海角大神

As U.S. natural gas prices flirt with the $4 mark, some skeptics of the so-called shale gas revolution think prices are headed much higher. Such a move would, not surprisingly, seriously undermine the official story that the United States has a century of cheap natural gas waiting for the drillbit.

Several years ago when natural gas began flowing in great quantities from deep shale deposits beneath American soil, it seemed to be the beginning of the end of America鈥檚 troubled journey into dependence on energy imports鈥攁 journey marked by frequent worry, occasional war and enormous expense.

But, to some people this supposed solution to America鈥檚 energy needs has begun to seem as costly to the environment and human health as the country鈥檚 dependence on imported energy has been in terms of mental distress, money and blood. It turns out that this new kind of natural gas requires the industrialization of the countryside in order to extract it. And that, say those closest to the action, risks tainting air, land, and drinking water and compromising the health of humans and animals alike.

Well, at least we can say that shale gas is plentiful, cheap, American, and much easier on the climate than coal or oil. It didn鈥檛 take too long before people started looking into whether shale gas really was that much easier on the climate.聽A Cornell University researcher came to the conclusion that shale gas was probably worse for climate change than coal. His conclusion hinged in part on what are called 鈥渇ugitive emissions鈥濃�攗nintentional, but unavoidable releases of unburned methane into the atmosphere during the聽hydraulic fracturingoperations performed to extract the gas. Methane is聽some 20 times more potent聽than carbon dioxide as a greenhouse gas.聽

Naturally, the oil and gas industry聽responded vigorously聽to the researcher鈥檚 findings with its usual ad hominem attacks. But, it also highlighted uncertainties that are always part of any scientific study. This industry is, of course, the same one that has consistently denied the existence of climate change and continues to spend millions trying to convince the public that climate change either isn鈥檛 happening, or if it is, it won鈥檛 be that bad or if it is, it may actually be good for us.

The industry鈥檚 response to the study has, not surprisingly, been met with skepticism. That is befitting an industry that, having spent the last two decades denying climate change, now suddenly embraces it as a reason to produce more natural gas. So, despite the industry鈥檚 best efforts, the meme that shale gas is worse than coal is out there and being repeated again and again by opponents of shale gas drilling.

Well, at least we can say that shale gas is plentiful, cheap and American. But, then came聽the industry campaign to end federal limitations on the export of natural gas.聽What had been touted by the industry as a fuel that would help lead America to energy independence would henceforth be treated as just another world commodity seeking the highest bidder鈥攅ven if that bidder is in China, Japan or Great Britain. The industry鈥檚 aim, of course, is to get higher prices for its product than customers in the United States can provide. As noted above, natural gas trades at around $4 per thousand cubic feet (mcf) in the United States. That compares to about $17 per mcf for liquefied natural gas delivered to Japan. The price in Europe is around $12.

Well, at least we can say that shale gas is plentiful and cheap. As natural gas prices declined from double digits in 2008 and the shale gas boom proceeded apace, the industry convinced Americans that cheap, plentiful natural gas was the country鈥檚 future for a century to come. And, when natural gas prices plunged briefly to $1.82 per mcf last April, even the oil and gas industry began to wonder whether cheap natural gas was really such a great thing. At that price or anything below about $2.50 really, almost no wells were profitable.

Last year independent petroleum geologist Art Berman, while reviewing the financial wreckage of the once flourishing, but now fallen shale gas drillers,聽noted that the industry was based on:

As Berman noted back then: 鈥淚mprobable stories that great profits can be made at increasingly lower prices have intersected with reality.鈥� The industry proceeded聽to abandon shale gas plays in favor of tight oil playswhich have proven to be profitable with oil prices consistently crisscrossing $100 a barrel in the last two years.

Apparently, price聽does聽matter when it comes to natural gas. And so, it seems natural gas won鈥檛 be endlessly cheap in America after all. As Berman foretold in聽an earlier piece, prices would have to rise to between $5 and $6 to make currently paid-for leases profitable from this point forward and between $7 to $8 to make new leases worth pursuing. For comparison, back in the heyday of cheap natural gas, the decade of the 1990s, the average annual U.S. price was $1.92 per mcf,聽according the U.S. Energy Information Administration.

So what exactly has happened to U.S. natural gas production as reality has set in and companies have withdrawn drills to await prices that might actually be profitable? The answer ought to be troubling to those who are counting on endlessly escalating supplies large enough to displace the majority of oil and coal used in our economy. To wit,聽U.S. marketed natural gas production has been flat for the last two years.

The trend is so ominous that two industry insiders I know believe that U.S. natural gas production could actually start declining soon and send prices soaring. They say drillers have fallen so far behind that it will be impossible to make up for production lost from existing shale gas wells. Those wells typically see production decline rates of 85 percent after two years. (Translation: Some 85 percent of existing production from shale gas wells must be replaced every two years BEFORE production can grow.)

The future is, of course, unknown to us. But, the present and the past suggest that the so-called shale gas revolution is about to be laid to rest. Yes, shale gas might prevent total American natural gas production from dropping off a cliff even as conventional natural gas production continues to decline. And, at some point shale gas might even allow U.S. production to rise modestly above current levels. But, two things are now abundantly clear: It won鈥檛 be easy and it won鈥檛 be cheap.