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US Energy Boom Threatened by Diminishing Returns from Shale Plays

Today's shale gas boom has brought a surge of drilling across the US, driving natural gas prices to historic lows over the past couple of years. But, according to David Hughes, geoscientist and fellow at the Post Carbon Institute, in the future, we can expect at least the same frenzied rate of drilling – but less and less oil and gas from each well on average.

“It’s been a game changer,” Mr. Hughes said of the shale gas boom at a talk last week in Maryland, “but I would say a temporary game changer.”

After crunching data from hundreds of thousands of oil and gas wells across the U.S., Mr. Hughes found that just five of the country's 30 best shale plays have been responsible for 80 percent of domestic shale gas production: the Haynesville shale in Louisiana; the Barnett shale in Texas's Fort Worth region; the Marcellus shale, which underlies New York, Pennsylvania, and parts of Maryland and West Virginia; the Fayetteville shale in Arkansas; and Oklahoma's Woodford shale. When it comes to natural gas, all of the other plays pale in comparison to these five regions.

But the data reveals that in four of these top five shale-gas plays, drillers have been less and less successful in hitting the next big strike-it-rich well. Average well productivity in four of the five best American shale plays has been falling since 2010, Hughes found. The exception, at least for now, is the Marcellus.

Everywhere else, the regional drop-offs are steep. In the Haynesville play, which quite recently was the nation's top shale play, wells delivered roughly one third less gas on average in 2012 than in 2010, Hughes found.

In other words, shale gas regions start to lose their luster fast. Mr. Hughes pointed out that the Haynesville was hardly even targeted by shale gas drillers until 2008 – and now the best areas, the sweet spots that produced the gushers the Haynesville became famous for, seem to have been found.

“So how long do these plays last?” Mr Hughes asked at his Maryland talk. “Looking at the Haynesville, probably about 8 to 10 years before we’re on the other side of that production curve.”

It's not just the Haynesville. In shale plays across the U.S., the sweet spots may have already been identified, Mr. Hughes cautioned. In these sweet spots, drillers can make attractive profits even when natural gas prices plunge. But these areas are rapidly becoming dotted with gas well after gas well – and as the sweet spots fill up, drillers must turn to less promising areas. That's when average well productivity begins to fall across the play.

Related article: Manufacturing Sector Starting to Show Benefits of US Shale Boom

Drillers have known for a long time that individual shale gas wells tend to decline at a startling rate. Within three years, the amount of gas flowing from a single shale well can drop 95 percent, Mr. Hughes found -- turning what used to be a gusher into a garden hose. Some experts believe that shale gas wells will tend to dry up within 8 to 10 years unless they are re-fracked. Of course, re-fracking not only costs drillers money, making the gas more expensive for consumers, it also has major environmental impacts.

In the Haynesville, for instance, production falls 52% in a well’s first year, Mr. Hughes said. This holds true for shale gas wells nationwide, though the rates vary from play to play. After reviewing drilling logs from thousands of Pennsylvania wells, Hughes confirmed that individual well production shows similar steep declines to those in other plays. This undermines the claims from drillers that wells in the state can continue producing for the next 30 to 40 years.

But these fast declines don't mean that drilling will stop. Quite the opposite. It means that in order to keep the same amount of domestic natural gas flowing, drillers will need to drill faster and faster – in part to keep up with the declines from each well, and in part because on average, the new wells they drill will perform worse and worse.

If Mr. Hughes' research is correct, each year, it will be an increasingly massive endeavor just to keep producing the same amount of shale gas that was produced the year before. And for consumers, this means rising natural gas prices.

Hughes, who recently published his findings alongside an analysis by the Energy Policy Forum's Deborah Rogers of Wall Street's role, calculated that nationwide, 7,200 wells will need to be drilled annually, at a cost of more than $42 billion each year, simply to keep shale gas production from falling. But last year, drillers didn't even make enough money to cover that $42 billion, Hughes discovered.

“In 2012, US shale gas generated just $33 billion (although some wells also produced substantial liquid hydrocarbons, which improved economics),” Hughes wrote in a February 21 article in the journal Nature.

What about fracking for oil? As natural gas prices plunged as a result of the shale boom, drillers have grown increasingly excited about shale oil and some areas have seen major drilling booms as drillers learn to wring oil from shale plays like the Eagle Ford in Texas or North Dakota's Bakken.

But Hughes also found that the shale formations that are being drilled for oil decline much like shale gas plays. The three shale plays that currently account for two thirds of America's unconventional oil deposits may be played out quickly, he warned his audience in Maryland.

The Bakken shale formation, which has been touted as one of the richest and most lucrative shale plays in the country, is a quintessential example of these problems, Hughes found. Because Bakken wells are running dry faster than drillers had hoped, new wells will have to be drilled there at an increasing rate to keep the total oil production up. 

"Projections by pundits and some government agencies that these technologies can provide endless growth heralding a new era of 'energy independence,' in which the U.S. will become a substantial net exporter of energy, are entirely unwarranted based on the fundamentals," Hughes concluded in his report.

Why does this matter for anyone but the Wall Street investors who were promised a steady flow of profits from these wells?

Related article: Survey Shows Fracking Communities Suffer from Stress Due to Fear of Exploitation

Hughes offers a simple answer:

“Governments and industry must recognize that shale gas and oil are not cheap or inex¬haustible,” he wrote in Nature. “70% of US shale gas comes from fields that are either flat or in decline. And the sustainability of tight-oil production over the longer term is questionable.”

So far, President Obama has ignored these doubts. His administration has continued to call for an "all of the above" approach to energy. In essence, this means continuing to promote oil and gas instead of shifting to renewables. President Obama has also repeatedly cited the claim that American unconventional reserves can provide a century's worth of natural gas.

But increasingly, the current administration is an outlier in making these sorts of hyped projections. Washington insiders are paying closer attention to the emerging data about how these wells perform. In the past year, many of them have become unconvinced by the industry portrayal of shale gas as cheap, abundant and beneficial.

Jeffery D. Sachs, Professor of Health Policy and Management at Columbia University and a renowned economist and author, is the most recent pundit to join these ranks. In a March 31 editorial in the New York Times, he wrote, "We are in the midst of a short-term boom of shale oil and natural gas."

"Yet this expansion in energy production, driven in large part by two new techniques — horizontal drilling and hydraulic fracturing — won’t begin to address our long-term energy needs," he added.

"Like any overhyped gold rush, today’s boom will soon be tomorrow’s bust," Mr. Sach pointed out, adding "fractured gas fields have a remarkably rapid decline rate."

Mr. Sachs used his editorial to call for the Obama administration to tackle the hard challenges involved in shifting from dependence on fossil fuels to renewable energy.

"A clearly laid out federal program to support large-scale solar and wind energy, electric vehicles and other smart technologies — and backed partly by public money — would unlock hundreds of billions of dollars of private investments," Mr. Sachs wrote. "It would secure America’s energy future and protect the environment, too."

By. Sharon Kelly

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Leave a comment
  • Philip Andrews on May 07 2013 said:
    Well finally someone has given us a 'shale reality check'...

    And about time too...!
  • Randall Scott on December 22 2013 said:
    Excessive oil extractions from under the sea floor could increase aquatic warming, which is the main contributing factor linked to the rapid decline in the planetary ice. The reason being that the reduced insulative factor created by the oil, if removed, would increase the rate and volume of the thermal energy normally being transferred from the hotter planet surface into the colder waters positioned above it. This reality has been supported by some basic scientific experiments, which clearly showed substantial increases in transfer rates. We need to do more investigating prior to allowing this process to go to far. The cost to reverse the damage would be huge.

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