Chesapeake Energy, Climate Change, Colorado School of Mines, Corporate Mouthpiece, Dmitry Orlov, Fareed Zakaria, Gas Fracking, Gazprom, Glenn Greenwald, Josh Fox, Marcellus Shale, Michael Miller, T. Boone Pickens, The U.S. Department of Energy, Tom Friedman, Wall Street Fraud, Wolf Richter
This guy Friedman sparked my interest from the last post on America’s corporate talking heads, so I looked to see what Tom has been writing about recently (Get It Right on Gas) and thought I’d dispel Tom’s
delusional corporate-funded views about natural gas in America. But before I do that, I little history on Tom:
Thomas L. Friedman won the 2002 Pulitzer Prize for commentary, his third Pulitzer for The New York Times. He became the paper’s foreign-affairs Op-Ed columnist in 1995. Previously, he served as chief economic correspondent in the Washington bureau and before that he was the chief White House correspondent. In 2005, Mr. Friedman was elected as a member of the Pulitzer Prize Board.
In a recent essay, Glenn Greenwald, who by the way is now writing for the UK Guardian, described Friedman in the following manner:
If I had to pick just a single fact that most powerfully reflects the nature of America’s political and media class in order to explain the cause of the nation’s imperial decline, it would be that, in those classes, Tom Friedman is the country’s most influential and most decorated “foreign policy expert.”
Now on to Friedman’s misinformed article about natural gas in America, Get It Right on Gas, which gets it totally wrong on natural gas. In the article, Friedman calls America’s natural gas deposits a “potential game changer” and that it “may soon be powering cars, trucks and ships as well.” It’s the usual spiel we’ve been hearing for several years now. The reality is that the supposed natural gas boom is indeed a financial Ponzi scheme on a grand scale based on false claims of economically recoverable reserves. Remember last year the news story about internal documents from financial insiders and experts of gas drillers that surfaced? Various internal memos said the following:
An August 2009 memo from the firm IHS Drilling Data says, “The word in the world of independents is that the shale plays are just giant Ponzi schemes and the economics just do not work.” Earlier this year, an analyst at PNC Wealth Management compared natural gas projects to the dot-com boom, saying, “money is pouring in” even though drilling is “inherently unprofitable.” In another memo, a retired geologist for a major oil giant writes, “These corporate giants are having an Enron moment… They want to bend light to hide the truth.”
…thanks to the Feds zero-interest-rate policy and the trillions it has handed over to its cronies since late 2008, the sweeps of creative destruction have broken down. Instead, boundless sums of money have been searching for a place to go, and they’re chasing yield when there is none, and so they’re taking risks, any kind of risks, in their vain battle to come out ahead…
…But the money has dried up. And drilling for natural gas is collapsing. Last week, there were only 562 rigs drilling for dry natural gas, the lowest number since September 1999…
…At $2.53 per million Btu at the Henry Hub, the price of natural gas is up 33% from the April low of $1.90 per million Btu, a number not seen in a decade.
…even if it doubled, it would still be below the cost of production. And if it tripled, it might still be below the cost of production for most producers. That’s how mispriced the commodity has become.
The economics of fracking are horrid. All wells have decline rates where production drops over time. But instead of decades for traditional wells, decline rates in horizontal fracking are measured in weeks and months: production falls off a cliff from day one and continues for a year or so until it levels out at about 10% of initial production. To be in the black over its life under these circumstances, a well in the Barnett Shale would have to sell its production for about $8 per million Btu, pricing models have shown….
…Drilling is destroying capital at an astonishing rate, and drillers are left with a mountain of debt just when decline rates are starting to wreak their havoc. To keep the decline rates from mucking up income statements, companies had to drill more and more, with new wells making up for the declining production of old wells. Alas, the scheme hit a wall, namely reality…
It’s interesting to note that the Russian gas company, Gazprom, hired an American consulting firm just 20 miles from the White House in Fairfax, Virginia to analyze the economic viability of the natural gas “boom” in America. With the data collected by Pace Global Energy Services, Gazprom concluded the following:
“We think the current US gas market model is unsustainable in the medium and long term,” Komlev told Platts via email. “We forecast that soon, the disparity between the shale gas costs and sales price will disappear. When it happens, it will make the US plans to become a major gas exporter economically unviable.”
…Based largely on Pace’s review of quarterly earnings reports and other financial data from US gas companies, Gazprom says the true costs of shale-gas production are upwards of 150% higher than the revenues its practitioners have been reaping in the last few years. But companies are continuing to use the approach for now, Komlev says, because they are also producing some higher-priced gas liquids in the process.
Gazprom also believes that shale-gas drillers will incur additional costs to ensure that the chemicals they use in the fracking process will not contaminate underground sources of drinking water.
In a May 2012 article, Dmitry Orlov quotes Gazprom’s chairman, Alexei Miller:
“Shale gas is a well-organized global PR-campaign. There are many of them: global cooling, biofuels.” He pointed out that the technology for producing gas from shale is many decades old, and suggested the US turned to it out of desperation.
In addition to the poor or nonexistent EROEI and short life of shale gas wells in the U.S., Orlov also brings up a problem I was not aware of with Marcellus Shale, and that is its radioactivity:
Thanks to Marcellus shale gas, radioactive radon gas is being delivered directly to your kitchen, via the burners of your stove, or to a power plant smokestack upwind from where you live. This is expected to result in increased lung cancer rates in the coming years.
Michael Miller, writing an article for the Anton News of New York, had this to say about the natural gas bubble:
Last week, three Bradford County families reached a $1.6 million settlement with Chesapeake Energy of Oklahoma City (“America’s Champion of Natural Gas”), compensation for the ruination of their water wells by methane gas migrations from nearby high volume hydraulic fracturing (“fracking”) operations. This is the first time ever that details of a Marcellus Shale settlement have been revealed to the public, at the insistence of the families…
…Gas companies sold large chunks of futures last year at more than $5 per million BTU. Even if they’re still doing well on paper, these prices are far below the cost of production. Chesapeake Energy now leases drilling rights on over 15 million acres of land (more than eight times the area of Nassau and Suffolk Counties) and makes its profits mostly by flipping properties. In 2010, the company sold land it had purchased in Texas for $2,000 an acre to a large Chinese oil company for $11,000 an acre, making a profit of $2.2 billion…
…Natural gas wells can’t compete for investment capital with oil wells, which have a much higher “Energy Returned On Energy Invested” ratio (after only several months, sometimes only several weeks, production from fracked wells falls off the table and levels off at about 10 percent of initial production). That’s why gas companies are flooding daytime television and the halls of the State Capitol in Albany with millions of dollars in advertising and lobbying power, trolling for small investors and warning off politicians who might be tempted to meddle. And this has been working.
Many of us, exposed to the incessant propaganda, think that America is poised to become the energy-exporting powerhouse it once was, if only the government would get out of the way. In fact, the natural gas industry as we know it wouldn’t exist without massive subsidies and tax breaks. Last week, it was reported that since its founding 23 years ago, Chesapeake Energy has paid only $53 million on its $5.5 billion in profits.
The U.S. Department of Energy has cut its estimate of gas available in the Marcellus Shale by nearly 70 percent. A Colorado School of Mines report estimates that the U.S. has a recoverable gas supply of 23 years, not the “near 100-year supply” that President Obama still talks about as a centerpiece of his energy plan.
Recently, a coalition of 55 institutional investors with over $1 trillion in assets called on companies involved with shale gas fracking to police themselves and reign in the tactics that are turning off America and putting everybody’s money at risk. T. Boone Pickens, the billionaire who toured the country promoting natural gas as the answer to our country’s energy problems, announced in May that he was “out of the natural gas stocks…We didn’t like natural gas.”
The money is talking.
There are no easy answers to our energy, climate and fiscal situations, and fossil fuels are made mostly of carbon, not magic.
I contacted Michael Miller by email and asked for his sources which he emailed me, also telling me other sources included personal contacts of “people in government, particularly Albany.” So there you have it. The natural gas boom is pretty much a bust egged on by low-interest loans by the Fed, financial shenanigans of energy corporation executives, and America’s desperation for energy in the age of peak oil. I did not get into the other major environmental disasters of gas fracking in this post, but I have talked about them in Profiting Off Acts of Desperation, and I posted the mini-documentary “The Sky is Pink” here. I noticed that Josh Fox, producer of the aforementioned documentary, made a comment on Tom Friedman’s article:
Recently, politicians and publications have conditionally endorsed so-called “safe fracking” as a part of the nation’s energy mix. But safe fracking is an impossibility, and the industry’s claims for it are knowingly based on false premises.
Chief among them is the notion that a “leakproof well” is possible. We’ve heard time again that strict regulation is the key to moving forward on fracking, and that new regulations should make sure that industry constructs leakproof wells that do not pollute the water table. There is no such thing as a leakproof gas well. The gas industry knows this; in fact, it has known it for decades.
I recently made a short film addressing the well casing failure issue called THE SKY IS PINK and you can watch it here: www.pinkskyny.com.
A 2003 joint industry publication from Schlumberger, the world’s No. 1 fracking company, cites astronomical failure rates of 60 percent over a 30-year span. To imagine gas companies voluntarily committing to an eternity of costly maintenance on wells failing at ever-increasing rates is beyond credulity. “Safe fracking” is a contradiction in terms.
Leaking gas wells at these rates mean thousands across the nation have enough contaminants in their water and land to render them unfit for residential use.
It’s not only the gas wells that have integrity problems; it is the oil and gas industry itself. We can believe in their self-interested assertions of leakproof wells about as much as we can expect pigs to fly.
In addition to what Josh mentioned above, a 2009 Cornell University study suggests that Shale Gas may be worse than coal as far as greenhouse gas emissions are concerned, with substantial levels of methane leaks traced back to underground Shale Gas operations. Will America’s natural gas reserves make it energy independent? I’ll believe that when pigs fly.
Post Script: I just noticed that the other major corporate mouthpiece, Fareed Zakaria, is also singing the praises of America’s wondrous bounty of natural gas…