- Pennsylvania Among 'Terrible 10' Most Regressive Tax States
- February 4 Non-Partisan Training: HOW TO RUN FOR ELECTION BOARD IN 2013: HOW TO RUN FOR COMMITTEEPERSON IN 2014
- Republican Governors Opt-In to Medicaid Expansion
- The Reports of Unions' Death Are Greatly Exaggerated
- Ask Allyson Schwartz to run for Governor
- Mind the gap: Opting Out of Medicaid Expansion Leaves Low-income Families Behind
- Jan. 14 Workshop:HOW TO RUN FOR ELECTION BOARD IN 2013; HOW TO RUN FOR COMMITTEEPERSON IN 2014
- Seth Williams on Guns, Jasmine Rivera on School Closures @PFC Meetup Wednesday
- PA Revenue Strong Midway Through Year; Tax Cut Could Have Big Impact
- What to Make of the Fiscal Cliff Deal?
The tempting idea that Shale Gas won't make money
Once again, Ian Urbina proves the New York Times has made a smart investment by letting him take long periods to research Deep Shale Drilling issues and only write occasional stories. His latest piece concerns the profitability of deep shale operations and whether or not the profit prospects aren't being oversold.
I'm tempted to love anything that makes the natural gas industry look bad. I believe deep shale drillers are going to destroy much of what's left looking natural and nice in this country. Many people forget that Pennsylvania may look lush and natural, but it's actually covered by relatively new forest. Less than 100 years old. It still hasn't fully come back from the lumber industry's destruction of it in the 1800. It's made a lot of progress, though, and I fear Shale Drillers will destroy all that.
So the idea that deep shale drilling is a Ponzi Scheme is tempting. But I don't buy it. Here's a passage from Urbina's latest piece, a piece that is definitely, definitely worth reading (even if I am criticizing its fundamental points here):
“Money is pouring in” from investors even though shale gas is “inherently unprofitable,” an analyst from PNC Wealth Management, an investment company, wrote to a contractor in a February e-mail. “Reminds you of dot-coms.”
“The word in the world of independents is that the shale plays are just giant Ponzi schemes and the economics just do not work,” an analyst from IHS Drilling Data, an energy research company, wrote in an e-mail on Aug. 28, 2009.
Company data for more than 10,000 wells in three major shale gas formations raise further questions about the industry’s prospects. There is undoubtedly a vast amount of gas in the formations. The question remains how affordably it can be extracted.
I believe, in the end, there will be a lot of money made off of deep shale drilling. I say that because I think it is important that those of us who want to protect the environment face facts and live in the world as it is. I believe Shale Drilling is going to progress, so we need to try to impose better rules on the drillers so that they won't do as much damage as they would otherwise.
It's tempting to believe that wheels will come off this industry, like it did the 2000 dot-coms, but I don't buy it. Why? Two words: peak oil.
The underlying assumption in Urbina's piece is that natural gas prices are going to stay cheap, but I don't believe it. We either have hit or will soon hit peak oil. Once that happens, the price of oil will only increase. Maybe it will happen fast, maybe it will happen slow. I don't know. Maybe the whole socioeconomic system is going to crumble, as many Peak Oil'ers believe. Or maybe it will just yield steady energy inflation. Even slow energy inflation. It really doesn't matter how it plays out, the point is that peak oil will clearly lead to much stronger demand for natural gas which will drive up prices.
Peak Oil is real. We can quibble over pace or when it will hit, but it's real.How can it not be? Oil is a finite resource. No one disputes that. So as we reach Peak Oil, oil shocks will be more common, prices will rise, gas will be more competitive. Demand for natural gas will go up. The economics will be there.
And then what?
So, while I find many of Urbina's points compelling. Especially the part on the third page where experts he quotes say that once a well's productivity starts to drop it just keeps dropping, to me, that just means we need to work harder for better rules and more eco-cops. Why? Because if productivity does drop like that, they are only going to want to drill more well bores in more directions and frack them more often. That means more water use, more toxic disposals and more accidents.
In my mind, this is good information, but the question of economics is, in my opinion, a moot point for those of us who take the long view. The economics might not be there from a stock market investor perspective (now), but the economics will be there once prices rise - and they will. If bad economics now buys us some time to win better rules: great. But we need to win those better rules and we need more eco-cops working to enforce them.