Fracking Bubble? Report Warns Shale Gas And Oil Won’t Solve Energy Crunch

Conserving key to energy independence concludes geologist David Hughes

By Andrew Nikiforuk via The Tyee

Governments and financial analysts who think unconventional fossil fuels such as bitumen, shale gas and shale oil can usher in an era of prosperity and energy plenty are dangerously deluded, concludes a groundbreaking report by one of Canada’s top energy analysts.

In a meticulous 181 page study for the Post Carbon Institute, geologist David Hughes concludes that the U.S. “is highly unlikely to achieve energy independence unless energy consumption declines substantially.”

Exuberant projections by the media and energy pundits that claim that hydraulic fracturing and horizontal drilling “can provide endless growth heralding a new era of ‘energy independence,’ in which the U.S. will become a substantial net exporter of energy, are entirely unwarranted based on the fundamentals,” adds Hughes in a companion article for the science journal Nature.

Moreover it is unlikely that difficult and challenging hydrocarbons such as shale oil can even replace the rate of depletion for conventional light oil and natural gas.

Since 1990, says Hughes, the number of operating wells in the U.S. has increased by 90 per cent while the average productivity of those wells has declined by 38 per cent.

The latest panaceas championed by industry and media talking heads are too expensive and will deplete too rapidly to provide either energy security or independence for the United States, concludes the 62-year-old geologist who worked for Natural Resources Canada for 32 years as a coal and gas specialist.

To Hughes shale gas and shale oil represent a temporary bubble in production that will soon burst due to rapid depletion rates that have only recently been tallied.

Taken together shale gas and shale oil wells “will require about 8,600 wells per year at a cost of over $48 billion to offset declines.”

“The idea that the United States might be exporting 12 per cent of its natural gas from shale is just a pipe dream,” Hughes, a resident of Cortes Island in British Columbia, told The Tyee.

‘Tough’ energy’s tough downsides

Unconventional fossil fuels all share a host of cruel and limiting traits says Hughes. They offer dramatically fewer energy returns; they consume extreme and endless flows of capital; they provide difficult or volatile rates of supply overtime and have “large environmental impacts in their extraction.”

Most important, bitumen, shale oil and shale gas, by definition, are much lower quality hydrocarbons and therefore can’t fund business as usual. They simply do not provide the same energy returns or the same amount of work as conventional hydrocarbons due to the energy needed to extract or upgrade them, says Hughes.

At the turn of the century it took just one barrel of oil to find and produce 100 more. Now the returns are down to 20. The mining portion of the tar sands offers returns of five to one while the steam plant operations barely manage returns of three to one, says Hughes. “And that’s an extremely conservative estimate.”

“Moving to progressively lower quality energy resources diverts more and more resources to the act of acquisition as opposed to doing useful work.”

A society that progressively spends more and more capital on acquiring energy that does less and less work will either exhaust the global economy or cannibalize national ones as consumers redirect larger portions of their household budgets to energy costs, says Hughes.

“To view them (unconventional hydrocarbons) as ‘game changers’ capable of indefinitely increasing supply of low cost energy which has underpinned the economic growth of the past century is a mistake.”

The exploitation of shale oil and gas (and Hughes reviewed the data for 60,000 wells for the report) may have temporarily reversed declines in conventional resources but they show dramatic limitations often excluded from the mainstream press.

Drilling into a mirage

For starters shale gas and oil don’t resemble a manufacturing process.

Companies such as Encana claimed in 2006 that they had turned natural gas drilling into a bountiful factory process with so-called “resource plays.”

After drilling a landscape and pulverizing deep formations with high volume hydraulic fracturing the company claimed it could produce predictable and reliable volumes of hydrocarbons across the landscape.

“But geology matters,” says Hughes. In every shale play there are sweet spots and unproductive areas and marginal ones. In fact 88 per cent of all shale gas production flows from six of 20 active plays in the United States while 81 per cent of shale oil comes from two of 21 plays.

Moreover shale gas and oil fields deplete so quickly that they resemble financial treadmills. In order to maintain constant flows from a play industry must replace 30 to 50 per cent of declining production with more wells.

Recovery rates from shale fields are also dismal. Conventional drilling, which uses less energy, often captured up to 70 per cent of the gas in the ground. But shale gas barely averages 10 per cent despite deploying more horsepower and water over greater landscapes.

Nor is shale gas long-lasting. Industry promised that shale gas plays would produce for up to 40 years but the Haynesville, a top U.S. producer, reached maturity in five years and is already in a state of decline, reports Hughes. “Nobody had heard about Haynesville until 2009.”

“That’s the Achilles heel of shale gas. You need a lot of wells and environmental collateral damage and infrastructure to grow supply.”

Implications for BC and Alberta

The government of B.C. now plans to export shale gas while the province of Alberta anticipates dramatic declines in conventional gas production of more than 30 per cent.

Hughes calls exporting B.C. gas to Asia “a really bad idea” and adds that B.C.’s embrace of shale gas production has been “a shining star of hype.”

Hughes’ analysis confirms and supports the work of Texas oil analyst and geologist Arthur Berman who has questioned the growth rate claims of the shale gas industry for years and has offered the most reliable forecasts for the industry to date.

The report also provides a reality check for aggressive bitumen forecasts in Canada’s tar sands.

Projections of four or five million barrels a day by 2035 made by a variety of industry cheer leaders will likely not be realized due to “logistical restraints on infrastructure development and the fact that the highest quality, most economically viable portions of the resource are being extracted first,” says Hughes.

“It has taken 40 years to grow tar sands production to 1.6 mbd, yet forecasts call for a nearly tripling of production over the next 18 years,” says Hughes.

But industry has already “high graded” or dug up the highest quality bitumen deposits first. Most of the active development is now taking place in shallow open pit mines while the bulk of the resource (and the lowest quality) lies so deep underground that it requires large amounts of water and natural gas to extract.

Adds Hughes: “The economics of much of the vast purported remaining extractable resource are increasingly questionable and the net energy available from them will diminish toward the break even point long before they are completely extracted.”

‘Don’t give a damn what pundits think’

In conclusion Hughes warns that societies that switch to high-cost fuels that deliver diminishing returns in terms of energy output without analyzing some cold hard energy realities will experience economic contraction, and price shocks and be held hostage by industry propaganda.

“I live on a pension and don’t give a damn what pundits think. My report is based on fact not hyperbole. My friends in the industry, who don’t want to be mentioned, will agree with my findings.”

According to Hughes, the exploitation of shale oil and gas and bitumen marks a dramatic turning point for both financial and energy markets and thereby challenge all economic growth projections.

“Worldwide energy consumption has tripled in the past 45 years, and has grown 50-fold since the advent of fossil oil a century and a half ago. More than 80 per cent of current energy consumption is obtained from fossil fuels.”

Although shale oil, shale gas and bitumen may be abundant they are not cheap or environmentally-friendly.

“The lack of abundant cheap energy, which allowed the rapid growth in supply of natural resources inputs and the exploitation of arable land and water over the past century, is likely to be a steep change unlike anything observed thus far in the evolution of industrial society.”

The Post Carbon Institute is a California-based think tank that advocates for resilience in the face of what it calls “business unusual.”

— Andrew Nikiforuk, reprinted from The Tyee with permission


28 Responses to Fracking Bubble? Report Warns Shale Gas And Oil Won’t Solve Energy Crunch

  1. Lore says:

    We’re already witnessing signals that something is not right with the hydrocarbon markets. Cornucopians are having a difficult time coming to grips with the seeming contradiction of what they’re being told about having massive amounts of untapped fossil fuel reserves against the rising prices at the pump.

    When someone brings up the subject of our oil independent future based on these products and why the high gas prices, just remind them that technically recoverable oil is not the same as economically recoverable.

  2. Hugh says:

    The supply certainly won’t do much for the U S if the gas is harvested as quickly as some would like and them shipped overseas. In that scenario we get the pollution and overseas gets to make the products more cheaply than we do. To me it makes sense to harvest this slowly, improve the techniques and regulations so we don’t poison ourselves, and use the gas to make products more cheaply. Then perhaps we could export the products instead of the gas and actually reduce our trade imbalance.

  3. Sasparilla says:

    A very interesting report based on what its saying regarding fracking. Basically that the wells do not last nearly as long as conventional wells, declining at much faster rates. Thinking that we’ll get unconventional oil production to make up for and increase world production capacity over time do not match with what Mr. Hughes foresees.

    Short term this doesn’t change anything – we’ll still have a natural gas oversupply in the U.S. (that will eventually end bringing much higher natural gas prices – which the U.S. Coal industry is waiting/praying for), Canada will still be trying to increase tar oil production to ship for export to the U.S. gulf and domestic shale oil production will increase for years…

  4. john c. wilson says:

    I think the article would be easier to read if the author’s phrase “energy returns” were replaced with “energy returned on energy invested”.
    In any event we do not use that standard for decision making. Bioethanol has a pathetic EROEI in the range of 0.9 to 1.2, it’s barely a breakeven process and requires massive infrastructure to sustain. You would know that bioethanol was a winner if farmers all burned ethanol in their farm machinery. They burn diesel.
    Bioethanol is a huge political success. Tar sand and shale oil and fracking are huge political successes. The nonconventional extraction processes also facilitate real estate speculation, equipment sales, and financial bubbles. Entirely aside from environmental or otherf external costs none of the above would survive on their own merits if ordinary sharp-pencil accounting were applied. Accounting does not decide. Politics decides.

  5. Solar Jim says:

    Bloomberg New Energy Finance recently described numerous biased financial investment arrangements (read Wall Street manipulation) that funnel investment monies into fossil exploitation at the expense of clean energy. Also, hydraulic fracturing is not subject to U.S. law (exempt from Clean Water, Clean Air and Safe Drinking Water Acts).

    In light of Mr. Hughes excellent work, this situation is rather like Joe’s previously described global Ponzi scheme, acting as an ecocidal, organized racket, influenced by speculator banksters revolving in and out of government who “frankly run the place.” Not to mention the 3/4 trillion dollars of identified annual public governmental handouts to the global fossil racket, or the much larger off-book nation-state accounting usually referred to as “externalities,” and etcetera.

    Oh well, perhaps the melting Northern Sea Ice and subsequent albedo flip and “methane bomb” will eventually put a stop to the insanity of it all when our infrastructure investments and Wall Street quite literally are underwater.

  6. Solar Jim says:

    Bloomberg New Energy Finance recently described numerous biased financial investment arrangements that funnel investment monies into fossil exploitation at the expense of clean energy. Also, hydraulic fracturing appears not to be subject to U.S. law (exempt from Clean Water, Clean Air and Safe Drinking Water Acts).

    In light of Mr. Hughes excellent work, this situation is rather like Joe’s previously described global Ponzi scheme, acting as an ecocidal, organized racket, influenced by speculator-bankers revolving in and out of government who “frankly run the place.” Not to mention the 3/4 trillion dollars of identified annual public governmental handouts to the global fossil scheme, or the much larger off-book nation-state accounting usually referred to as “externalities,” and etcetera.

    Oh well, perhaps the melting Northern Sea Ice and subsequent albedo flip and “methane bomb” will eventually put a stop to the insanity of it all when our infrastructure investments and Wall Street quite literally are underwater.

  7. Jim Baird says:

    The problem is Nature has the last laugh, which will be at our children’s expense.

  8. Mulga Mumblebrain says:

    I’ve always assumed that the Frackenstein monster was created mostly to delay and derail renewables, to the advantage of the big fossil fuel interests of coal, oil and conventional gas. It is good to see cynicism vindicated, yet again. And one must never forget the element of plain, good old, ‘entrepreneurial’ grifting, with the marks relieved of their capital by practised exponents of the ‘gold rush’ genre of scams. It fair makes your feet swell with pride to be a Homo- sapiens, make that sapiens sapiens, that is.

  9. Paul Klinkman says:

    Being called “dangerously deluded” never stopped a true conservative from not conserving anything. I suspect that they revel in the claim.

  10. sven says:

    I really do not understand why so much energy is going to be wasted on these fossil fuels. Of course renewable energies are not really efficient and maybe not competitive yet but how should the ever become if we do not put our efforts in develeping these energies?

  11. Camburn says:

    Shale oil from the Bakken is very sweet crude. Also, the natural gas is extremely high grade.

    Fracking has been used since the 1950’s for oil/gas production. What has changed now is the ability to drill horizontally.

    The earliest oil wells in ND have shown an approx 8% decline in production over the past 8 years. This is consistent with “conventional” oil supplies.

    A new oil formation has also been discovered in the Bakken that is deeper than the present formations. The deeper formation, at this time, seems to have approx twice the supply of the upper formations.

  12. Mike Roddy says:

    The oversupply was calculated. Utility beancounters noted low gas prices from the current surplus, and ordered new gas power plants. When gas prices go up, utilities and consumers will be trapped with costs higher than wind and maybe even solar.

  13. Solar Jim says:

    You are mistaken on both counts. Let’s just say that economics are man made and fossil ignition is most efficient in the production of carbonic acid gas.

  14. Solar Jim says:

    A most significant drilling development is that through the sycophantic money-heads of Congress (that great stinking cesspool of legalized graft and corruption).

  15. Brooks Bridges says:

    Your info is out of date. I just read somewhere that the moon really isn’t made of green cheese but sweet crude oil.

    NASA has plans in development to hook a pipe between the earth and the moon. Earth’s higher gravity will suck down all the oil we need.

  16. Mulga Mumblebrain says:

    ‘Camburn’ Can and Will Burn, if he’s young enough, in the climate catastrophe he so clearly longs for, but at least he’ll have all his lovely fracked money to keep him even warmer.

  17. h4x354x0r says:

    This report backs up my own cursory research on the subject: That Frack wells have a horrible yield curve and the vast majority of wells don’t really produce a lot of gas. My own calculations estimate that we would have to be continuously operating 2.5 Million Fracking wells simultaneously to meet all domestic energy needs.

    It’s not practical, it’s not even feasible. It would take the Fracking industry just as long to grow that much, as it would to make and install enough solar panels to replace it. Fracking is worse than snake oil as an energy strategy; it’s snake gas!

    Solar is the ONLY single source with enough aggregate energy to completely replace all other forms of fossil fuel use (with about 95% capacity to spare). We should be betting the farm on solar right, with side bets on wind, geothermal, hydro, and other tech.

  18. Lore says:

    Regardless of quality, it’s productivity that counts more in a tight fossil fuel budget future. The most likely scenario, based on current information, is that Bakken production will approach 900,000 barrels per day in 2014, remain at that level for almost a decade, and then start to decline.

    Which means we are now very close to peak production in the area. There comes a point at which the older wells aren’t producing as much and newer wells coming online aren’t as successful. Well rates actually decline at a rate of 40% year-over-year for the first few years. The cream has already been skimmed from the region and those new wells that start with a trickle are already in trouble.

  19. Camburn says:

    The 900,000 BBD is old news now.

    Latest projections are well over 1,000,000 BBD from the Bakken.

    As far as longevity from the wells. The old wells drilled in the 80’s are still producing. They were vertical wells, fracked etc. The production rate has fallen, as expected. Wells are now being drilled 200-400′ from the old wells. The new wells are using horizontal drilling/fracking and are producing well.

    Just the way it is.

  20. Camburn says:

    I won’t be burning up any time soon.

    Oil production will not slow anytime soon either. There is presently no alternative to gas/diesel.

    Hydrogen is not practical.

    Elec is not practical for large HP requirements.

    One can keep hoping that a satisfactory battery will soon be developed, but there are none on the horizon.

  21. EDpeak says:

    Mulga.. In terms of the defacto effect, the political “free” market and “clean” fossil fuel system certainly hurts renewables..but “mainly” to derail/delay renewables? I’d say we use Occam’s razor…enough reason, to make a profit. Why do they frack? “Same reason a dog licks their own genitals…why do dogs do that? Answer: because they *can*” as the saying goes. Or more spefically, “because they can” translates in the case of fracking etc into “because they can make money”. Ralph Nader used to say, in response to “why don’t we use or have more solar energy” by answering, “because Exxon doesn’t own the Sun” – so fossil fuels (and nuclear power) also are centralized, easier to own, control, monopolize, etc…that plus being able to make big money from investors and buyers, is enough reason for them to frack, use tar sands, etc…In the grant calculus, I’m sure there are execs and the Koch’s who also think and hope, “this will hopefully slow the calls for renewables” but Occam’s razor suggests those are secondary; a small to medium sized company doesn’t need some political scheming to frack: they just need the Amoral corporate capitalist ideology to maximize profit as the alpha and omega of their operations…and since they can externalize costs..that’s (more than) enough to explain why they do it…the rest is “icing on the case” or a bonus, for the ideological ones like the Koches and the Right-wing “free” market think tanks, that yes, maybe as a bonus it will hurt renewables..but not the primary driver..

  22. Dennis Tomlinson says:

    In fairness to our farmer friends, there are technical reasons why ethanol or a gasohol blend cannot be used in a Diesel engine. Ethanol, when used at the higher compression ratio of a Diesel, produces more of an engine damaging explosion, whereas Diesel fuel gives a more even burn.
    This is not to excuse ethanol production, whose calorie-for-calorie conversion ratio is barely break even at best.

  23. Lore says:

    Actually, projections go as high as 1.4/million barrels a day. I gave the most likely projected scenario. Even if they approach the upper end of the estimates then other questions come to mind.

    Does that mean they’ll hit that mark? Questionable, depending on who’s figures your reading. The independent petroleum geologists, or company studies.

    Also, your facts about old wells is incorrect, they are just now reaching the efficiency phase, where operators are using more efficient rigs to pad drill. Which means less drills turning, but these rigs come at a price and are some 9 million dollars a pop! See the OP for EROI.

    Does that mean they can sustain the high output if they do reach the upper range? Already answered, we are arriving at the upper end of the Bakken production curve now.

    Do even the best estimates have much effect on the current or future world market prices? Since oil is a fungible commodity the effect will only help to narrow the spread between WTI and Brent by pennies. While most likely increasing prices here in the US. The primary interest by producers is to get their oil onto the world market where they can obtain the best prices. Free market capitalism at work my friend.

    We are perpetuating the delusion that business can be conducted as usual with cheap energy while squandering the last resources we have. When every effort should be made to judiciously use what we have left to leverage alternatives and a more sustainable future.

  24. Mulga Mumblebrain says:

    Forgive me EDspeak, but I cannot concur. The profits from keeping the main fossil fuels going for years more, because the renewable threat has been delayed, derailed or (their dream) destroyed, far outweigh those to be made directly from fracking. The capitalist caste will have fingers in both pies, be assured of that.

  25. Mulga Mumblebrain says:

    They are literally insane, morally, psychologically and, most frighteningly, spiritually.

  26. Mulga Mumblebrain says:

    If all the fossil fuels you lasciviously describe with such undisguised relish are burned, then you’ll fry all right, or drown, or dessicate or starve. Moreover, if you escape by returning to the carbon cycle yourself, in time to avoid the catastrophe that you are a fairly undisguised huckster for, then your children will suffer in your stead. If you have no issue, then it will merely befall everybody else’s children.

  27. Mulga Mumblebrain says:

    What of the pollution involved in fracking shale for oil? Is it worse than gas fracking, how many major carcinogens do they utilise (or is that a ‘commercial secret’?) and have they started turning up in water supply or aquifers yet?

  28. Mulga Mumblebrain says:

    One of the features of fracking that shows that is is an exquisitely explicit example of capitalist destructiveness in action, is the pollution that it causes. The cocktail of nasty substances required, the secrecy concerning just what is utilised, the crude denialist agit-prop peddled by the beneficiaries, their MSM stooges and internet trolls, all are utterly typical manifestations of hatred and contempt for life while in pursuit of money. That’s exactly why capitalism destroys everything it encounters. It cares only for money and power and simply rejects life if it gets in the way of profit maximisation.