Among the critics of shale-gas extraction is energy investment banker Matt Simmons. He argues that the shale phenomenon endangers water resources and provides a means for gung-ho stakeholders to book reserves, and that production profiles are economically questionable.
He believes that US shale gas is “worse that the dotcom boom” and that, just because it appears to work in some locations, like the Barnett shales, potential investors forget that there are many locations where any attempt at extraction is doomed to fail.
“One of the allures is that, if you can lease 100,000 acres, you book the proven reserves,” Simmons told Energy.
“The belief is that it is equally distributed … that there is no exploration risk.
“The minute that we found out that there was a sweet spot, the ideas around exploration risk became a fraud. Unless you drill for it, you shouldn’t be able to book it.
“Virtually all the players are still conning themselves. Everyone is now desperately trying to figure out how to book reserves.”
So why is it that big names are clamouring to get involved?
“Because it’s the easiest way to book reserves under current rules; everybody’s promoting everybody.”
On the issue of water, he said it could take some 7million gallons to prepare a well for production, essentially by pumping down a slurry (the drilling process also uses water-based drilling fluids) and fraccing the gas-bearing formation.
And then, having carried out the fraccing process, recovered slurry has to be disposed of; one critical issue being contaminants from below ground.
“What they’re basically doing is … say you live 70 miles outside Fort Worth … someone knocks on your door and asks you how many acres you have. Say its 2,000. You get offered $30,000 an acre for the rights to drill on your property. What will it do to the land itself? Apparently nothing. There’s just a tiny pad from which all the wells will be drilled. The nice thing is that you’ll also get a royalty of 15%.
“So the wells get drilled. The fraccing units arrive, you have water wagons arriving every three hours or so to deliver the water that gets pumped below ground as slurry. For about a month, your property is a buzz.
“The next thing is that the water comes back and has to be disposed of. So for the next month, you have disposal wagons arriving every few hours, carting it off and injecting it down abandoned oil/gas wells because, in theory, they’ve been cased and cemented to below water aquifer level.
“That’s the theory, but not reality. If it’s a well that was abandoned 20-30 years ago, the casing will likely be decayed anyway.
“And then initial production starts out at, say, 70million cu ft per day and, in the first month, it averages 12million; and gas is at $7 so you (the farmer) get an unbelievably big royalty cheque.
“But no one told you that you only get about four of these; a year and a half later, the gas is down to a trickle, oh, and gas prices have now collapsed because the perception is that the US has a permanent glut of gas.
“There is all this equipment on your farm; there’s no more water.
“Shale gas is the shortest-life hydrocarbon resource we’ve ever dealt with.
“Here’s what we know about the Barnett, and this is well documented, even if individual participants say their wells do a lot better. The average Barnett well declines 70% in year one, 20% more in year two and a further 5% in year three. So your initial production rate has fallen 95%. That’s a pretty stiff decline rate.
“To recover the average booked reserves, the 5% tail has to last 25-40 years.”
Simmons says that, over a period of about three-and-a-half years, the drilling of some 10,500 Barnett shale wells consumed some 70billion gallons of potable water. To put that in perspective, that’s about equal to the bottled water consumption in the US for a year.
Shales are very prevalent and there is a growing belief that the US could one day export natural gas. This hit the headlines not many weeks back.
Meanwhile, the advent of shale gas is persuading a growing number of people to revise their thinking regarding natural gas resources.
“I’ve never seen anything like it in my entire career,” said Simmons.
“It’s a bit like being invited to the wedding ceremony when Santa Claus marries the Easter Bunny.
“I don’t need to come and get an education on shale gas; I’ve read too much.
“Everybody in the business who has booked reserves is going to have massive write-offs. That’s why I’ve totally rearranged my own portfolio.
“I don’t care if I’m wrong. I know I’m right. The data’s too obvious.
“We’ve had a paranoia going on among our gas pundits in the US who, as a group, have been intellectually brain-dead for the 20 years since I started trying to understand natural gas.
“They’ve always got it wrong and they’re basically the biggest proponents of shale gas.
“It’s the biggest energy myth ever perpetrated.”