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Peak Oil: Peeking Behind A Curtain

General Ideas

In recent months, Gail Tverberg in particular, along with Steven Kopits and Ron Patterson, have examined both the financial and production details as they pertain to the various shale formations now serving as the fossil fuel industry’s current energy supply and production savior. They provide us all with invaluable information about the prospects for maintaining a Business As Usual future. [For more, see these: 1. 2. 3. 4.]

Pointing out the investment challenges [Kopits] the industry faces as it attempts to at least sustain recent production totals—which are giving indication of some questionable trends [Patterson]—while making the clear connection to the prospects for continuing growth [Tverberg], the big picture suggests that the rosy and abundant scenarios suggested by industry officials and media may not be quite so rosy and abundant after all.

Last year, an excellent report by Deborah Rogers: Shale and Wall Street: Was The Decline In Natural Gas Prices Orchestrated?, offered a look into some of the investment practices and decisions of (primarily) gas and oil production companies. The picture she painted suggested at a minimum some very curious efforts and decisions were employed in developing the financial infrastructure enabling shale gas and oil production.

But not to worry; it appears that some on Wall Street made out just fine! What a relief, Right?

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.
U.S. shale gas and shale oil reserves have been overestimated by a minimum of 100% and by as much as 400-500% by operators according to actual well production data filed in various states.

That information, among other findings in Ms. Rogers study, details a fascinating piece to the puzzle of current and future production efforts which did not garner nearly the amount of publicity it should have. The information she presented helps paint a broader picture of what’s involved and needed to at least sustain production totals in a world where conventional crude oil peaked a decade ago—clever expanded definitions of “crude oil” notwithstanding. Given what occurred, all is not well.

Industry is demonstrating reticence to engage in further shale investment, abandoning pipeline projects, IPOs and joint venture projects in spite of public rhetoric proclaiming shales to be a panacea for U.S. energy policy….
It is imperative that shale be examined thoroughly and independently to assess the true value of shale assets, particularly since policy on both the state and national level is being implemented based on production projections that are overtly optimistic (and thereby unrealistic) and wells that are significantly underperforming original projections.

That doesn’t sound nearly as pleasant as industry officials would like the story told, does it? Reality tends to muck up those nice scenarios, which is why we too often get such small doses of the important information we all need to understand what lies ahead (and what does not). It also appears Ms. Rogers left out more than a little bit of the fluff which usually pads the facts.

Shale development is not about long-term economic promise for a region. Such economic promise has failed to materialize beyond the first few years of a shale play’s life in any region of the U.S. today that has relative shale maturity.

Well that’s not a good thing! Nor is this conclusion, after highlighting the less than majestic job creation totals touted by fracking proponents, the ghastly well decline rates, and a paucity of bidders for asset, all of which:

suggest a recognition within the industry of the questionable economics and short life span of shales.

It’s actually just another confirmation that those counting on shale development to provide endless economic joy for regions embracing those efforts might come up a wee bit short in the forecasting department.

That’s all fairly important information. I wonder why we don’t hear more about that?
peak oil matters

4 Comments on "Peak Oil: Peeking Behind A Curtain"

  1. Davy, Hermann, MO on Mon, 2nd Jun 2014 6:23 am 

    Article said – 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.

    Wall Street’s nature now is parasitic. Wall Street is now a word for the global financial system so let’s not blame the blokes in New York for everything. The nature of Wall Street is psychopathic greed. People are groomed and promoted on a basis of their ability to create a return. It does not matter if it benefits society or is a productive return. The entire system now at “Peak Absurdity” with limits of growth, diminishing returns, carrying capacity overshoot and human organizational corruption. This state of affairs is ripe and fertile for Ponzi schemes and bubbles. A global debt bubble is a peak in itself. The entire system of human trade and exchange on a global scale is in its final bubble. There is no escaping this bubble deflation in waiting. What Wall Street did with shale gas is no different than what it has done globally in numerous other markets. It has sought out unnatural returns through the complex structure of a financial Ponzi scheme. We know there is little net energy available to society with shale resources but there was immense potential for unnatural financial profit. This profit is nothing more than a parasitic wealth transfer. This shale revolution is nothing more than a gold rush. It will in the end be a huge environmental and financial mess. For me personally it probably bought me a few more years to prepare my life boat so I am not complaining.

  2. sunweb on Mon, 2nd Jun 2014 7:45 am 

    What’s not to like about Fracking?

    I admit to extreme prejudice concerning the multiple dangers of fracking.

    What’s not to like about Fracking? You could like the danger to human health and all life forms. You could like the environmental threat to water, air and soil. You could like the earthquakes. You could enjoy the cost in money and disruption to local communities. Of the cost to the states .You could like the media hype or the credit bubble. Or you could like the actual energy drain because it has poor Energy Return on Energy Invested. So much to enjoy, so little time.

  3. Plantagenet on Mon, 2nd Jun 2014 2:23 pm 

    Obama played a key role in promoting the fracking NG hysterica with his claims that the US was developing a “100-year-long” supply of natural gas. Blaming Wall Street without noting that the President himself was behind the NG frenzy is closing your eyes to an important part of this story.

  4. energy investor on Mon, 2nd Jun 2014 5:25 pm 

    Nah, Mr Obama is just a “sock puppet” for vested interests.

    It is IHS who hypes things so it is easy for oil cos to raise funds.

    But let’s face it. The folk who do the drilling and take the financial risks are the true heroes of our age. Without them we would be sliding down the back side of the peak oil curve…
    with all the nastiness of that predicament.

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