they tell us

we're on the cusp of an oil & gas revolution.

But what if it's all just a short-term bubble?

The Story

time-coverWe’re being told that – thanks to technological advances like hydraulic fracturing and horizontal drilling – the US is undergoing an energy revolution, leading us in a few short years to become once again the world’s biggest oil producer and an exporter of natural gas. According to the Oil & Gas Industry and their proponents, “fracking” will provide the US with energy security, low energy prices for the foreseeable future, more than a million jobs, and economic growth.

“There’s no doubt that we’re seeing an industrial revolution… taking place because of the shale revolution.”
–Ed Morse, Global Head of Commodities Research at Citigroup

“We have a supply of natural gas that can last America nearly 100 years, and my administration will take every possible action to safely develop this energy.”
–President Barack Obama

“[The Utica Shale is] the biggest thing economically to hit Ohio, since maybe the plow.”
–Former Chesapeake Energy Corp. CEO Aubrey McClendon

“[The surge of U.S. oil and gas production] is the biggest change in the energy world since World War II.”
–Fatih Birol, Chief Economist at the International Energy Agency

“Many people in the oil industry were skeptical [that we had reached peak oil], and the extraordinary recent expansion of unconventional gas and oil production in North America proved the optimists to be correct.”
–Christof Rühl, Group Chief Economist at British Petroleum

Pointing to record low natural gas prices and increased production, policymakers and the media on both sides of the political aisle, as well as investors and utilities, have bought the hype and are shifting their plans and proposals with the expectation that the shale revolution is here to stay.

The Reality

The Reality is that the so-called shale revolution is nothing more than a bubble, driven by record levels of drilling, speculative lease & flip practices on the part of shale energy companies, fee-driven promotion by the same investment banks that fomented the housing bubble, and by unsustainably low natural gas prices. Geological and economic constraints – not to mention the very serious environmental and health impacts of drilling – mean that shale gas and shale oil (tight oil) are far from the solution to our energy woes.


 

Diminishing Returns

 
Shale plays suffer from the law of diminishing returns. Wells experience severe rates of depletion, belying industry claims that wells will be in operation for 30-40 years. For example, the average depletion rate of wells in the Bakken Formation (the largest tight oil play in the US) is 69% in the first year and 94% over the first five years.
 

The Drilling Treadmill

 
This steep rate of depletion requires a frenetic pace of drilling, just to offset declines. Roughly 7,200 new shale gas wells need to be drilled each year at a cost of over $42 billion simply to maintain current levels of production. And as the most productive well locations are drilled first, it’s likely that drilling rates and costs will only increase as time goes on.
 

Unsustainable Prices

 
Wall Street promoted the shale gas drilling frenzy which resulted in prices lower than the cost of production and thereby profited [enormously] from mergers & acquisitions and other transactional fees. The oil and gas industry is now demonstrating reticence to engage in further shale investment, abandoning pipeline projects, IPOs and joint venture projects.
 

A Shale Bubble

 
As a result of these realities – high depletion rates, the need to drill ever more wells to maintain production, decreasingly productive wells as the best locations are drilled and depleted, and the higher prices required to justify this investment – our country will have drilled and fracked our way down a blind alley (with huge associated economic and environmental costs) for a short-lived energy boom.

The Reports

In February 2013, Post Carbon Institute and Energy Policy Forum released two ground-breaking reports that belie energy industry claims of U.S. energy independence as a result of newly accessible shale gas and shale (tight) oil. The report findings are based on an unprecedented analysis of over 60,000 U.S. shale oil and gas wells and an investigation of the role of Wall Street investment banks in the explosive growth of fracking for natural gas.

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