Tuesday, 18 January 2011

Shale Gas: The Nonsense Commences

The story so far: shale, an 'unconventional' source of natural gas, has long been known about but only latterly exploited. It is now being produced in such quantities in the USA that, far from their needing imports (as universally predicted until very recently), they have started exporting the stuff once again - including turning around US-bound cargoes of LNG to Europe. In so doing, the price of natgas in N.America has been cratered, and in Europe has remained much softer than would otherwise have been the case. Naturally enough, folk are now looking for shale gas all over the world, and it turns out there is loads of it. Now read on ...

Shale gas is a game-changer, because while oil prices have risen mightily since 2009 & one can envisage them increasing steadily hereafter (provided no double-dip) - gas prices have not, and it is entirely possible they stay 'de-coupled'. We've been covering this since the recession first blew away industrial gas demand in late '08.

The renewables lobby have not been slow to spot that continuation of this trend courtesy of shale gas will significantly undermine the already chronic economic case for their beloved projects. So they have gleefully jumped on a rumbling bandwagon that finds fault with some of the US industry's shale production practices. Protest is spearheaded by the lurid, Michael Moore-style Gasland film, which - yes, you guessed - has arrived in the UK to coincide with (a) the announcement of some shale gas in Lancashire and (b) a report, sponsored by the Co-op (sic), on the wickedness of it all.

And so the sophistry, non-sequiturs and outright disinformation begin. There will be so much in the coming months and years it will be difficult to keep up. Here's just one. From the chap responsible for the Co-op's involvement in this:

"It's like tar sands in your backyard, both in terms of local pollution and in terms of carbon emissions"

But from the very report he commissioned:

"shale gas extraction, at a global level, does not involve the high energy and water inputs at the scale of other unconventional fuels, such as oil derived from tar sands" (my emphasis)

Don't expect the level of debate to get any better.

ND


Footnote: anyone wanting to read up on shale gas should go to NoHotAir, a somewhat monomaniac site which covers all aspects of this topic really well.

19 comments:

Anonymous said...

What's interesting is that Europe has many areas where shale gas is very likely to be found but little prospection has occurred.

Blue Eyes said...

Ooh, an industrial renaissance for Lancashire. I'm all for it!

taxloss said...

Strangely enough read something v similar at the register last night, complete with identical link!

CityUnslicker said...

but I loved the idea of being able to set light to my tap water; How cool is that!

Don't ruin it by telling me its all porkies, killjoy ND.

CityUnslicker said...

but I loved the idea of being able to set light to my tap water; How cool is that!

Don't ruin it by telling me its all porkies, killjoy ND.

Nick Drew said...

taxloss - & not just The Register: if you google shale/news right now, you'll find 279 (or some such) listings! Not surprising, becoz

(a) the report I cited has been putting itself about
(b) so has Gasland
(c) Mr Grealy @ NoHotAir really is the man who's been following this most closely

I have a feeling we'll be doing so again ourselves ...

anon - give it time ! obviously there are several pertinent differences between US and Eu (drilling rights, density of population etc) - but the Poles (for example) are dead keen to reduce dependency on lignite & Russian gas & may find that 'environmental' concerns come a poor second to security of energy supply

Mark Wadsworth said...

Shale gas, sounds good to me. It's certainly no crazier than the idea of getting oil and gas from the North Sea must have seemed forty years ago.

@ CU, methane only dissolves in water under pressure, so it can't be too difficult to release it again prior to it coming out of your tap.

Laban said...

Looks as if I'll have to swap my oil boiler and tank for a gas one (I live off the gas grid).

Can't they work out how to create oil from gas? Some kind of catalyst-aided reverse cracking?

Laban said...

Apparently Sasol have bought a Canadian gas field to explore doing just that, and they are already doing it in Qatar with their Oryx GTL plant.

Miss CD said...

What exactly is shale?

Nick Drew said...

Laban - yes, liquids from gas, and liquids from coal too: & there is a LOT more gas & coal in the planet than there is naturally-occurring oil

Miss CD - sedimentary rock of a different type to the sandstones we normally get gas (& oil) from: see here and here

Dex said...

It doesn't help either when the BBC can't even explain what hydraulic fracturing is, from their latest article

The process involves drilling horizontally into shale formations far underground, then using small explosions to fracture the shale - followed by a slurry of water, sand and chemicals to free the trapped gas.

unfortunatley their discription completely misses they whole hydraulic part of hydraulic fracturing. The small explosions are mearly to get through the cement casing which is between the well and the shale formation.

equally i would love to know how the sand,water and chemicals actually free the gas. When actually this is what is causing the fracture in the first place.

Oh well.

i will be interested to see though how shale gas pans out in the UK. Esp since the Coal Bed methane attempt int he UK so far hasn't really come to much.

As for Gasland, they opened that here in Oz just as we got our governmental approval for expanding the CBM operation. Everyone aginst us was quoteing from it like it was the be end all of all things related to hydraulic fracturing.

Mark said...

Dex: the BBC report you quote from is by the Blessed Harrabin- so its scientific illiteracy isn't surprising.

Steven_L said...

I think my mates's still long UNG, he won't listen!

I'm thinking about getting short UNG, even if it stays steady the contango eats away at it.

rwendland said...

I don't know much about gas production, let alone shale gas production. ND, can you give pointers to production forecast numbers anywhere - googling didn't show up anything useful. How significant will shale gas be at a worldwide scale?

I did come across seemingly sensible criticism of shale gas economics, pointing to quite high production and capital costs. ND, do you think there is any merit in comments like this:

I have worked through the 10-Ks of most of the major shale players (Chesapeake, Petrohawk, Range Resources, etc.)—they’re all taking a bath financially but put on a brave face, and have huge debt. As long as their stock price is good, the executives get rich so why do they care? The analyst community is so naive about true costs that they believe the propaganda.

[My note: Chesapeake has 14.4 billion in senior debt and their stock price is faring badly. "CEO Aubrey McClendon has come under some well-deserved fire for his high compensation in the face of poor results and a declining stock price. He was paid a one-time $75 million bonus at the end of 2008—suspicious timing given that the stock had lost most of its value in recent months and Mr. McClendon had lost his entire stake in the company to margin calls."]

Most shale operators work on borrowed capital—who is going to lend that kind of money [~$150 billion for the ~30,000 wells required to quadruple shale gas production] to companies like HK [Petrohawk] and CHK [Chesapeake] that are already in debt up to their eyeballs?


Could it be true that if gas prices drop again, the shale gas companies will turn out to have been bubbles? It certainly true Chesapeake's share price is a long way down from their 2008 peak.

Anonymous said...

FYI

http://www.leap2020.eu/GEAB-N-51-is-available-Systemic-global-crisis-2011-The-ruthless-year-at-the-crossroads-of-three-roads-of-global-chaos_a5775.html

Anonymous said...

Nick Grealy of No Hot Air provides insightful commentary on this topic. Another site focused on shale gas in matters is Natural Gas for Europe www.naturalgasforeurope.com

rwendland said...

I know little about gas production, let alone shale gas.

But I observe that some people claim that shale gas production is relatively expensive, and needs a fair bit more of capital expenditure; and that the companies expanding this production are at risk of financial collapse from servicing borrowing if gas prices were to fall in the future. ie it could be a bit of a bubble being hyped up by analysts for the usual reasons. Do you think there is any truth to this?

Certainly Chesapeake’s share price is well down from their 2008 high.

What's more with shale gas, as I understand it, there is a continuous process of drilling new holes. So if the owner goes broke there is not a fixed asset for the creditors that can continue to operate with little further investment for a decade or so. So lenders are taking a higher risk.

Am I right in this understanding of the risks in shale gas investment?

I know it is from the low-carbon camp, but here is an example comment along these lines:

I have worked through the 10-Ks of most of the major shale players (Chesapeake, Petrohawk, Range Resources, etc.)—they’re all taking a bath financially but put on a brave face, and have huge debt. As long as their stock price is good, the executives get rich so why do they care? The analyst community is so naive about true costs that they believe the propaganda.

[My note: Chesapeake has 14.4 billion in senior debt and their stock price is faring badly. "CEO Aubrey McClendon has come under some well-deserved fire for his high compensation in the face of poor results and a declining stock price. He was paid a one-time $75 million bonus at the end of 2008—suspicious timing given that the stock had lost most of its value in recent months and Mr. McClendon had lost his entire stake in the company to margin calls."]

Most shale operators work on borrowed capital—who is going to lend that kind of money [~$150 billion for the ~30,000 wells required to quadruple shale gas production] to companies like HK [Petrohawk] and CHK [Chesapeake] that are already in debt up to their eyeballs?

rwendland said...

I know little about gas production, let alone shale gas.

But I observe that some people claim that shale gas production is relatively expensive, and needs a fair bit more of capital expenditure; and that the companies expanding this production are at risk of financial collapse from servicing borrowing if gas prices wer to fall in the future. ie it could be a bit of a bubble being hyped up by analysts for the usual reasons. Do you think there is any truth to this?

Certainly Chesapeake’s share price is well down from their 2008 high.

What's more with shale gas, as I understand it, there is a continuous process of drilling new holes. So if the owner goes broke there is not a fixed asset for the creditors that will continue to operate with little further investment for a decade or so. So lenders are taking a higher risk.

Am I right in this understanding of the risks in shale gas investment?

I know it is from the low-carbon camp, but here is an example comment along these lines:

I have worked through the 10-Ks of most of the major shale players (Chesapeake, Petrohawk, Range Resources, etc.)—they’re all taking a bath financially but put on a brave face, and have huge debt. As long as their stock price is good, the executives get rich so why do they care? The analyst community is so naive about true costs that they believe the propaganda.

[My note: Chesapeake has 14.4 billion in senior debt and their stock price is faring badly. "CEO Aubrey McClendon has come under some well-deserved fire for his high compensation in the face of poor results and a declining stock price. He was paid a one-time $75 million bonus at the end of 2008—suspicious timing given that the stock had lost most of its value in recent months and Mr. McClendon had lost his entire stake in the company to margin calls."]

Most shale operators work on borrowed capital—who is going to lend that kind of money [~$150 billion for the ~30,000 wells required to quadruple shale gas production] to companies like HK [Petrohawk] and CHK [Chesapeake] that are already in debt up to their eyeballs?