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Are We Living Through a Shale Bubble?

On May 24th, J. David Hughes and Deborah Rogers gave a briefing to summarize the findings of two new reports dismantling the myth of a “shale revolution”. We’ve heard about it in the media, on both sides of the political aisle: shale gas and oil are the future of US energy. Indeed, natural gas prices dropped thanks to hydraulic fracturing (or fracking) and horizontal drilling, which helped lower the country’s carbon emissions by reducing coal consumption. In January, Barack Obama said that: “We have a supply of natural gas that can last America nearly 100 years, and my administration will take every possible action to safely develop this energy.”  This myth led to a gas drilling frenzy that have benefitted Wall Street investment banks, one that evidence suggests can’t be sustained for very long.
Type decline curve for Bakken tight oil wells / Photo courtesy of J. David Hughes / Post Carbon Institute Type decline curve for Bakken tight oil wells / Photo courtesy of J. David Hughes / Post Carbon Institute

J. David Hughes, geoscientist and author of “Drill, Baby, Drill: Can Unconventional Fuels Usher in a New Era of Energy Abundance?” explained why shale production is not sustainable. Depending on the area, the quality of shale plays—geographic areas targeted for exploration—can be totally different, which leads to a concentration of wells in “sweet spots.” He said quality plays are “relatively rare.” 80 percent of shale gas production comes from only five plays with several declining. The biggest issue is the high depletion rate of wells.  For instance, wells in the largest tight oil play of the country have an average depletion rate of 69 percent in the first year and 94 percent in 5 years. Companies need to build more and more of them to maintain production levels, and it is often not enough. For instance, in 2008, the benefits of the shale industry in Fort Worth, Texas, were $50 million for 44 wells. In 2012, it was $23 million for 397 wells. According to Hughes, shale gas is over-hyped in terms of long-term supply. Production has grown explosively to reach 40 percent of US natural gas production but this increase stopped in December 2011. The shale gas industry needs to drill 7,200 new wells every year to maintain production, which cost over $42 billion. Of course, the industry started with the best plays. According to Deborah Rogers, financial consultant, founder of the EnergyPolicyForum and author of “Shale and Wall Street: Was the Decline in Natural Gas Prices Orchestrated”, US shale gas and oil reserves have been overestimated by a minimum of 100 percent and a maximum of 500 percent. Read more at the Worldwatch Institute's blog: Is Sustainability Still Possible?