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The United States is the biggest producer of natural gas in the world and recently became the largest exporter of LNG. The industry is scrambling to build LNG (liquefied natural gas) export terminals as fast as permitting and funding will allow.

This couldn’t come at a worse time. Instead of having an almost infinite amount of natural gas as many believe, we may be witnessing hard limits to that supply.

Figure 1 shows that shale gas plays have reached an apparent peak and may be starting to decline. It’s not a good sign although some of this may be related to seasonal effects or regulatory matters. At the very least, the rate of production growth is slowing.

Shale gas plays have begun to decline as U.S. becomes biggest world LNG exporter. — Figure 1. **Drain America First**. **Shale gas plays have begun to decline as U.S. becomes biggest world LNG exporter**. Source: EIA, Enverus & Labyrinth Consulting Services, Inc.

Any decrease in the growth of shale gas could become an acute problem because it accounts for 82% of U.S. dry gas production (Figure 2).

Shale gas accounts for 82% of U.S. dry gas production. — Figure 2. **Shale gas accounts for 82% of U.S. dry gas production**. Source: EIA, Enverus & Labyrinth Consulting Services, Inc.

I am frankly less concerned about whether or not shale gas production is currently in decline as I am about what will happen to supply in five or ten years.

That concern is based on plans for increased LNG and pipeline exports. Net LNG exports are expected to increase +6.4 bcf/d by 2030 & another +7.1 bcf/d by 2035 (Figure 3). Total net exports are projected to increase +15 bcf/d by 2035 from 13 to 29 bcf/d.

Total net exports to increase +15 bcf/d by 2035 from 13 to 29 bcf/d. — Figure 3. **Net LNG exports expected to increase +6.4 bcf/d by 2030 & another +7.1 bcf/d by 2035**. **Total net exports to increase +15 bcf/d by 2035 from 13 to 29 bcf/d**. Source: EIA & Labyrinth Consulting Services, Inc.

Let’s take a quick look at production from the three biggest pure shale gas plays (Figure 4).

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U.S. shale oil and gas forecast: Too good to be true?

December 8, 2021

U.S. shale oil and gas forecast: Too good to be true?

Earth scientist David Hughes—who is out with a new skeptical report on the future of U.S. shale oil and gas—has two very important things in common with Michael Burry. Burry is the investor made famous by The Big Short, the book that was later turned into a movie of the same name about the 2008 housing crash.

Both men made calls that contradicted an almost unanimous consensus, and both did so after dogged, painstaking research.

First, let’s look at the latest from Hughes, an update on the U.S. shale oil and gas industry entitled “Shale Reality Check 2021.” Then, we’ll return to his previous prescient call.

“Shale Reality Check 2021” seriously undermines rosy long-term forecasts made by the U.S. Energy Information Administration (EIA) for U.S. oil and natural gas from shale deposits. This matters because the EIA’s forecasts are counting on shale for 69 percent of all U.S. oil production from 2020 to 2050 and 77 percent of all U.S. natural gas production in the same period. And, it matters to the world because between 2008 and 2018, growth in U.S. oil production accounted for 73 percent of the entire growth in global supplies. (Oil from shale deposits is properly known as “tight oil,” a type of oil also found in other kinds of rock. Natural gas from shale deposits is typically referred to as “shale gas.”)

Hughes’ conclusions are based on commercially available drilling and production data. Here are his overall findings:

1. Of the 13 major plays he evaluated, Hughes rates the EIA’s production forecast for five as “moderately optimistic,” five as “highly optimistic,” and three as “extremely optimistic.” The EIA forecast for the Wolfcamp Play, the largest tight oil play, is rated as “highly optimistic.” The forecast for the Marcellus Play, the largest shale gas play, is rated as “moderately optimistic.”

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Shale oil and gas fraud: A sign of a peak in oil supplies?

June 21, 2021

Shale oil and gas fraud: A sign of a peak in oil supplies?

Those of us who watched incredulously as investors shovelled more and more money into what we were sure were money-losing shale oil and gas drillers do not find the current spate of fraud lawsuits against these drillers surprising.

The gargantuan claims about shale hydrocarbon reserves—which were compared more than once to those in Saudi Arabia—were clearly designed to woo investors into bidding up the stock price and/or hoovering up the constant stream of junk bonds emitted by the shale oil and gas drillers. The hype succeeded for a long time, even during the crash in oil prices in 2015 and beyond when investors convinced themselves that they were picking up “bargains.”

It wasn’t until the pandemic-induced plunge in oil prices that the reality of those outlandish claims was revealed, and many companies disappeared.

But this story of fraud and exaggerated claims is much more than a legal story. The large production gains that did take place in American oil fields had people believing America would be or already was “energy-independent,” a phrase that meant the country would not be a net importer of energy resources. Though U.S. dependence on imported energy resources did decline, it didn’t reach zero until the pandemic dramatically crashed U.S. oil demand below U.S. production. But as the world and U.S. economies rebound, that dependence is almost certain to return as the so-called “shale miracle” turns out to be something less than miraculous, bankruptcies continue and reserve estimates come back into line with reality.

But the fallout extends even further. The U.S. oil boom was the principal source of increased world production for most of the last 15 years. Without that boom and the boom in the Canadian tar sands, world oil production would have grown little or even declined.

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Low Gas Prices Crush Appalachia Shale Boom

January 11, 2020

Low Gas Prices Crush Appalachia Shale Boom

Low natural gas prices have finally brought the decade-long shale gas boom in Appalachia to a halt.close

Gas production in Appalachia declined by about 1 billion cubic feet per day (Bcf/d) over the past 30 days, bringing output down to an average of 32.7 Bcf/d, according to S&P Global Platts Analytics. That helped drag down overall U.S. gas production to 91.8 Bcf/d, a 1.7 percent decline from 93.4 Bcf/d in November.

The Permian hogs a lot of attention in the press, but the Marcellus shale has been growing at a blistering rate for about a decade. That is now coming to an end as the shale gas industry struggles with oversupply and low prices, lack of profits, debt, investor skepticism and also competition from associated gas in the Permian.

Natural gas prices fell sharply last year, ending the year down more than 25 percent. The rig count in the Marcellus fell by 1 last week, dropping the total to 40. Eight months ago there were 65 rigs operating in the area.

Front-month gas contracts are trading at about $2.12/MMBtu, although at the wellhead prices can be much weaker. S&P said that prices at Dominion South, a hub in the Marcellus, have averaged just $1.78/MMBtu in the past month. S&P says that average breakeven prices are $1.80/MMBtu, but that likely understates the price level that drillers need, given the struggles that many have gone through. Related: How Long Will The Oil Price Fear Premium Last?

“Gas prices are down. It has a big impact, the difference between $2.75 gas and $2.50 gas,” Toby Rice, EQT’s new president and CEO, told the West Virginian legislature in December “A lot of this development doesn’t work as well at $2.50 gas.”

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The Quake Threat to Dams Posed by Fracking Was Long Warned

January 11, 2020

The Quake Threat to Dams Posed by Fracking Was Long Warned

A new trove of internal exchanges shaken loose by Ben Parfitt amplifies decades of safety urgings.

A ‘shake map’ shows a magnitude 4.5 earthquake that hit northern BC late in 2018, likely caused by fluid injection. The map was created by Gail Atkinson, an expert who called for ‘no frack zones’ around dams. Illustration created by Gail Atkinson. Additional labels by The Tyee.

“Why is this so difficult?” a BC Hydro dam safety engineer plaintively asked his superiors seven years ago.

He’d been stymied again in proposing that because the risks of earthquakes caused by fracking were clear, preventing disaster required creating “no frack” zones around dams.

His sense of urgency runs through a long thread of discussions within BC Hydro and the Oil and Gas Commission surfaced by investigative researcher Ben Parfitt.

For years now the two crown agencies have been reluctant to publicly talk about the risks earthquakes triggered by the oil and gas industry pose to critical dam infrastructure throughout northeastern B.C.

But a freedom of information request by Parfitt at the Canadian Centre for Policy Alternatives has shed new light on what has been a long and often acrimonious internal debate.

Hundreds of emails, letters, memos and meeting notes released by the utility in response to Parfitt’s request and his just published investigationmake the following important revelations:

Officials at BC Hydro have been concerned about the shale gas industry since 2007 when coal bed methane extraction resulted in seismic activity at the Peace Canyon Dam near Hudson Hope.

The Peace Canyon Dam, which provides six per cent of the province’s electricity, is built on fragile shale rock and wasn’t built to withstand even modest earthquakes.

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‘’Too Much Too Fast’’ Gas Glut Crushes Shale Drillers

September 25, 2019

‘’Too Much Too Fast’’ Gas Glut Crushes Shale Drillers

Appalachian shale drillers are getting squeezed by low prices, and a supply glut may mean that there is little prospect of a pricing rebound anytime soon.

Earlier this month, IHS Markit put out a press release entitled, “U.S. Natural Gas Price Will Fall to Levels Not Seen Since 1970s.” The firm said that persistent oversupply from the Marcellus would be “reinforced” by a surge in associated gas production from the Permian basin. That could keep average natural gas prices below $2/MMBtu next year, which would nominally be the lowest since 1995, but in real terms it would be the lowest since the 1970s.

The market is set to see falling prices despite structural increases in demand from new gas-fired power plants and LNG export facilities. IHS noted that U.S. demand has climbed by 14 billion cubic feet per day (Bcf/d) in annual consumption since 2017, but supply has expanded by even more than that amount since the start of 2018.

“It is simply too much too fast,” Sam Andrus, executive director of IHS Markit, said in a statement. “Drillers are now able to increase supply faster than domestic or global markets can consume it. Before market forces can correct the imbalance, here comes a fresh surge of supply from somewhere else.”

The bust in gas prices create significant dangers for gas-focused shale companies. “With the news from IHS Markit that natural gas prices in the United States will drop below $2 MMBtu in 2020 and remain low through at least 2024, if not longer, heads must be exploding in the board rooms of oil and gas producers throughout the U.S. and Canada,” Tom Sanzillo and Kathy Kipple wrote in a commentary for the Institute for Energy Economics and Financial Analysis (IEEFA).

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Former Shale Gas CEO Says Fracking Revolution Has Been ‘A Disaster’ For Drillers, Investors

June 24, 2019

Former Shale Gas CEO Says Fracking Revolution Has Been ‘A Disaster’ For Drillers, Investors

Steve Schlotterbeck, who led drilling company EQT as it expanded to become the nation’s largest producer of natural gas in 2017, arrived at a petrochemical industry conference in Pittsburgh Friday morning with a blunt message about shale gas drilling and fracking.

“The shale gas revolution has frankly been an unmitigated disaster for any buy-and-hold investor in the shale gas industry with very few limited exceptions,” Schlotterbeck, who left the helm of EQT last year, continued. “In fact, I’m not aware of another case of a disruptive technological change that has done so much harm to the industry that created the change.”

“While hundreds of billions of dollars of benefits have accrued to hundreds of millions of people, the amount of shareholder value destruction registers in the hundreds of billions of dollars,” he said. “The industry is self-destructive.”

Schlotterbeck is not the first industry insider to ring alarm bells about the shale industry’s record of producing vast amounts of gas while burning through far more cash than it can earn by selling that gas. And drillers’ own numbers speak for themselves. Reported spending outweighed income for a group of 29 large public shale gas companies by $6.7 billion in 2018, bringing the group’s 2010 to 2018 cash flow to a total of negative $181 billion, according to a March 2019 report by the Institute for Energy Economics and Financial Analysis.

But Schlotterbeck’s remarks, delivered to petrochemical and gas industry executives at the David L. Lawrence Convention Center in Pittsburgh, come from an individual uniquely positioned to understand how major Marcellus drillers make financial decisions — because he so recently ran a major shale gas drilling firm. Schlotterbeck now serves as a member of the board of directors at the Energy Innovation Center Institute, a nonprofit that offers energy industry training programs.

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The Beginning Of The End For British Shale Gas

May 1, 2019

The Beginning Of The End For British Shale Gas

Amid the ruckus of Great Britain’s reckless Brexit saga, one might not have noticed the ongoing environmental battle that could put a sudden end to shale gas development in the UK. While Britain’s energy security does not have any direct links to Brexit – its hydrocarbon production went into decline in 2000 and has been falling ever since, although the mid-2010s evidenced a stabilization of output – the UK High Court decision over the nation’s shale gas projects might deal a painful blow to the little hope British producers had to kick-start something new. All 9 basins of the Greater North Sea are mature and it is only until 2025-2027 that the current output rebound can last, after that Britain’s oil output will plunge Venezuela-style unless additional measures are taken.

There is no scientific consensus on how much shale gas can be recovered across the United Kingdom. We might use the British Geological Survey’s 2013 report as a point of reference, which states that across central Britain (Bowland-Hodder shales) the aggregate shale gas reserves are somewhere within the 164-264-447 TCf interval (P90-P50-P10). Even if it were true, due to the rather difficult lithography of central Britain the actual recoverable volume would be substantially smaller. The USGS has put the total recoverable gas resources in the Midlands area of England at 8.3 TCf. The Weald Basin in southern Britain and Northern Ireland also has shale gas resources, but they are in a less advanced stage of development than shale finds in Lancashire or Nottinghamshire.

Partially motivated by the emotional drain of Brexit and the necessity to present itself as an employment creating party, the Conservative Party (seemingly) made great headway last year in advancing the cause of developing UK shale gas resources and creating the regulative norms required for it.

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The Shale Oil Revolution Actually Reflects a Nation in Decline

January 12, 2019

Shutterstock

The Shale Oil Revolution Actually Reflects a Nation in Decline

Faster consumption + no strategy = diminished prospects

Here in the opening month of 2019, as the US consumes itself with hot debate over a border wall, far more important topics are being ignored completely.

Take US energy policy. In the US press and political circles, there’s nothing but crickets sounding when it comes to serious analysis or any sort of sustainable long-term plan.

Once you understand the role of energy in everything, you can begin to appreciate why there’s simply nothing more important to get right.

Energy is at the root of everything. If you have sufficient energy, anything is possible. But without it, everything grinds to a halt.

For several decades now the US has been getting its energy policy very badly wrong. It’s so short-sighted, and rely so heavily on techno-optimism, that it barely deserves to be called a ‘policy’ at all.

Which is why we predict that in the not-too-distant future, this failure to plan will attack like a hungry wolfpack to bite down hard on the US economy’s hamstrings and drag it to the ground.

Shale Oil Snafu

America’s energy policy blunders are nowhere more obvious than in the shale oil space, where it’s finally dawning on folks that these wells are going to produce a lot less than advertised.

Vindicating our own reports — which drew from the excellent work of Art Berman, David Hughes and Enno Peters’ excellent website — the WSJ finally ran the numbers and discovered that shale wells are not producing nearly as much oil as the operators had claimed they were going to produce:

Fracking’s Secret Problem—Oil Wells Aren’t Producing as Much as Forecast

Jan 2, 2019

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Fracking in the UK

November 9, 2018

Fracking in the UK

Burning fossil fuels is a major cause of greenhouse gas emissions (GGE), and, greenhouse gas emissions (water vapor (H2O), carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O)) are the principle cause of man-made climate change. Given this fact, governments throughout the world should be moving away from fossil fuels and investing in, and designing policies that encourage development of, renewable sources of energy. But the British Conservative government, despite public opinion to the contrary, has all but banned the construction of onshore wind turbines and is encouraging fracking in England. The Tories are the only UK political party to offer support for this regressive form of energy production, Labour, the Liberal Democrats and the Greens having all promised fracking bans should they gain political office at the next general election.

Hydraulic fracking is the process of releasing gas and oil from shale rock: huge quantities of water, proppant (usually sand) and chemicals are injected at high-pressure into hydrocarbon-bearing rocks, rocks that can be up to a mile down and were once thought to be impermeable. This process of fracturing (or cracking) forces the rocks to crack open, and gas held inside is released and allowed to flow to the surface.

Shale gas is a fossil fuel, and when combusted produces GGE, albeit at around 50% less than coal or oil, but GGE nevertheless. The leading fracking company in Britain is the energy firm Cuadrilla. An organization that according to its website, aims “to be a model company for exploring and developing shale gas in the UK,” they state that they are “acutely aware of the responsibilities this brings, particularly with regard to safety, environmental protection and working with local communities.” Really?

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UK Fracking Pauses, Again

October 31, 2018

UK Fracking Pauses, Again

For the second time in two weeks since Cuadrilla started fracking at an exploration site in northwest England—resuming hydraulic fracturing in the UK for the first time in seven years—the company had to stop operations on Monday due to a micro seismic event measuring above the threshold requiring a halt.

Cuadrilla confirmed that a micro seismic event measuring 1.1 on the Richter scale was detected at about 11.30 a.m. local time on Monday, while the team were hydraulically fracturing at the Preston New Road shale gas exploration site in Lancashire, the company said in a statement today.

According to regulations, in case of micro seismic events of 0.50 on the Richter scale or higher, fracking must temporarily be halted and pressure in the well reduced.

“This is the latest micro seismic event to be detected by the organisation’s highly sophisticated monitoring systems and verified by the British Geological Survey (BGS). This will be classed as a ‘red’ event as part of the traffic light system operated by the Oil and Gas Authority but as we have said many times this level is way below anything that can be felt at surface and a very long way from anything that would cause damage or harm,” Cuadrilla said.

“Well integrity has been checked and verified,” the company said, noting that in line with regulations, fracking has paused for 18 hours.

Cuadrilla had paused fracking at the site on Friday morning after a 0.76 on the Richter scale micro seismic event was recorded, the latest of some dozen seismic events since fracking started, but the first that was above the 0.5 threshold.

The seismic event on Monday was the strongest yet to be recorded since Cuadrilla started fracking at the exploration site two weeks ago, on October 15.

Anti-fracking activists say that there have been now 27 seismic events since October 15, Blackpool Gazzette reports.

Natural Gas Inventories “Dangerously Low”

August 26, 2018

Natural Gas Inventories “Dangerously Low”

Futures markets are suggesting the currently benign level of natural gas price volatility may not remain through the winter months.

According to the Financial Times, market volatility this year has been the lowest on record despite inventory levels falling 19.5 percent below average and by the time winter starts are set to be at their lowest in more than a decade.

(Click to enlarge)

Source: Bloomberg (via Financial Times)

The Financial Times puts this down to investors being lulled into complacency by a seemingly unstoppable wave of new supply from the shale market rising inexorably to meet rising demand. The government last week forecast 81.1 billion cubic feet per day in dry gas production for 2018 — a record high — and up by 7.5 billion cu ft/d from 2017, the Financial Times reports.

But is the market safe to assume shale gas will supply regardless of demand?

Natural gas producers are systematically hedging their sales throughout next year, often a sign they plan to continue an aggressive policy of drilling and expansion. That activity has contributed to a dipping of forward prices, as there are more sellers in the futures market than buyers.

But inventory levels are low — some would suggest dangerously low — after a high summer demand due to hot weather increasing demand for air conditioning. Natural gas “power burn” surged to a record 37.7 billion cubic feet per day during July, the Financial Times reports.

Such strong demand comes after a cold winter depleting stocks to unusually low levels. Inventory levels were low at the end of the summer and have not managed to be replaced during the normally slacker summer months. High demand is not helped by exports of natural gas and distillates running at record levels, aided by strong international demand and low U.S. domestic prices relative to global markets.

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Energy Diplomacy and Security in the Age of Shale Gas Revolution

August 8, 2018

Energy Diplomacy and Security in the Age of Shale Gas Revolution

Importance of energy security

Energy today seems like the very essence of international politics. No overview of current world affairs is meaningful without an examination of the role played by energy. Energy producers, energy consumers, and energy transporters in any country become more important in accordance with the role they play. The study of world affairs requires an understanding of global energy dynamics. What happens above the ground, under the ground, or among nations contributes to the definition of peace and coexistence in various regions of the planet. By addressing questions of availability and the acquisition of energy we paint a complete picture of the situation throughout the world. When inquiries about energy have not been answered, nothing has been fully answered.

There are issues that need to be explored in relation to energy and its importance to world affairs. We can sketch out some of them, starting with the importance of the issues of security.

These are: Security from energy shortages, security from events above the ground, the security of energy transportation, security from financial turmoil, and European energy security.

1. Security from inadequate energy

It is of crucial importance for every sovereign nation to have guaranteed supplies of energy. Some are blessed with the ability to produce enough energy (oil or gas) supplies to satisfy their needs and export to others. These countries, apart from being energy sufficient, are also quite wealthy due to their ample resources. They do however face problems of their own. The availability of natural resources leads nations to serious economic problems. The inflow of foreign currency raises exchange rates, making any domestic products very expensive — thus hurting exports while imports become cheap and very attractive. In this way domestic industry suffers and consumers turn to foreign imported goods.

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The U.S. Remains The Natural Gas King

August 5, 2018

The U.S. Remains The Natural Gas King

Data from the 2018 BP Statistical Review of World Energy show that last year the U.S. maintained a healthy lead as the global natural gas powerhouse.

In 2017, the U.S. produced an average of 71.1 billion cubic feet per day (Bcf/d) of natural gas. That’s a 1.0 percent increase from 2016 production, but not quite good enough to beat the 2015 record of 71.6 Bcf/d.

That was still good enough for a 20.0 percent share of the world’s total natural gas production.

Shale Gas Puts U.S. Back on Top

To put the U.S. production numbers in perspective, natural gas production for the entire Middle East was 63.8 Bcf/d. Russia, in second place among countries, saw its natural gas production surge by 8.2 percent, but at 61.5 Bcf/d that was still well behind the U.S.

(Click to enlarge)

Natural gas production 1970-2017

The U.S. had dominated global natural gas production until the 1980s, at which time it ceded the lead to Russia. The Middle East has grown its natural gas production at a much faster rate over the past 50 years, though, and is on pace to take the lead during the next decade.

U.S. natural gas production had been in decline until the fracking boom that began in the middle of the previous decade. Production grew in the U.S. by an astounding 51 percent from 2005 to 2015, which pushed the U.S. back into the global lead.

U.S. consumption has also grown rapidly as power plants have turned increasingly to natural gas as both a replacement for coal-fired power, and a backup for new renewable capacity.

U.S. Gas Exports are Surging

Another important outlet for U.S. natural gas production has been exports, both via pipeline and as liquefied natural gas (LNG). LNG exports from the U.S. reached 1.7 Bcf/d in 2017, equivalent to about 2.4 percent of U.S. natural gas production. Mexico received nearly 22 percent of these exports, while the Asia Pacific region received 41 percent.

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The Secret of the Great American Fracking Bubble

April 18, 2018

The Secret of the Great American Fracking Bubble

Natural gas drilling well pad in Wyoming

What was McClendon’s secret? Instead of running a company that aimed to sell oil and gas, he was essentially flipping real estate: acquiring leases to drill on land and then reselling them for five to 10 times more, something McClendon explained was a lot more profitable than “trying to produce gas.” But his story may serve as a cautionary tale for an industry that keeps making big promises on borrowed dimes — while its investors begin losing patience, a trend DeSmog will be investigating in an in-depth series over the coming weeks.

From 2008 to 2009, Chesapeake Energy’s stock swung from $64 a share under McClendon to around $17. Today, it’s worth just $3 a share — the same price it was in 2000. A visionary when it came to fracking, McClendon perfected the formula of borrowing money to drive the revolution that reshaped American energy markets.

An Industry Built on Debt

Roughly a decade after McClendon’s rise, the Wall Street Journal reported that “energy companies [since 2007] have spent $280 billion more than they generated from operations on shale investments, according to advisory firm Evercore ISI.”

As a whole, the American fracking experiment has been a financial disaster for many of its investors, who have been plagued by the industry’s heavy borrowing, low returns, and bankruptcies, and the path to becoming profitable is lined with significant potential hurdles. Up to this point, the industry has been drilling the “sweet spots” in the country’s major shale formations, reaching the easiest and most valuable oil first.

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