnology that will likely double the efficiency per square meter of solar panels. At that point its game over for coal and nuclear fission, as the balance-of-system costs that now dominate solar are halved by efficiency gains. Even if that never happens, current solar technology will out compete declining fossil fuels as they become ever more expensive.

        Free and inexhaustible will always triumph over finite and exponentially more costly.

        1. bluntobj

          “not because of over regulation, but because they are capital intensive and cannot compete with wind or solar over the full expected life span of the plants.”

          Why are they capital intensive? To meet regulatory requirements.

          Wind has about the same average costs as a coal plant, but is fickle and has much less total capacity due to inconstant wind sources. Solar has double the operating cost of coal, plus system degeneration over much shorter periods of time, as well as needing electrical storage during non-power generating days or nights. That means lead acid deep cycle batteries which also have a depleting lifespan.

          Finally, coal generation is created on a system wide basis, and the cost is spread over millions of users. Solar is most often deployed on an individual level, and the capital needed comes out of an individuals pocket, rather than from stock or debt sales of a large corporation.

          I might suggest that you have some blinders on when it comes to your alternative energy passion. Denouncing valid objections as propaganda planted by “the Koch Brothers” is ad hominem, and not a good rebuttal.

          Finally, the determination of what future energy source to use is not based on cost alone, but on scalability, suitability, available fuel sources, means of transmission, safety, etc.

          What we can say with certainty is that the age of cheap energy is not long for this world, and our lives will be much harder and poorer when it goes.

          1. Crazy Horse

            “Coal plants are capital intensive to meet regulatory requirements” Thats odd, because the majority of operating coal plants in the US (which set the nominal price basis)were built in an era when there were virtually no regulatory requirements and then grandfathered in through the time honored practice of buying legislators. And the majority of new capacity developed in the past 20 years has been expansion of grandfathered facilities in order to capture the pricing advantages of externalizing social costs.

            Costs still exist whether they are borne by citizens with additional health problems or nations going extinct from rising sea levels. In a realistic cost benefit analysis or full cost accounting system, regulation will prove to be a profitable investment rather than a cost.

            Of course none of this matters if your time horizon ends at annual bonus distribution, the next payment due on your “underwater” house,or the next election.

            ps. Studies just released that take into account feedback mechanisms from methane in permafrost and Arctic seabeds point to CO2 being twice as effective a greenhouse gas as was posited in the earlier studies that the Koch’s and their like have been so active in slandering. Exponential rates of climate change have occurred in the past, and evidence increasingly points to the probability that we are triggering a similar situation. Worries about maintaining the cheapest possible electricity through unregulated coal burning are beyond trivial in the face of what atmospheric science tells us about the real world

          2. Crazy Horse

            The reason coal cannot compete with renewables over the long run has nothing to do with regulation and everything to do with the fact that its energy source is finite and subject to inevitable depletion and resulting rising production cost. Infinite always trumps temporary. The only question is whether the peak will come in 30 years or a perhaps three times as long. In fact, here in the USA, (the Saudi Arabia of Coal) we are already beyond our peak output from coal as measured by total energy production and now rely on inferior brown coal from Wyoming.

            Now it may be the case that fusion will become technologically feasible and power us to a new cycle of growth and collapse. However we are no closer to that dream than we were when research first began. In contrast, the rate of technological progress in renewable energy capture is astounding. One need only go back a few decades to see wind turbines that were hardly superior to quaint Dutch antiques.

          3. Literary Critic

            I’ve grown tired of listening to people tell me how great solar is, but they don’t have a rooftop installation and are plugged into utility like everyone else.

  12. Paul Tioxon

    Still, the clueless educated mass of uninformed people seems to concentrate at the top of food chain, always the last to know, always the first to complain, to lecture and doubt against all odds, evidence and reason. Fossil fuels are dead. They are taking us down with them. Not only the more recent problems with climate change, global warming but for years the toll of particulate matter air pollution causing millions of annual cases of respiratory diseases in infants and children and adults. Asthma, sinus infections unremitting ear infections ongoing throughout life, debilitating our overall health. And of course, the mystery of cancer! It’s as if someone put something in the air and water causing so many of us to get sick. How oh how?

    Big auto has finally decoupled from big oil and needs electricity, and joins the IT sector as another industry depending more on electrical engineering than financial engineering. But, you would hardly guess that from the finance community whose conscience tells them that solar is just another 10 years down the road. Take your pick, not cost competitive, not technically feasible, Obama is lying about it, the republicans don’t believe it exists and bible cultists think it may be a form of pan theistic paganism.

    It does not surprise me that Yves has cracked the code for the next fictitious capital back story, energy too cheap to meter for a century! Thank you Yves, the point by point breakdown of Wall St constructing its latest pitch as it happens. Hopefully, some the people who actually read this stuff will understand that the difference between the financial crisis and the energy crisis is that while we can print all the money we need to operate the economy, right here and right now, the same can not be said for energy. Solar is rolling out, but not nearly fast enough. The political fault lines should be obvious with the Grand Oil Party and its New American Century focusing on wars in Middle East oil territories and the contempt the right wing shows for the Chevy Volt, Solyndra and anything that might actually get us off of imported oil. Domestic gas seems to be the last hurrah for low hanging fruit for Exxon etc.

    If there are next to no differences between parties and the Green Party the only reasonable, large scale organized effort outside of the union movement for accessing some sort of political power, then why is there not more interest and support for solar energy among the awakened minds generated by the banking crisis? Solar energy has been “just another 10 years from being viable” since the late 1970’s, it has already arrived years ago. The actual real economy alternatives that deserve our support, not just the abstract ideas of the rule of law, morality or freedom will do us more good in the here in and now than just over the ever receding horizon. It is easier to debate how just and free we are or were, when the lights stay on and there is plenty of food on the shelves and the weather is not tearing your community apart or submerging it. I suggest a greater demand for solar energy, organic farming as well as public banking to finance these efforts before we take our freedoms and rights into abject poverty.

    Another Rocky Mountain Lecture, a TED lecture for all of you demanding intellects out there! We export over a $BILLION a day for imported oil. How does that affect our deficit? More than Social Security, the alleged ticking time bomb.

    Obama’s Climate Change Promise: A Feeble Charm Offensive

    Thanks for reading. And remember, there is someone younger, prettier, faster AND more radical than thou coming of age everyday. Don’t forget, the revolution will not be tweeted. The revolution will not friend you. The revolution will not pop up and ask you to take a short survey to make your experience more pleasant.

  13. eclair

    Conscience of a Conservative says: In the end we need energy.

    Well, not really. We need food. We need shelter/covering. We definitely do not need the insane amounts of carbon-based energy that Americans currently squander.

    And, we need water. In the worst way. Without it we die.

  14. roaring mouse

    Shale gas economics work for the US at a time when very few input costs are declining. It will rejuvenate the US petrochemical business, and become a badly-needed export sector (LNG). Extraction technology improves through time – this will be true of current shale gas techniques. Shale gas decline curves are steep, but there are 100s of thousands of drilling opportunities, which keep 1000s of men and women employed. Produce some good science on the enviro-evils of this, and your arguments will be heard.

    1. robert157

      Wait a second.

      You want to frack my water supply to get natural gas, then sell the energy to the Euros and Asians? While the US is still a net energy IMPORTER?

      Tough sell.

      1. roaring mouse

        The enviro-evils of fracking are about as well defined as the argument for the coming ice age was in 1978, or the now-en-vogue global warming. Importing oil versus exporting natural gas are two different animals. To a rational, logical individual, these 2 can exist simultaneously within any country’s economy. The key to changing the mix is fleet conversion to natural gas, particularly Class 8 trucks.

        ‘Fracking one’s water’ is a lovely emotional argument that is quite short of objective scientific analysis. A rational, logical individual would rather ‘fracking’ occur in the US under some regulation rather than occur without any regulation in a “less developed country.” I’d rather keep the jobs here, as well.

        Back to exporting more gas – this would serve to lower the US’s net deficit, as well as marginalize the Middle’s Easts importance to the world’s energy needs. This might reduce the US’s perceived need to be involved in wars that are fought in part to control and/or stabilize the supply of oil.

        Finally, the US is producing more oil year on year for the first time in over 30 years. So to your point about not yet reaching oil self-sufficiency, fracking helps there, too. Or the US could OK the pipeline from Canada that brings the products of tar sands to gulf coast refineries that can process it.

  15. rotter

    “At the same time, scientists began to conclude that America’s reserves of natural gas have been overhyped.”

    OF COURSE they have.. Hype the shale gas. Get voters misty and hopey about a shale gas renaissance. Then it will be easy to get the govt to “invest” in the big renaissance to be. That pays for tons of infrastructure with public money (which the great risk emabracing free marketeers would otherwise have to put up privately), and all kinds of agressive land grabbing and peasant removal by the same govt..all in the name of the great shale gas boom -bullshit. They get everyone else to pay the costs and assume the risk of thier extractive, sociopathic rent seeking activities, loot it short term, then move one.

  16. 70andOut

    A side note on methane(CH4)fuel automotive emissions: EPA and CARB’s standard is for non-methane hydrocarbon; the reason is CH4’s low reactivity factor. The remaining constituents of gasoline (non-CH4)vary from moderate to highly reactive in contributing to smog formation. The result: methane (CNG)is an excellent fuel from an exhaust emission standpoint; CO and NOx are easily controlled also. I am working on the engine calibration of a dual fuel (gasoline / CNG) application for a future model year Big-3 auto manufacturer.

    1. Literary Critic

      Where are they going to find room for all the fuel tanks?

      Low enegy density compared to gasoline is the shortcoming for NG cars. Tho it’s still way, way better than battery energy density.

      1. 70andOut

        You’re right, room for a CNG tank is a problem, especially in a dual fuel vehicle like I am working on. Its a pressure vessel holding up to 3000 psi gas pressure. In a single fuel CNG vehicle it would reside in the approximate area of the current gasoline tank, although not with the same shape, and it is much heavier. A purpose built CNG only vehicle is not practical at this time because of limited fueling infrastructure

        1. roaring mouse

          True, but this is where folks who appreciate massive government public works projects should get excited. The US needs massive new natural gas fueling infrastructure, plus simultaneous desalination and fresh water pipelines from the coasts to inland agricultural and population centers.

  17. robert157

    All this talk of “groundwater” and “well water.” …Seems so distant doesn’t it?

    It’s a smokescreen. This isn’t so much about the well water of rural land owners, but the public drinking water supply for everyone. The real question is not what is going into the wells, but what is coming out of them, and what are they doing with it?

    “If you look at the image above, you start to grasp the immense scale of these things. Millions of gallons taken from area streams and blasted through miles of cracks underground for each hydrofrac. The water picks up tons of radioactive sediment. Hundreds of tons of sediment (and it also carries those 15,000 gallons of proprietary chemicals including, perhaps, benzene and formaldehyde). The contaminated water is kept temporarily in these huge pits, and then dumped into public watersheds or treatment plants, or injected back into the earth, after various forms of treatment and non-treatment.”

    Is the radioactive sediment and proppant containing radioactive tracers simply dumped into regular landfills or back into freshwater? Water treatment plants are not equipped to deal with so much salty sediment, radioactive or not. Where there IS regulation on this waste disposal, we know that it is not always followed. As few regulations and inspectors as we have, as captured as they are, they have already uncovered unlawful disposal practices here in Colorado.

    1. roaring mouse

      You seem to enjoy getting upset over fracking, but you also should consider the total picture, which involves plenty of mining with subsequent release of slag, including radioactive particles. Unless the US is to return to a retro mid-19th century agrarian economy, some allowances are going to need to be made for NRG procurement. You might care passionately about the fate of the endangered, nay almost extinct tufted tit-mouse (I saw one once, I swear), but many Americans would prefer to be able to drive their cars to work so they can pay their bills and support their families. If you consider a toilet-paper free, packaging-free, oil-free lifestyle desirable, I invite you to spend time in the bush where that opportunity can be yours for as long as you can survive. Be sure to blog frequently about your progress.

  18. Asher Miller

    Glad to see you comment on this. We’ve been pushing on this for a couple of years now. Last May we published a thorough report looking critically at all three of the inherent claims in the oft-repeated statement: “We have 100 years of cheap and clean natural gas.”

    Best way to review the report is here:

    We wrote the report, frankly, because we were astounded by how some in the environmental community were touting natural gas as a bridge fuel from coal to renewables. The environmental community has pulled back from embracing shale gas as a bridge, but mostly thanks to the increasing evidence of environmental impacts, not because they understand that the shale gas boom is a boondoggle. But until opponents can argue based on economics and supply, in addition to environmental concerns, I don’t think they can successful counter the “drill, baby, drill” meme.

    BTW, here’s a video taped debate between PCI Fellow David Hughes and shale gas booster extraordinaire Terry Engelder (sponsored by Chesapeake Energy!):

    Asher Miller
    Post Carbon Institute

  19. redleg

    There are parts of North America that rely on fracking to get water. Yes, the local wells are fracked in order for them to yield water. Fracking is a tool that has beneficial uses in some locations. Of course, the wells and frack fluids are different than oil-gas wells.

  20. Lafayette

    The sad bit isn’t just that we seem to be playing the same tired scripts over and over, but that finance now seems to be based on deeply flawed incentives

    The proper solution is to de-incentivize such wild profit-making schemes the purpose of which is to earn hallucinatory incomes.

    And the most effective manner in which to accomplish that is to raise taxes on both Marginal and Capital Gains Income.

    The folly will stop dead when there is no longer any personal financial incentive to pursue such infamous dealing.

  21. LeonovaBalletRusse

    Yves cuts to the heart of the matter. Whatever ruins or diminishes “Potable water” is the cardinal issue in C.21 and forever. Without potable water we die in in a few days.

  22. nah

    the challenge of the next 1000 years will infact be how to get people to act like more than just goons
    not per capita energy consumption that can match current levels in a sustainable manner

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