Fossil Fuels new fracking reports show natural gas bubble could burst

Published on February 20th, 2013 | by Tina Casey


New Fracking Reports: Gas Bubble About To Bust

February 20th, 2013 by  

Two new fracking reports came out earlier this week, and they reveal some serious new cracks in the booming natural gas industry. Fracking, the drilling method that involves pumping a chemical brine underground, has already been linked to the risk of water contamination, significant methane gas leakage, and even earthquakes. The two reports add another angle of risk, making the case that the gas boom hides a financial bubble that is headed for a bust of epic proportions.

new fracking reports show natural gas bubble could burstWhat We Know About Fracking

For those of you who are new to the issue, anecdotal evidence of fracking impacts is becoming plentiful, but establishing a direct connection in specific cases is difficult because the gas industry is exempt from federal Clean Water Act disclosure regulations.

Under the Obama Administration, the U.S. EPA has been slowly but steadily prying out information about the hundreds of different ingredients in fracking brines. That includes a national fracking study designed to address the impact on water resources.

A report on the study’s progress was released last December, with a final report due out in 2014.

In the meantime, the aforementioned episodes of water contamination and earthquakes are piling up. A Cornell research team has also produced a study showing significant amounts “fugitive methane” escaping into the atmosphere from gas fields, and a new University of Pennsylvania study has raised concerns over the potential for bringing ancient brine containing traces of barium and radium to the surface.

New Fracking Reports Reveal Financial Risk

Environmental and public health risks aside, if the gas boom turns out to be a bubble  there will be devastating results when it pops.

Last year, Rolling Stone ran an in-depth story on the precarious financial footing of the natural gas industry, focusing on industry leader Chesapeake Energy Corp.

More recently, The Wall Street Journal has been charting Chesapeake’s travails and taking note of persistent weakness in the natural gas market.

New York State Attorney General Eric Schneiderman has also been investigating Chesapeake and other gas companies, to assess the accuracy of their calculations about the long term profitability of gas wells.

The two new reports, “Drill, Baby, Drill” and “Shale Gas and Wall Street,” are available on (a project of Earthworks, Energy Policy Forum and Post Carbon Institute).

“Drill, Baby, Drill” analyzes shale oil (not to be confused with oil shale) and tar sands in addition to shale gas, and here is the money quote:

“Shale gas production has grown explosively to account for nearly 40 percent of U.S. natural gas production; nevertheless production has been on a plateau since December 2001–80 percent of shale gas production comes from five plays, several of which are in decline.”

Now add this piece of insight from “Shale Gas and Wall Street:”

“In 2011, shale mergers and acquisitions (M&A) accounted for $46.5B in deals and became one of the largest profit centers for some Wall Street investment banks. This anomaly bears scrutiny since shale wells were considerably underperforming in dollar terms during this time.”

Basically, the two reports build on the concerns of regulators, laying out evidence that the furious pace of natural gas drilling has not been driven by demand, but by the need for gas companies to maintain profitability in the face of a natural gas glut and a steep decline in recovery rates for existing wells.

Don’t Hold Your Breath on that Bubble Thing

That bubble might be a long time in coming, though. The natural gas glut in the U.S. won’t last long if more of that gas could make it into overseas markets.

In that regard, it’s little wonder that U.S. representatives from several states have already been lobbying hard for the Obama Administration to approve more natural gas exports.

Approval would be great news for the gas industry, its investors and its workforce, but not so great for everybody else. With the export market wide open, gas prices in the U.S. will increase, and with no let-up in drilling the risk of serious negative impacts will continue to grow.

Image: Bubble by mjtmail (tiggy)

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About the Author

specializes in military and corporate sustainability, advanced technology, emerging materials, biofuels, and water and wastewater issues. Tina’s articles are reposted frequently on Reuters, Scientific American, and many other sites. Views expressed are her own. Follow her on Twitter @TinaMCasey and Google+.

  • Brain

    Dear Clean Technica: if you want to be technical, how about putting a DATE on your posts?

    • Bob_Wallace

      Dear Brain,

      Look at the page address in your browser window.

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  • Otis11

    One point of question in this article – regulating the fracking fluid will not stop fracking. As I have mentioned before, I know of at least 1 company whose fracking fluid I would be comfortable swimming in. It will force companies to use more responsible fracking fluids though.

    Also, O&G companies realize that there is a peak of resource extraction right after they perforate. Once the fluids get flowing they will extract much of the oil and gas VERY rapidly, and then after a few months come to a lower level – but this lower level is capable of being maintained for years. This is what we are seeing with the well’s production tapering off slightly.

    So while I think that NG prices will rise, (especially if exports are allowed) it’s not going to be anywhere near as significant as these reports are predicting and I wouldn’t call it a bubble by any means unless policy is enacted that makes it unprofitable. (But such policy would likely make all FFs unprofitable)

    • Bob_Wallace

      The bubble is behind us. It was an investing in natural gas wells bubble when tons of money poured in to the latest great thing. So many new wells were drilled that supply outstripped demand, prices fell, and most of the drilling rigs moved back to the oil fields.

      My understanding is that current prices will not cover the cost of drilling a new well. And that existing wells are dropping in capacity faster than expected. In fact, the EIA recently downsized their estimates of how much NG there is based on the rate of well output decrease.

      That, plus the fact that we are burning more, suggests that we’ll burn until supply tightens and then prices will rise. The futures market has the price of NG up about 20% a year from now and up about 35% by this time 2016.

      We’ve increased our electricity from natural gas output about 25% from what we were burning in 2010.

      • Otis11

        Well, it’s been a few months since I’ve looked into it so things might have changed, but I would expect most of that rise to be due to increased demand as more NG power plants come online and probably also a little on the hope that exports will be allowed. Add in the small increase in price from upcoming regulation and you’re most of the way there…

  • we need a Class Action Lawsuit of Epic Proportions to put a stop to this blatant destruction of our Water Resources

    • agelbert

      Well said. And we also need to ensure that our water resources remain a public utility so that the “blue gold” maniacs in Wall Street don’t use the pollution from fracking as a backdoor attempt to jack up water prices after “privatization” schemes and scams.

  • Damn, give me a pin 🙂

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