What Shale Gas Investors Should be Told About the Industry

by S. Tom Bond on November 14, 2012

What Shale Gas Investors Should be Told About the Industry

The shale drilling industry is a giant – so large it takes a great deal of study to understand what is going on. For most folks it is like the elephant of the fable. One blind man felt its side and thought it was like a wall, one felt its tail and thought it was like a rope and one felt its trunk and thought it was like a tree.

Investors are particularly unlikely to have a clear picture: they don’t see the wells and the damages, don’t get to talk to the actual drilling people or the neighbors in the gas field, and they aren’t particularly interested in environmental concerns. Most only want the highest, quickest return on their money invested. They simply choose among suitors, like the belle of the ball. Here is some of what Mr. and Mrs. Investor should understand.

The shale drilling suitor, like any salesman, tells only the “good part.” How the wells have a quick return, once drilled. How the world needs the energy and how governments “bend over backward” to accommodate drilling. How there is a huge volume of gas in the new reserve. And, how the new technology provides easy access to it.

There is much more that needs to be said, however. The new technology, first put together by George Mitchell, with the help of the Department of Energy just before 2000, has a series of problems that accompany it. It never went through a “pilot plant” stage, with careful testing for its effects on the health of people living near the drilling, nor for the other environmental impacts. It was adopted wholesale, and although minor tweaks have been tried to improve production, the attendant problems which pop up everywhere it is tried (and which make people fighting mad) are simply denied! Any attempt to study them is put down any way the industry can.

Claims the wells will continue producing 30 or 40 years are based on conventional wells. Shale wells have a fantastic production at first, which makes great sales talk for investors, but in fact, half the production of shale wells occurs in two or two and a half years. Well after well must be drilled to keep up production in any particular gas field.

The original objective of the entrepreneurs appears to have been leasing with the objective of selling gas at high market prices. This was initially very profitable for those running this game, like Aubrey McClendon, who had a net worth reported to be $1.1 B, according to Forbes in March 2012. His 2008 total compensation was $112,464,517, making him the nation’s top-paid CEO, according to Tulsa World.

Determining the ultimate reserve of shale gas is a difficult project. Claims to the public have been reduced several times. One thing that is now becoming apparent is the productivity of different areas within the fields varies considerably. There are “hot spots” in the fields and other areas where production is not economic. Claims for 100 years of natural gas supply should not be taken too seriously.

The percent of the resource recovered is around 10% at best, and no plan for anything like “secondary recovery” is discussed. Although gas use in electrical generation has increased the last two years, it is mostly due to use of gas in dual-fuel plants. Many plants exist which were designed to use gas to increase wattage at high-demand times such as other plants being put off-line or during periods of extremely hot weather. Now gas is used for routine production, due to low price, and coal is used for emergencies.

Gas-only electrical generating plants can be designed with dual-cycle, very high efficiency engines. The dual-cycle plants approach 60%, vs. low forty’s for thermal cycle plants. But electrical generating plants are built for 40 to 60 year use, and electrical power executives are reluctant to rush in and build new plants that cannot use coal before the long term availability of natural gas supply is assured at a low price.

If the supply is very large and is available for many years, and it is shipped overseas, it will serve neither national security nor be likely to replace coal on price. And certainly not be cheap for personal use.

Health claims from shale drilling are being actively investigated. No money for this will come from the industry and not much money from government, due to the immense political power of the money and the story told by the industry. But it is coming anyway, from brave physicians and public health experts. We can be sure the results will be attacked by industry by every means at their disposal, just as claims of destroyed aquifers have been.

And the companies always deny doing any harm. If they become involved in a law suit, they settle out of court, requiring the victim to refrain from discussing the settlement – gag them – but pay well for the restraint.

So, Mr. and Mrs. Investor, your money will be “in good hands” with the shale industry, but a lot of innocent people are going to get ground up while you are getting it back.

>>> S. Tom Bond raises cattle on 500 acres in Lewis County, WV. He has been active in the Guardians of the West Fork and the Monongahela Area Watersheds Compact. <<<

Leave a Comment

Previous post:

Next post: