Peak Shale

About seven years ago, a film maker friend of mine started visiting with me after our workouts.  He had been working on a film, a puff piece actually for a guy named Aubrey McClendon.  Aubrey, as you may recall, was the guy who pretty much started the whole shale gas play excitement with his company Chesapeake.

My film maker friend, knowing that I am a big renewable energy guy, was telling me that there is this new process which will provide us with all the natural gas we will ever need for at least the next one hundred years.  I was skeptical but interested, so I asked him if he could send me the rough cut of his film.  The film, to his credit, was more than a puff piece for Mr. McClendon, it was a compelling story of how the first big shale play, was being mined right out from underneath Ft. Worth, Texas.

It was perhaps the first big urban oil field.

Now, some seven years later, who can't turn on the news without seeing that nice looking thin lady tell you about shale gas and how cheap and plentiful it is... and how everything is good again.  There is no end to our finite resources, and no problem with burning it, because climate change is not really happening and if it is, we really can't  fix it, and so forth and so on.

For various reasons, I track natural gas prices.  It's part of being an energy guy.  And for the last couple of years I've been telling folks that the so called shale gas miracle might actually be just a oil and gas flash in the pan, a slight of hand, a good story, one that we all want to believe.

Like this story from a Chevron page:

Natural gas is an efficient energy source and the cleanest-burning fossil fuel. Natural gas extracted from dense shale rock formations has become the fastest-growing source of gas in the United States and could become a significant new global energy source. Although the energy industry has long known about huge gas resources trapped in shale rock formations in the United States, it is over the past decade that energy companies have combined two established technologies—hydraulic fracturing and horizontal drilling—to successfully unlock this resource.

The U.S. Energy Information Administration (EIA) estimates the United States possesses more than 2,500 trillion cubic feet of technically recoverable natural gas resources, of which 33 percent is held in shale rock formations. Natural gas from shale has grown to 25 percent of U.S. gas production in just a decade and will be 50 percent by 2035, according to the EIA. 

I've had oil and gas cowboys from Midland as well as so called serious energy thinkers try to rib me about how all my work in renewables is going to collapse and fall into the sea of sorrow as the shale gas revolution changes everything we know about energy. They have lectured me about  their vision of the foreseeable future, a future bathed in an oily ointment of lies.

Sure, there are little problems with water use and aquifer destruction, but the future is clear, shale gas and oil is once again king.

So, as the above graph shows, there has been tremendous growth in shale gas production.  But in the last four months or so, it has slowed down, and as of last month,

It has peaked.

And you can see a new story beginning to emerge.  This from the Financial Times:

The price of US natural gas reached an 18-month high on Friday as stocks continued to fall, and hopes intensified that the effect of the shale revolution on the commodity may be waning.

“Imagine a scenario in two to three years’ time where the US gas price has ticked back up because the decline rate in US shale [production] is so high, which means you’ll need a higher price to spur investment for incremental production,” said Mark Lewis, European head of energy research at Deutsche Bank."

Or take this story from CS Monitor:

 As U.S. natural gas prices flirt with the $4 mark, some skeptics of the so-called shale gas revolution think prices are headed much higher. Such a move would, not surprisingly, seriously undermine the official story that the United States has a century of cheap natural gas waiting for the drillbit.

Several years ago when natural gas began flowing in great quantities from deep shale deposits beneath American soil, it seemed to be the beginning of the end of America’s troubled journey into dependence on energy imports—a journey marked by frequent worry, occasional war and enormous expense.

And that's the problem. The Shale Gas play is based on selling six or seven dollar gas for half that price.  And like the old joke about the farmer selling a truck of watermelons for half what it cost him to grow it, the answer is not more trucks.

And even the always willing to be an O and G hooker UT Bureau of Economic Geology sees the Barnett Shale, the shale that started it all,  declining from now on.

A new study, believed to be the most thorough assessment yet of the natural gas production potential of the Barnett Shale, foresees slowly declining production through the year 2030 and beyond and total recovery at greater than three times cumulative production to date. This forecast has broad implications for the future of U.S energy production and policy.

Yes, I would say it does.

Sure, higher prices will bring more production, but it also means that wind generated electricity at four cents/Kwh will be  competitive with six cent/Kwh gas electricity. (six dollar gas)

And large scale solar will be right there in that same range...without poisoning the water or changing the climate.

And unlike all of these flash in the pan finite resources,

Our abundant renewable resources only peak

with our imaginations.


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