One of the top geologists in the oil exploration and production business says: 1) shale gas production by hydraulic fracturing (“fracking”) is a commercial failure. Is. Present tense. 2) shale gas will be the next financial “bubble” to collapse. 3) holding out the possibility of energy independence for the United States is “absurd.” To suggest it could be done in five years is “garbage.”
His name is Arthur Berman and he is no tree hugger. For 34 years he has been finding and developing oil fields, and he works for Big Oil. His attitude toward the planet-threatening downside of burning fossil fuels is basically that you have to break a few eggs to have an omelette. But Mr. Berman knows arithmetic, both how to add and more importantly how to subtract.
In making the points listed above — most of which will be old news to anyone who reads The Daily Impact – in an interview with OilPrice.com, Berman also talked about two large trends that seem to be invisible to those who analyze and “manage” the economy.
1. Tsunamis of Cash. When the housing bubble popped for good five years ago, it did more than wipe out an untold amount of value. It also left enormous amounts of money, still being relentlessly accumulated by the top one per cent, with nowhere to go. Nowhere, that is, guaranteeing a double-digit rate of return. Some of it is being dumped into farmland (“Hey, people always gotta eat, right?), a lot of it into commodities futures (“Hey, people gotta eat! And drive cars, right?). And when the shale gas “revolution” came along, it was a match made in industrial heaven.
So how does Berman evaluate this neo-oil boom? “Shale gas has lost hundreds of billions of dollars and investors will not keep on pumping money into something that doesn’t generate a return.”
With news outlets from the formerly estimable Time Magazine to the formerly admirable CBS Television are foaming about imminent energy independence and American oil surpassing Saudi Arabia’s, how dare he claim that shale gas has lost hundreds of billions?
Because it has. And the reason is the second large trend that he is familiar with and just about every other observer — with the notable exception of the New York Times and, of course, us — has missed:
2. The Depletion Equation. It’s bad enough that shale-gas fracking wells are more expensive to build and operate than anyone expected. In addition, they play out sooner that anyone thought, the depletion rate is simply appalling. Says Berman:
“In the Eagle Ford shale [in southeast Texas], which is supposed to be the mother of all shale oil plays, the annual decline rate is higher than 42%. They’re going to have to drill hundreds, almost 1000 wells in the Eagle Ford shale, every year, to keep production flat. Just for one play, we’re talking about $10 or $12 billion a year just to replace supply. I add all these things up and it starts to approach the amount of money needed to bail out the banking industry. Where is that money going to come from? Do you see what I’m saying?”
Yes, we do, but why is this still a secret? Like it’s pretty much a secret that Chesapeake Energy, the number one operator in the Marcellus Shale [under West Virginia, Pennsylvania and New York] last year had to have a fire sale of billions of dollars worth of assets just to stay in business. Like it’s a secret that while North Dakota is enjoying a boom in the Bakken Shale formation, which they are fracking for oil, in Montana, where the boom started first, the boom is falling on its face already.
It’s all a secret because because when the super-rich of the world realize that their cash is being flushed, so to speak, the river of money will promptly start flowing backwards and the bubble will deflate. Next?