WHEN IT COMES TO SHALE GAS PRODUCTION IN THE U.S., WHO'S CRYING NOW?
Sackville Tribune-Post :: 23 April 2014
While the N.B. government continues to use strong arm tactics to further plans for shale gas development in the province, despite the concerns of a doubtful public, other jurisdictions are revealing new evidence that this industry is not a logical choice with which to pursue environmental health or economic prosperity.
What N.B. politicians should do at this time is to check the status of natural gas production in the richest fields in America, from the Bakken in the northwest, to Haynesville down south, up to the Marcellus in the northeast. After over ten years of exploration the prediction by some, that shale gas would be a short term bubble with higher than expected costs, has become a reality.
David Hughes, Canadian geoscientist and founder of Global Sustainability, authored a 2013 report,"Drill, Baby, Drill", in which he examined the prospect of unconventional shale gas drilling ultimately providing energy self-sufficiency in the U.S. Here is his description of the shale gas strategy during the last decade and how things have turned out. "Shale gas production has grown explosively to account for nearly 40% of U.S. natural gas production: never the less production has been on a plateau since Dec. of 2011--80% of shale gas production comes from five plays, several of which are in decline. The very high decline rates of shale gas wells require continuous inputs
of capital--estimated at $42 billion per year to drill more than 7,000 wells--in order to maintain production. In comparison, the value of shale gas produced in 2012 was just $32.5 billion. Moreover, the basic economic viability of many shale gas plays is questionable in the current gas price environment." In other words the industry is not even coming close to breaking even.
When President Obama suggested during the Ukrainian crisis, that the U.S. would supply the EU with natural gas in the future, both scientists and journalists examined what that enterprise would involve and whether it would be possible. In the first place such an exchange would require serious infrastructure changes at both ends. The U.S. has no appropriately positioned liquid natural gas (LNG) export facilities and neither does the Ukraine. At an estimated $5-10 billion per facility that alone would be a questionable investment. Add to that the increased environmental concerns and the impact of increased production on climate, methane from gas production produces 86x as much heat as Co2 over twenty years, and you have a political promise unlikely to be kept.
But by far the most interesting turn of events is the fact that after a decade the viability of shale gas plays in the U.S has dropped dramatically. The wells are not producing the quality or quantity of shale gas that they were at the start. This was, to some extent understood to be a probability, but it is happening far more quickly than the industry
anticipated. In addition to this the costs of operation are significantly higher than the revenues that the wells produce. Higher prices for other petroleum liquids are helping to offset the losses now, but the higher cost of uneconomic wells will continue to grow as the resources are exhausted.
The initial shale gas boom slashed prices from $13.50 (per metric cubic foot) to $2 last year, boosting U.S. industry, but causing a net loss for the gas companies of at least $93 billion in 2012. Exxon Mobil's executive director Rex Tillerson said, "We are losing our shirts." Chesapeake Energy, the second largest oil and gas company in the U.S. and $20 billion in debt, recently filed with the Securities and Exchange Commission to sell its oil field services unit which manages their shale gas operations. Since mid March, BP, Chevron, Exxon Mobil and Shell have all announced that they will be spending less on their oil and gas operations for now. In 2011 Shell earned roughly $28 billion from their shale gas sector only to see it drop to $20 billion in 2013. Exxon
Mobil spent $25 billion to acquire XTO Energy for exclusive shale gas activities, this investment diluted their profits which cannot be compensated for by increasing oil production.
The investment bankers are worried as well. Allen Brooks a managing director in an investment bank in Texas agrees that all in all "the results of the shale gas revolution have been disappointing, leading to significant asset impairment charges
and negative cash flows." This is a far cry from the optimistic expectations of just ten years ago. All of which should be duly noted by the N.B. government. Why would we want to pursue the development of such a questionable and risky resource in a province that has so much to lose if things should not go as anticipated?
Donna Mclellan for the Tantramar Alliance Against Hydrofracking
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