Stop me if you’ve heard this one. What’s an obscenity that starts with “f” and ends with “ck”?
Oh wait, sorry, this is supposed to be a
serious article
about fracking. That’s right, we’re talking about The Biggest
Development in the energy world since the birth of the sun, the
Revolution that is freeing America forever from bondage to oil imports.
But here’s the thing: though this revolution is only a few years old, it’s already losing steam. There are two big reasons why.
The first has to do with environmental problems that can’t be swept
under the carpet any longer. The image of a homeowner lighting his tap
water on fire in Josh Fox’s documentary film “Gasland” has become a
cliché; still, for a while the industry was successfully able to argue
that adverse impacts from fracking to water, air, soil, wildlife,
livestock, and human health are negligible.
Industry-funded studies declared the practice safe, and the EPA appeared to back them up.
Drilling companies tended to target economically depressed regions,
where poverty forced most townsfolk to take whatever short-term jobs and
production royalties were offered, while stuffing their concerns about
nosebleeds, headaches, dying pets, intolerable noise, and tainted water.
Meanwhile, citizens who suffered the worst health effects or property
damage were led to sign non-disclosure agreements in order to receive
settlement payoffs (including two children ages 7 and 10 who have been
given lifetime bans from speaking about fracking), thus keeping their plight out of public view.
But the bad news just keeps leaking, like methane through a bad well
casing. Former Mobil Oil VP Louis W. Allstadt, who spent his career
running oil production operations and company mergers,
now speaks on behalf of anti-fracking resistance groups, pointing to studies revealing that compromised casings (and resulting instances of water contamination)
are far more common than the industry claims.
Meanwhile
Los Angeles Times has
uncovered documents
showing that the EPA has systematically ignored evidence of
environmental harms from fracking, choosing not to publicize or act on
data collected by its own staff.
A few years ago fracking for shale gas or tight oil was still novel
and confined to small regions, but now tens of thousands of wells have
been drilled and millions of Americans have personal experience with the
noise, truck traffic, fumes, and local political turmoil that seem
inevitably to follow in fracking’s wake. Hundreds of anti-fracking
citizen groups have formed, public sentiment is turning, and communities
have begun seeking bans or moratoria on the practice. The industry is
on the defensive: Wayne County, PA activists are
currently celebrating the cancellation of 1500 drilling leases covering 100,000 acres of land.
Americans are being subjected to a massive PR
assault attempting to persuade them that shale gas and tight oil have
brightened America’s energy future. The problem? It's simply not true.
New York State’s moratorium on fracking remains in effect, despite
massive industry efforts to end it. Meanwhile the Colorado city of
Longmont has
voted to ban fracking altogether, and the State of Colorado
is suing the city.
Fracking’s second problem is actually a bigger one, though less publicized:
its production potential was over-sold.
Everyone who pays attention to energy issues has heard that America has
a hundred years or more of natural gas thanks to the application of
fracking to shale reservoirs, and that the US is on track to out-produce
Saudi Arabia now that oil is flowing from fracked fields in North
Dakota and Texas. To most, the news at first sounded hopeful and
reassuring. Yet as actual production numbers accumulate, it appears that
claims made for fracking were simply too good to be true.
It turns out there are only a few “plays” or geological formations in
the US from which shale gas is being produced; in virtually all of
them, except the Marcellus (in Pennsylvania and West Virginia),
production rates are already either in plateau or decline.
Why so soon? A major challenge bedeviling drillers is the high
variability within shale plays. Each tight oil or shale gas-bearing
geologic formation tends to be characterized by a small core area
(usually a few counties) where production is profitable and plentiful,
surrounded by a much larger region where per-well production rates are
lower to start with and drop fast—often falling 60 percent during the
first year. Given the expense of horizontal drilling and fracking, it’s
hard to make money in non-core areas unless oil and gas prices are
stratospheric. As the “sweet spots” get drilled to capacity, producers
are being forced to the fringes, taking on more debt because sales of
product don’t cover operating expenses.
With decline rates so high, promised production volumes are turning
out to be so much hype. America’s hundred years of natural gas, heralded
by President Obama as a national energy game-changer, actually amounts
to a mere 24 years by official estimates, even less according to
unofficial but well-informed calculations.
Oil analyst Rune Likvern says shale gas and tight oil
suffer from the “Red Queen” syndrome, citing a character in Lewis Carroll’s
Through the Looking Glass.
In the story, the fictional Red Queen jogs along at top speed but never
gets anywhere; as she tells Alice, “It takes all the running you can
do, to keep in the same place.” Similarly, with worsening well decline
rates, it will soon take all the drilling the industry can do just to
keep production steady; then, as all the best drilling sites are
exhausted, the Red Queen will start falling behind. Before 2020, shale
gas and tight oil production
will top out and start to decline. Americans will wonder what happened to the lavish economic benefits the industry promised.
Recently Shell took
a $2 billion write-down on its liquids-rich shale assets
in North America. While no details were released, it’s likely the
company was simply acknowledging the unprofitability of leases in
non-core regions, purchased back when shale plays were being advertised
as “manufacturing operations” in which companies could successfully sink
a drill bit virtually anywhere.
The oil industry itself is starting to learn that the shale revolution just ain’t all it was fracked up to be.
Despite continuing profits, the oil-and-gas industry as a whole
appears to have entered its sunset years. Major oil companies have seen
production
decline by over 25% in the last decade.
Both the number of wells drilled and the amount of inflation-adjusted
capital invested in exploration and production have doubled, with
negligible results. Raymond Pierrehumbert, Professor of Geophysical
Sciences at the University of Chicago,
recently summarized the situation
with crystalline brevity: “Oil production technology is giving us ever
more expensive oil with ever-diminishing returns for the ever-increasing
effort that needs to be invested.”
Which brings us to the bottom line. Americans are being subjected to a
massive PR assault attempting to persuade them that shale gas and tight
oil have brightened America’s energy future. What has really changed is
the nation’s energy
conversation: until recently, it was about
how we should reduce our dependency on depleting, climate-changing
fossil fuels. Now our “conversation” has become a one-sided harangue
about the energy, jobs, and tax revenues the industry insists will flow
from fracking from now ’til kingdom come, and how these outweigh
environmental concerns.
The data do not support these claims. Therefore it is critically
important that we return America’s energy focus to the most critical
imperative of our time—the necessary and inevitable transition away from
our current dependence on fossil fuels.
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