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'Fracks' In the Next Financial Bubble?

By Bill Moore

To listen to the US Energy Department's Energy Information Agency, as well as the American oil and gas industry, the nation is not only in the middle of a boom in fossil fuel production, but one that is likely to last for decades to come. However, a group of academics centered around the University of Texas at Austin have started to question all the rosy forecasts about 100 years of natural gas supplies.

Mason Inman is a freelance journalist who has been researching the life of M. King Hubbert for a biography he's writing. Hubbert is the oil field geologist who predicted in the 1950s that conventional U.S. oil production would peak somewhere in the early 1970s. He was right, at least strictly speaking: on shore oil production in the lower 48 states did, in fact, peak. What he didn't account for, even though he was the first person to describe the process of hydraulic fracturing, was the industry's ability to squeeze more oil and gas out of geological formations not viewed as economically viable, much less, technologically feasible.

The ability to drill deeper, route wells horizontally, and use high pressure techniques to open up the pores in the rocks, have given a second life to tired oil fields and opened up new resources: the Barnett field in Texas, the Bakken play in North Dakota, the Macelius shale deposits of Pennsylvania. There appears to be so much oil and gas now flowing through pipelines and in tanker trucks that there is giddy talk about American 'energy independence' and exporting liquified natural gas overseas.

And as you might imagine, everyone wants in on the boom, oil and gas companies, investors, land owners, banks. But just how much gas is there down there? The Energy Information Agency thinks there's a lot, enough to last at least several decades into the future.

As Inman recounts in his article just published in Nature entitled, 'The Fracking Fallacy', trouble with all those rosy projections now comes in the form of a group of academics centered around the University of Texas in Austin, the state capital; and not just any academics, but the folks who actually teach the oil and gas business. Using a method of far finer 'resolution' than the EIA's county-by-county analysis, they have come up with a far less sanguine assessment of how much gas there is down there: roughly half as much as the government and industry thinks there is.

That is, of course, a problem not just for the producers and landowners counting on profits for decades to come, but especially for the investors and banks funding all those wells and equipment, each costing tens of millions of dollars.

Leaving completely aside concerns over environmental and human health like water table contamination, air and soil pollution, climate change and global warming, not to mention human-induce tenors and earthquakes, the strongest threat facing the industry could be an economic one: banks and investors may have bought the proverbial pig in poke. Or perhaps more contemporarily phrased, a house with a mortgage for more than it's worth. You remember what that situation did the last time around.

That's why just before I interviewed Mr. Inman, the author learned that his Nature article was read into the Congressional Record by Illinois Congressman Bobby Rush, presumably as a warning to the government and public. Unfortunately, we also were warned about the housing fiasco years before it happened. Fat good those warnings did.

Video Part One

Video Part Two

Times Article Viewed: 4488
Originally published: 13 Dec 2014

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