New Study Says US Fracking Boom Will Fade Quickly After 2020

A new study by a team at the University of Texas, published in Nature News, throws cold water on bullish US natural gas production forecasts by the US agency, the Energy Information Administration. Its analysis suggests that the fracking boom will be a relatively short-lived phenomenon, which raises doubts about the attractiveness of investing in shale plays and in liquified natural gas transport facilities, particularly for export. Notice that this big red flag about the size and durability of the natural gas bonanza hasn’t hit the mainstream media yet. For instance, today one of the lead stories in the Financial Times is US oil reserves at highest since 1975: Shale revolution transforms country’s energy supply outlook.

Specifically, the study finds that shale gas output will peak ramp up sharply to 2020, consistent with the EIA’s projections. However, the EIA calls for continued solid growth through 2040.

Screen shot 2014-12-04 at 9.52.07 PM

By contrast, the study foresees production dropping sharply starting in 2020. Note that this isn’t the only expert source to anticipate that the fracking boom tops out in 2019 to 2020. The Paris-based International Energy Agency also projects that US shale gas production will peak then, but it foresees a very gradual decline in output through the 2020s and a steeper fall after that.

So why should we take the University of Texas forecast more seriously than that of the EIA? First, he’s one of the few analysts to obtain and work with the EIA’s projections. For instance, notice the two bottom bands on the chart. Inman appears to be the first to notice that the EIA appears to have introduced plug figures to achieve overall production totals higher than the sum of the eight majors plays. And troublingly, their spreadsheets didn’t always foot. From Inman:

The shale gas forecasts I got from EIA listed 8 individual plays—but in a number of years, total shale gas production they forecast was somewhat larger than what these named plays contributed. So I added in two categories for the contributions from these unnamed plays—”unnamed plays (early)” for the contributions from 2000-2012, and “unnamed plays (late)” for 2023-2040. (Oddly, in the years 2013-2022, the sum of forecast shale gas production from all the named plays is very slightly more than the total of shale gas production that EIA shows. I ignored this discrepancy; it was just a few percent of the total.)

But more important, the Texas team’s analysis was far more detailed. As Inman wrote in Nature:

But a careful examination of the assumptions behind such bullish forecasts suggests that they may be overly optimistic, in part because the government’s predictions rely on coarse-grained studies of major shale formations, or plays. Now, researchers are analysing those formations in much greater detail and are issuing more-conservative forecasts. They calculate that such formations have relatively small ‘sweet spots’ where it will be profitable to extract gas….

To provide rigorous and transparent forecasts of shale-gas production, a team of a dozen geoscientists, petroleum engineers and economists at the University of Texas at Austin has spent more than three years on a systematic set of studies of the major shale plays. The research was funded by a US$1.5-million grant from the Alfred P. Sloan Foundation in New York City, and has been appearing gradually in academic journals…

The main difference between the Texas and EIA forecasts may come down to how fine-grained each assessment is. The EIA breaks up each shale play by county, calculating an average well productivity for that area. But counties often cover more than 1,000 square kilometres, large enough to hold thousands of horizontal fracked wells. The Texas team, by contrast, splits each play into blocks of one square mile (2.6 square kilometres) — a resolution at least 20 times finer than the EIA’s.

Resolution matters because each play has sweet spots that yield a lot of gas, and large areas where wells are less productive. Companies try to target the sweet spots first, so wells drilled in the future may be less productive than current ones. The EIA’s model so far has assumed that future wells will be at least as productive as past wells in the same county. But this approach, Patzek argues, “leads to results that are way too optimistic”.

The high resolution of the Texas studies allows their model to distinguish the sweet spots from the marginal areas. As a result, says study co-leader Scott Tinker, a geoscientist at the University of Texas at Austin, “we’ve been able to say, better than in the past, what a future well would look like”.

The Texas and EIA studies also differ in how they estimate the total number of wells that could be economically drilled in each play. The EIA does not explicitly state that number, but its analysis seems to require more wells than the Texas assessment, which excludes areas where drilling would be difficult, such as under lakes or major cities. These features of the model were chosen to “mimic reality”, Tinker says, and were based on team members’ long experience in the petroleum industry.

This chart shows how the University of Texas (UT) differs from that of other major forecasters so far:

Fracking boom peters out chart

The Nature article points to an October 14, 2014 unofficial publication by two analysts from the EIA that ‘fesses up that the methods used by the agency have shortcomings, and using high resolution maps like the University of Texas effort did would produce better results.

The Nature article also cautions that the team’s projection could prove be high:

[Head of University of Texas at Austin’s department of petroleum and geosystems engineering Tad] Patzek argues that actual production could come out lower than the team’s forecasts. He talks about it hitting a peak in the next decade or so — and after that, “there’s going to be a pretty fast decline on the other side”, he says. “That’s when there’s going to be a rude awakening for the United States.” He expects that gas prices will rise steeply, and that the nation may end up building more gas-powered industrial plants and vehicles than it will be able to afford to run. “The bottom line is, no matter what happens and how it unfolds,” he says, “it cannot be good for the US economy.”

You can see the data used in the study here.

This study exposes some serious issues. If the fracking boom indeed is a flash in the pan, it makes the high environmental costs even more dubious. Potable water is the planet’s most scarce resource, and wrecking aquifers for a few years of gas output looks more and more like too high a price to pay. Yet we have a lot of investment, funded in part by a lot of borrowing, pouring into this play. If only a small portion of shale gas operations play out according to their projections made at the time of investment, you can expect to see a lot of dud loans, and enough of those will produce seriously sick banks. And on the stock market side of the equation, a lot of investors were looking for energy to be the new leadership group for a continued stock market rally. John Gapper of the Financial Times a mere week ago argued that manufacturers would relocate to the US because the fracking boom would produce so much cheap energy that energy cost savings would trump labor costs. The Texas forecasts put paid to that line of thinking.

It’s going to be interesting to see how Wall Street reacts to these rigorous projections. Will they try to pretend they don’t exist or seek to discredit them so they can keep up their cheerleading? Of course, it’s always possible that despite all the petroleum experts involved in the modeling made some sort of fatal error that other eyes will uncover. But I wouldn’t bet against them.

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56 comments

  1. David Lentini

    I’m not surprised at all. Back in the late ’70s I was an avid high school debater; one of the topics during that time was, not surprisingly, energy policy. All of the evidence on shale and the other “high tech” sources was that they were not likely worth the effort when compared to alternatives. Of course, we can’t expect the media or our academics to do much research on the subjects they report on, can we?

  2. Tyler

    “Potable water is the planet’s most scarce resource, and wrecking aquifers for a few years of gas output looks more and more like too high a price to pay. Yet we have a lot of investment … pouring into this play.”

    If you wanted to scare the sh*t out of me, Yves, mission accomplished. :)

    1. Steve H.

      “Herman and I went to the [Carter] White House and it was explained to me, that this was the whole idea of tar sands. The aim is to use so much water that it creates a drought in America. The drought was seen as doubling or quadrupling grain prices. In essence, the idea was for America to pay for higher priced oil with higher priced grain. This would support the balance of payments enough to finance U.S. military power throughout the world. In the process, of course, it would starve as much as a quarter of the population of Africa and Latin America.”
      – M. Hudson
      http://michael-hudson.com/2014/10/think-tank-memories/

          1. James

            That would be a crime against humanity.

            Add it to the list. Western crony corporate capitalism; the gift that keeps on giving.

          1. different clue

            This report lends support to my assumption of “kill several billion people and make it look like an accident” being the literal actual factual truth of what upper class governmental policy really in actual fact really is. Killing a quarter of the population of Latin America would have been one of the primary goals.

            I wonder how this plan to exterminate 25% of Latin America’s population squares with Carter’s putatively humanitarian concern for several million Palestinians.

      1. Antifa

        The Ogalalla Aquifer underneath the Great Plains is already drying up. The weird weather patterns that are developing more emphatically with every hotter year is beginning to make it more difficult and risky to grow monoculture grau crops in the great breadbasket states between the coasts.

        Less grain means less meat. Whatever your dietary preferences, less meat is a good thing for the planet.

        I think we are all more likely to be living on algae products in the latter part of this century than on grains. In this regard, Latin America has more sunshine. They can grow more algae products.

        I also think one of the main uses of solar energy in our future will be distilling or reverse osmosing water that’s fit to drink, or to water your houseplants with.

    2. Vatch

      Breathable air, fertile topsoil, and fresh drinking water are the resources that are clearly more important than abundant energy sources. If fracking ends in 2020, it will be at least 6 years too late.

      Species diversity is also extremely important, and should not be threatened by the search for energy, but it can be hard to explain the reasons. For the curious, I recommend The Work of Nature, by Yvonne Baskin. For a paperback, it’s kind of expensive, so please, request it from your public library if you are short of cash.

  3. bkrasting

    Interesting charts. If you look at the “US shale Play” data you see a very big increase in “unnamed plays – late”. What’s that about?

    It’s possible that the unnamed play is the Utica gas field in NYS. The Utica field is about 1/3 the size of the Marcellus field. Estimates are that there is 40T cubic feet of gas and a billion barrels of oil in the Binghamton/Utica area. As of today that is shut in due to state and local opposition.

    I’m familiar with this area. It is not densely populated, and it is poor. There are landowners/farmers who are dying to cash in on what’s underneath. People have been buying up acreage of crummy farm land in the hopes they get to dig some holes.

    Will Utica get exploited? Probably not with Cuomo around. But over the next 10-15 years it looks like a sure thing. There’s just too much money involved. If/when Utica gets tapped the energy boom in America will be extended for another 20 -30 years – it’s that big.

    1. peteybee

      Utica is a piece of rock that is under Marcellus (i.e., deeper underground). If you look at it on a map, they overlap. If I remember right, more wet (oil vs gas) than marcellus.

      Anyway, I happen to live in upstate NY. There is pretty good awareness that the sales pitch the gas companies make to landowners was unrealistic. Aside from the mystery of where the wastewater gets taken away to, there is knowledge that our neighbors in PA, got little $$ their gas, despite the fact that the stuff under their land radically reduced the price of heating and electricity for the whole country. In my opinion this is a much more effective argument than the environmental one. The problem, from the point of view of landowners getting less than they expected, was overproduction and lack of take-away infrastructure, which lowered local prices even further below the national price (at Henry Hub, Louisiana).

      If NY state is wise, it will wait until natgas is once again scarce, before allowing ours to be sold.

    2. susan the other

      NYC’s water is piped in from upstate. How will NYC protect it if the state allows fracking?

      1. hunkerdown

        DTE Energy recovered $40mn in scrap copper just by installing LED street lamps. Just think of all the scarce metals that will be saved when developers don’t need to plumb in a separate gas line.

      2. bkrasting

        NYC gets most of its water from the Catskill reservoirs. This area has no shale, it’s all granite. So the water threat to the city is not the issue.

        The Binghamton/Utica area will have its groundwater trashed. But there are many Trillions of dollars involved, that much money will trump Utica’s wells. We’ve seen this movie before….

        1. abynormal

          ahh krasting…hows your grandma these dayz

          http://www.nyc.gov/html/dep/html/drinking_water/maplevels_wide.shtml

          The Croton System
          The Croton System is the oldest controlling flow from 12 reservoirs and five lakes which covers about 370 square miles of the Croton River Drainage Basin. The average yield of the system is 300 million gallons per day (MGD). The safe yield is 246 MGD.

          The Catskill System
          The Catskill System consists of two reservoirs, the Ashokan and the Schoharie. The Ashokan Reservoir impounds water from 247 square miles of the drainage basin of the Esopus Creek which drains into the Hudson River. Water from the Ashokan Reservoir is fed into the Catskill Aqueduct and delivered to the Kensico reservoir or the Hillview Reservoir. The Schoharie Reservoir impounds water from the 314 square mile drainage basin of the Schoharie Creek which drains into the Mohawk River. Water from the Schoharie Reservoir is delivered to the Esopus Creek Basin via the Shandanken Tunnel which drains into a branch of the Esopus Creek and thence by open stream to the Ashokan Reservoir.

          The Ashokan and Schoharie Reservoirs drain into the Catskill Aqueduct with a capacity of 550 MGD as it drains into Kensico Reservoir. The portion of the aqueduct between the Kensico and Hillview Reservoirs has a capacity of 880 MGD.

          The Delaware System
          The Delaware System consists of three reservoirs located in the Delaware River Basin, the Canonsville, Pepacton and Neversink Reservoirs, and the Rondout Reservoir on Rondout Creek in the Hudson River Basin. Water is delivered via separate tunnels from Cannonsville, Pepacton and Neversink Reservoirs to Rondout Reservoir and from there through the Delaware Aquduct to the Kensico Reservoir. The Delaware Aqueduct intercepts the Croton System at the West Branch Reservoir. The Cannonsville Reservoir receives water from the 450 square mile watershed of the West Branch of the Delaware River. The Pepacton Reseroin receives water from the 372 square mile watershed of the East Branch of the Delaware River. The Neversink Reservoir receives water from the 93 square mile watershed of the Neversink River. The Rondout Reservoir receives water from the 95 sqare mile watershed of the Rondout River and serves as a collecting reservoir for the water from the three other reservoirs in the Delaware system. The safe yield of the entire Delaware water system is 610 MGD. Water from the Rondout Reservoir travels through the Delaware Aqueduct to the West Branch Reservoir in the Croton System. Water from the Pepacton and Neversink Tunnels is also used to produce hydroelectricity.

    3. curlydan

      the other weird thing about the EIA’s chart is that it appears to lock in or stabilize production amounts for most of these shale plays. Everything I’ve read about shale gas plays is that these wells start drying up or at least producing much less very quickly. It looks like the Univ of Texas study actually takes these declines into account much better than the EIA.

    4. upstater

      Why on earth would you think that the Utica would not be exploited while Cuomo is governor? He has only taken weasel-worded positions on fracking in NY and claims he is deferring judgement on the safety of frakhing to the State Health Department and DEC. He’s appointing a pro-fracking senator to be the new DEC commissioner. I’d expect a green light in the new year.

      Fortunately the highest state court rule that towns have the legal authority to ban fracking. So the whole state won’t get trashed like PA, OH and WV where resource extraction has a strong body of state law in its favor.

      Cuomo is as much of an environmentalist as Hillary/Obama, etc.

      1. bob

        NYSDEC staffing is also at half of what it used to be. The intensity with which they want to frack does not match their ability to police any little bit of it. The current DEC can’t handle what it already has on its plate.

  4. vidimi

    “It’s going to be interesting to see how Wall Street reacts to these rigorous projections. Will they try to pretend they don’t exist or seek to discredit them so they can keep up their cheerleading?”

    i don’t think wall street cares about quaint concepts like fundamentals. as long as enough people are making enough money to save, those savings are pretty much forced into stocks by policies encouraging investment. ironically, it’s the act of looting their companies by senior management that has been one of the principle drivers of stock groaf over the last few years.

  5. tim s

    So how does this square with the recent posts about the Saudi oil price war to kill the US shale production industry? Why would those with the massive amounts of light sweet crude be concerned about competition from natural gas (or tar sands), especially if the competitive life is relatively short? I’d imagine that there is much that lies beneath the surface here.

    1. MRW

      Good question. There’s a geopolitical play going on here, IMHO. But I’m not clear what it is. Maybe the Saudis were asked to do it to bury the Russian deal with China. Maybe the Saudis are pissed that we’re breaking the deal Kissinger made in 1975 with the Saudis to keep the price of oil high as long as they put the profits in US treasury securities, cementing the USD as the reserve currency for ever and ever amen. After all, with the reserve currency we buy the military’s oil with keystrokes, so there’s no cost to the US federal government’ no matter what the price.

      1. tim s

        I’m with you. My gut tells me that the Saudi’s likely wouldn’t do this without our support/prodding, regardless of what it looks like. What do I know, though.

        1. James Levy

          For the Saudi’s this is a short-term triple play: it hurts the Iranians, the Russians, and reminds the Americans just who is their indispensable ally. If investment money starts to dry up (as it will when the global financial system crashes again, which is almost guaranteed to happen in the next two years) it will also be directed away from money-losing shale oil and tar sands and back into good old crude. What the Saudis probably fear is that the American Elite will start believing their own fracking baloney and ignore Saudi interests because “we don’t need them any more.” People in Washington seem capable of believing anything they want to believe, but this price war will snap them out of the worst of their delusions pretty damned quick, and that’s all to the good from Riyhad’s point of view.

          1. Crazy Horse

            Since we are just speculating, I wouldn’t ignore several factors in the equation:

            1- The Obomber neo-cons (with their infantile grasp of international reality) have declared economic warfare on Russia. After all, when you have an Empire whose middle class has been hollowed out and stripped of all their assets you need an enemy to divert their attention from the pleasures of the mall that they once enjoyed. The collapse of oil prices is a major weapon in that war.

            2- Is the Saudi royal family really an independent actor on this stage? Or are they dependent upon the Empire’s weapons and military backing for their very lives?

            3- It is just possible that the Obomber foreign policy is so confused that they didn’t take into account that conspiring with their Saudi clients to attack Russia through a price war might have an effect upon the US’s fracked “energy independence?”

            4- And the likely immediate target of this price war is Venezuela. When the next CIA/NSA/Blackwater Coup successfully returns their oil to its international owners the hemisphere will be flooded with heavy oil that the Koch brothers are positioned to refine—-.

          2. Fiver

            No way this is a unilateral Saudi decision. Another half million barrels a day is set to come out of Kurdish Iraq. No coincidence in my mind that this oil and an unexpected (by who?) huge boost in Libyan production come on-line just in time to create the other half of the new surplus production story (US shale typically the focus). The US and Saudis saw this convergence as a strategic opportunity to nail Iran’s peaceful nuclear hopes to the wall and quite possibly Putin as well. I note, though, that Russia just penned an agreement with Turkey to replace the South Stream pipeline project with one which makes Turkey the gatekeeper. However, Russia runs a major risk of a runaway currency crisis. I also view the moves of the BoJ and rocketing dollar as means to clobber Russian/BRIC ambitions re using non-dollar currencies to settle oil and commodity deals, and in general rein in wayward emerging powers. I expect Erdogan will be next up for leadership change via US fiat.

            Basically, I think the way it works is that every opportunity is automatically exploited to the max, and this is a big one.

    2. susan the other

      Venezuela stormed out of the OPEC meeting when they lowered the price to 60/bl. Because Venezuela can’t survive without oil revenue; they have little else. I thought it was odd that one member of OPEC would be so disregarded by the rest. But maybe it was intentional. We’ve been after cheaper oil from Venezuela for a long time. And we just did a big deal (almost secret) with Mexico to get some percentage of PEMEX. Which Mexico also once used to fund its social programs and has guarded jealously for 100 years. The people who seem to be the immediate beneficiaries of cheap oil are the Japanese but they haven’t mentioned it. And Stanley Fischer himself – Mr. Stability – gave a speech saying cheap oil was going to really help the US economy. So next question: Since cheap oil benefits the US economy and Japan, why wasn’t it price-rigged before the fracking boom caper? It seemed that the price of oil was kept high so fracking would be economically viable. One answer is that they took a shot at a fracking industry that would turn out better than it did and they are now ready to concede that it isn’t so great. But they won’t do it publicly. They’ll just pretend that market forces did it.

      1. tim s

        I had the same speculation, that perhaps this “price war” is an easy way for us to back out of fracking if it really is not all that it’s touted to be, when a political/business decision to do so would be difficult. The big money usually just looks for a sucker to sell to in these cases, though. Maybe Suckers are harder to come by these days than they used to be. I can only hope….

      2. LifelongLib

        IIRC the main reason Saddam occupied Kuwait was to give Iraq more leverage within OPEC on setting oil prices (he thought they were too low). It certainly sounds like the various OPEC members often have different interests.

    3. Yves Smith Post author

      The aura of success (remember, the falloff wold probably not be confirmed till say 2022 or 2023, there would be excuses from the promoters) would support fracking development elsewhere, which again is front-loaded in terms of output.

  6. Bryan Sean McKown

    Inman does good work, but his analysis does not appear to take account of the recent highly productive natural
    gas production out of the Utica shale play. See Chris Pedersen’s post on 10/5/14 at OilPrice.com.
    Pedersen explains the Utica was not added to the EIA’s drilling reports until August 2014. Simply put,the Utica does not appear to be in the data set (the 8 named plays) Inman got from the EIA nor do Utica projections appear in Inman’s work from 2012 through 2023. Per Pedersen, the Utica “lies deeper than the Marcellus” and is a separate shale play. Perhaps another way to attack this issue is a projection for total natural gas production from all sources 2015 through 2040.

  7. peteybee

    Thanks for posting this, glad it came out! I think the UT researchers are absolutely right to look at the fine-grained (per-well) data.

    A big part of where the technology has become commercialized in the 2000s decade: remote sensing to find the sweet spots, and remote sensing to precisely steer the horizontal drilling operation into the sweetspots. The cost of constructing a well has also fallen by 30-50% in the last decade. Presumably future production would also benefit from fixed investments in take-away infrastructure (pipelines, roads). All those trends may continue, or may top out, I don’t know enough to say.

    On the flipside, the cost of disposing of the wastewater ought to increase… I think right now it’s an “externality”.

    Another elephantine part of the story of future production, is price. (1) export. Raises price, and thus raises production. vs (2) whether the rest of the world develops similar capabilities, killing export. I expect the latter. Also (3) despite its comatose status in the US, solar electric will be back, as technology marches on. High voltage, high-current semiconductor technology for switching and regulation is still coming thru the tech pipeline, and more efficient conductor materials (more carbon, yay!) of electricity are just entering the pipeline. Expect a huge drop in the cost of transporting electricity … in 10-20 years. That’s going to be revolutionary I think. If you’re going to talk about they year 2020-2040, that’s got to be in the picture.

  8. MRW

    This study exposes some serious issues. If the fracking boom indeed is a flash in the pan, it makes the high environmental costs even more dubious. Potable water is the planet’s most scarce resource, and wrecking aquifers for a few years of gas output looks more and more like too high a price to pay.

    Which would mean they’re not going to fix the faulty well construction or poor cementing that a National Science Foundation and Duke University study said were the cause nine weeks ago.

    The paper, Noble gases identify the mechanisms of fugitive gas contamination in drinking-water wells overlying the Marcellus and Barnett Shales, was published on September 30, 2014, in the Proceedings of the National Academy of Sciences. Using a new “geochemical forensics” methodology, the five scientists were able to use ‘noble gases’ to trace whether pollution in proximity to a drilling site was naturally occurring, or associated with drilling. They examined eight clusters of 130 contaminated wells in close proximity to deep underground hydraulic fracturing sites in Pennsylvania and Texas. They concluded that it was “well integrity problems are most likely associated with casing or cementing issues. In contrast, our data do not suggest that horizontal drilling or hydraulic fracturing has provided a conduit to connect deep Marcellus or Barnett Formations directly to surface aquifers.”

    One of the scientists, Avner Bengosh of Duke University, said in a Biznews.com quote,

    “These results appear to rule out the migration of methane up into drinking water aquifers from depth because of horizontal drilling or hydraulic fracturing, as some people feared,” said Avner Vengosh, professor of geochemistry and water quality at Duke.

    1. susan the other

      Is this research saying that drilling vertical wells straight thru aquifers without proper cement casing is the cause of contamination? But that horizontal fracking doesn’t release gases that seep up into aquifers? Lost me.

      1. McMike

        Faulty casing is an immediate proximate cause, but also a red herring since it implies that if we police the casings, then everything will be fine.

        It ignores that we inject perfectly good clean water that then gets contaminated. It ignores that we raise to the surface billions of gallons of contaminated water through those casings, and it needs to be dealt with. It ignores that you can’t perfectly police casings, since some players will cheat or screw it up. It ignores that all casings, even the best made ones, will fail someday in the future. It ignores that we have injected and re-injected trillions of gallons of contaminated water deep into the earth, and that this will not magically stay in place forever, whether or not the casings hold.

        1. skippy

          5% of all wells suffer compromised integrity [Fail] at first pour, it goes exponential from there wards after, in few decades. Plus as noted before the concrete sleeves don’t stop the geological rot that occurs around the outer diameter of the sleeve due to disturbance, so all the fixation on the sleeves integrity is a bit of a distraction imo.

          Skippy… lets see how these puppy’s handle the increased seismic activity that the activity enables in the first order of things…. eh.

    2. Fiver

      That’s right. They won’t fix it. Not that, nor anything else for as long as they can get away with it – which I think is pretty much open-ended at this point.

  9. McMike

    I like how Goldman’s curve veers of parabolically all by itself.

    They could be (1) making stuff up, (2) lying, (3) know the fix is in, or (4) don’t care.

    Or (e) all of the above.

  10. Crazy Horse

    Good article but limited in scope, and therefore fails to fully represent reality:

    Hydraulic fracking to extract oil and gas is basically a Ponzi scheme within the context of the current economic system. One need only look at individual well depletion rates to understand the foundations of this reality. Or study the financial history of a major player like Chesapeake Energy Corporation— a real estate Ponzi scheme disguised as a natural gas producer.

    The Ponzi rests upon three unsustainable facts:
    1- Individual well depletion rates that result in 50-80% of production loss after the first year.
    2- The “sweet spot” pattern of area exploitation described by the author that accentuates overall field decline rates.
    3- The high capex requirements relative to output that result in the technology only being profitable in the zero interest environment that the FED has adopted while running toward the cliff of financial disaster.

    In the absence of free play money and high oil & gas prices the fracking Ponzi inevitably collapses. It will never be economically viable until the cycle of economic collapse/demand reduction plays out and the reality of finite fossil fuel energy supplies makes expensive extraction schemes the only alternative.

    1. James Levy

      You are of course correct, as far as I can determine, but let’s do a thought experiment:

      You are a Roman emperor and it’s 10 years after the Adrianople disaster. You’ve reestablished something like an equilibrium after spending six years cleaning up the mess left by Valens. News reaches you that a mine has been discovered with a fantastic horde of gold in it. The vein is not deep, but it will supply you with an abundance of cash for the next 10-20 years. So what do you do with the windfall? Spend it on reforming the army and economy to better the Empire’s long-term chances of survival? Fuck no! You use it to buy the support of elites and the army, pay off troublesome barbarians at the border, and throw yourself one whale of a party knowing you’ll be dead before the money runs out.

      And that’s where we are today.

    2. hunkerdown

      Perhaps the USA’s strong desire to enforce IP maximalism worldwide has something to do with this. If the USA, or some other economy, needs to pull fracking out of the toolbox within twenty years to meet their (the USA’s) energy needs, someone (probably not those investing in the sacrificial guinea pig plays) is gonna make a bundle.

  11. Asher Miller

    Yves, a correction: Mason Inman did not author those studies. The studies that he references in his Nature piece were authored by folks at University of Texas.

    Unfortunately, the UT studies are using data that’s two years old and they’ve only released forecasts for two of the shale gas plays. However, their forecasts square very well with Post Carbon Institute’s analysis for the same two plays. But PCI analyzed the top shale gas and tight oil plays, accounting for 88% of current production. The report is here: http://www.shalebubble.org/drilling-deeper. The PCI report evaluated the EIA’s total forecasts through 2040 for tight oil and shale gas — which includes all the plays that the EIA is banking on. Ultimately, the EIA sees a near peak for tight oil but expects a much longer and shallower tail for production. On the shale gas side, they are worryingly optimistic about production growing through 2040. Our analysis — based on actual production data, drilling rates, drilling locations, etc. — that this is highly unlikely.

    In the not-so-distant future the American people will wake up to find that we spent trillions of dollars, billions of gallons of fresh water, and created long-term health and environmental risks for a very short term boom. That time and capital would be better spent on getting ourselves off oil and gas.

    1. Greenbacker

      That is because the American people can’t let go of the 20th century. They shape the policies and deserve to deal with the aftermath. Let them have 2016-19. After that time, it is our time.

    2. Fiver

      The same mentality currently rules in Canada re its unbelievably short-sighted mega-investment in tar sands oil. It, and all fossil fuel use, are demonstrably destroying the global environment, and must be ditched long before the mezmerized minds of oil men are willing to let it go. Our Government and key media are totally devoted to this shockingly stupid situation in Canada. The value of the oil itself is 2% of Canadian GDP annually. The Government, oil industry, and media claim the oil industry as a whole is worth 10% of GDP annually, in order to claim Canadians cannot get by without this crap. Yet what this actually means is we are expending up to 8% in total GDP in order to secure a flow of only 2% in GDP. What universe does that work in? We could have aimed the enormous amount of investment money into other areas created far, far more permanent, not construction jobs, and at least as much value-added in areas needing that investment all over the country. Instead we all subsidized those working in the industry itself and shareholders with even royalties and taxes lower than many jurisdictions. Cripes, we could’ve re-built, up-graded, and generally cleaned-up the entire country with half of that money and built 10 world-class production facilities (autos, trucks, buses, trains, planes, whatever). Oil makes thinking too difficult by making thoughts slip and slide past where they were supposed to stop.

  12. Lambert Strether

    So, I’m seeing all the plays here, plus maybe one unknown (Utica?). And there aren’t very many. What happens when there are no more plays? “I’ll be gone, you’ll be gone?”

    I’m so glad Maine has no fossil fuel reserves. If we can only make sure the local oligarchs don’t cover the state with landfills, and build pipelines (or rail) over the Penobscot watershed, we might get out of this alive.

  13. quixote

    (I’m probably the only person in the world bothered by this use of “plays.” These are not “plays.” They’re anything but “plays.” This is real destruction of the climate, of water, of real alternatives like efficiency and solar, of the future. Why can’t they call the things what they are, “formations”? What’s with the cutesy-poo stockbrokerese? Grr.

    Okay. End of rant. Don’t get me wrong. Not complaining about anyone here. Just venting.)

  14. Jay M

    When does the boom up boom down (drilling tower) syndrome become synechdoche to the schadenfreude of vast industrial resources versus tight shale. I’m verklempt;.

  15. Luke The Debtor

    So these guys’ squiggly line doesn’t go up as high as the other guys’ squiggly line. Interesting.

  16. RealityCrashesIn

    The average shale well loses 60% of its output in 1 year, and 85% to 90% in 3 years. Many wells will not return the cost of drilling over the life of the well. Drillers have to drill replacement wells just to keep cash flow coming, while their debt loads increase alarmingly. Couple that with the crash in the price of oil, and the outlook is bleak for the shale plays. The shale game is now more stock market hype than industry. “Decrease after 2020” seems incredibly optimistic. “Dead by 2018” seems more realistic.

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