Hot under the collar in the shale gas boom

Is there an exaggerated quality to the extraordinary projections and tens of billions of dollars pouring into shale gas, the newly available fuel that has shaken up markets and geopolitics? The answer is yes -- estimates for global shale gas reserves and future production are all but certainly over the top; likewise, the world's major energy companies -- ExxonMobil, Shell, Total, Sinopec, Statoil, and so on -- have probably committed excessive sums to this new source of energy.

Are we surprised? The answer is no -- students of hydrocarbon bonanzas know that, going back to the 19th-century frenzies of Baku and Pennsylvania, reserve assertions in the heat of the boom are not reliable. Such outbreaks of exuberance, regardless of whether fundamentally legitimate, include con artists (hence suckers), cooked books (more suckers), and out-and-out fraud (ditto). In the Caspian era of the 1990s, for instance, the Clinton administration, relying on lobbying reports from Amoco, justified a supercharged policy effort with estimates of 200 billion barrels of oil; the actual figure as of today is closer to 50 billion barrels. Yet companies and individual investors proceed anyway because they do not want to potentially miss out.

Which is what makes one puzzled by the war-like reaction to two long, ambitious, but fairly run-of-the-mill pieces in the New York Times ("Insiders Sound an Alarm Amid a Natural Gas Rush" and "Behind Veneer, Doubt on Future of Natural Gas") by Ian Urbina. In 5,300 words, plus a splash of leaked memos and emails, Urbina reports that U.S. natural gas prices are too low to justify much of the drilling and that companies have been possibly permitted by the Securities and Exchange Commission to overstate their gas reserves (the latter by far the best of the three pieces). Today, Urbina adds a piece with federal lawmakers calling for an investigation.

I have weighed in on how the very real volumes of shale gas being extracted from Texas, Oklahoma, and elsewhere are already transforming geopolitics, weakening Russia's hold on Europe, for instance. Yet we also know about the nightmare (for drillers) of low natural gas prices (this piece by Jack Smith at the Fort Worth Star-Telegram is excellent). The industry's full potential is being put in jeopardy by the interesting PR policies of industry hands like Chesapeake Energy CEO Aubrey McClendon (above left, with Jack Nicklaus). In addition, as noted above, wise hands have understood they must discount promotional estimates and characterizations by the shale gas marching band.

Yet Urbina seemed to strike a sensitive nerve. McClendon issued a special statement in which he said Urbina is "obviously motivated by an anti-natural gas agenda," and "chose not to interview a single reliable source." Similarly, the ultra-sober Michael Levi at the Council on Foreign Relations dismissed the pieces as just another salvo in the Times' "war on shale gas." The Energy Information Administration released an explanatory letter it had written to Urbina in advance of publication. Over at Forbes, Christopher Helman, calling Urbina's reporting "absurd on its face," posed the question, "Would drillers be investing billions a year in new wells if they weren't getting some return out of it?" (Answer: yes. The reason is that many of the leases require drilling in order to keep possession of the fields).

So what is going on with this storm? Is it a slow news cycle? Do we have a Shakespearean denial? Parenthetically, one observes that the much-reported demise of the impact of mainstream newspapers is premature. More to the point, shale gas may be exaggerated, but it is being produced in substantial volumes. And it is shaking up the status quo.

Ultimately, we get a fairly mundane conclusion. Which is that, with much at stake, booms tend to make people hot under the collar.

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