Monday, June 27, 2011

Question about the New York Times

There's another couple of pieces by Ian Urbina in the New York Times.  This is the guy last seen noting that there's a lot of radioactivity in some of the wastewater from shale gas drilling/fracking.  The new pieces report on a lot of internal skepticism at energy companies and regulators, respectively, about the economics of shale gas:
But the gas may not be as easy and cheap to extract from shale formations deep underground as the companies are saying, according to hundreds of industry e-mails and internal documents and an analysis of data from thousands of wells.

In the e-mails, energy executives, industry lawyers, state geologists and market analysts voice skepticism about lofty forecasts and question whether companies are intentionally, and even illegally, overstating the productivity of their wells and the size of their reserves. Many of these e-mails also suggest a view that is in stark contrast to more bullish public comments made by the industry, in much the same way that insiders have raised doubts about previous financial bubbles.

“Money is pouring in” from investors even though shale gas is “inherently unprofitable,” an analyst from PNC Wealth Management, an investment company, wrote to a contractor in a February e-mail. “Reminds you of dot-coms.”

“The word in the world of independents is that the shale plays are just giant Ponzi schemes and the economics just do not work,” an analyst from IHS Drilling Data, an energy research company, wrote in an e-mail on Aug. 28, 2009.

In scores of internal e-mails and documents, officials within the Energy Information Administration, or E.I.A., voice skepticism about the shale gas industry.

One official says the shale industry may be “ set up for failure.” “It is quite likely that many of these companies will go bankrupt,” a senior adviser to the Energy Information Administration administrator predicts. Several officials echo concerns raised during previous bubbles, in housing and in technology stocks, for example, that ended in a bust.

Energy Information Administration employees also explain in e-mails and documents, copies of which were obtained by The New York Times, that industry estimates might overstate the amount of gas that companies can affordably get out of the ground.

They discuss the uncertainties about how long the wells will be productive as well as the high prices some companies paid during the land rush to lease mineral rights. They also raise concerns about the unpredictability of shale gas drilling.

One senior Energy Information Administration official describes an “irrational exuberance” around shale gas. An internal Energy Information Administration document says companies have exaggerated “the appearance of shale gas well profitability,” are highlighting the performance of only their best wells and may be using overly optimistic models for projecting the wells’ productivity over the next several decades.
Interesting stuff, and both pieces are highly recommended reading.

However, I have a meta question about the editorial decisions at the New York Times over coverage of fossil fuel supply issues.  On the one hand, over the last five years when it comes to questions of oil supply and peak oil, the New York Times has fairly consistently put out a long line of pieces that basically regurgitate oil industry PR, particularly from the consultancy CERA, about how there's no problem, supply will be plentiful, etc, etc.  Under the bylines of Jad Mouawad and Clifford Krauss, there's been an almost complete lack of balance or skepticism.  For example, critical examination of claims by Saudi Arabia has been very much warranted in my opinion, and the New York Times has been almost totally missing in action here.

The contrast with the recent series of very hard-hitting investigative pieces on shale gas couldn't be greater.

So why the difference?  One possibility is it's a fluke of individual reporting preferences.  Mouawad and Krauss are go-with-the-flow guys happy to write whatever Daniel Yergin tells them, while Urbina is a suspicious guy with a strong investigative drive who doesn't take anything at face value, and it's simply chance that the former got assigned to the oil stories, and the latter to the shale gas story.

However, I have another (highly speculative) theory.  The New York Times basically reflects the interests and desires of the society in which its editors move - the upper middle classes of New York City: wealthy, but also politically and socially liberal.  They'd like to see the world a better place, but they also don't want doing so to have a significant impact on their own lifestyles.

Seen from this standpoint, peak oil is bad news, since these folks drive late model Mercedes, Porsches, and BMWs, fly everywhere on business and vacation, and don't want to stop doing these things.

However, shale gas is a different story.  The New York upper middle classes have summer places and take regular weekend getaways in various parts of upstate New York, and they don't want this playground messed up with a bunch of industrial fossil fuel extraction.  This could happen with wholesale fracking of the Marcellus and Utica shales:

So resources are assigned to dig up dirt on shale gas and write very skeptical stories about it, in a way they never have been about oil supply issues.

Dissents, or other theories, are welcome in comments...


Mike Aucott said...

Your view that shale gas isn't attractive because it rocks the moneyed status quo is plausible. I just finished a preliminary analysis of the EROI of shale gas (posted at and it is surprising how favorable the energy balance seems to be. Of course I had to use available data and as Urbina's articles note, at least some of these data may be unreliable. (Comments and criticisms of my analysis are most welcome!) But it seems to me that shale gas is here to stay and also has a favorable enough energy balance so that the industry will be able to afford to use best management practices.

brett said...

Is it plausible that the "upper middle classes" are simply sticking their heads in the sand about peak oil? I guess the threat is more abstract and remote than having gas wells in your immediate vicinity.

Mike said...

Didn't the NYT get a new editor recently? Maybe that makes a difference.

buck smith said...

If shale gas were not economical Exxon would not have purchased US shale gas producer XTO. Exxon is too well run and knows too much about what it is doing to make a mistake on this kind of thing.

Not quite there said...

I work in a company with shale gas properties although I do not work in that part of the company. We have endless discussions about the economics of shale gas.

A few points:

I agree with Buck's comment about Exxon. Exxon has many clever people and is just about as shrewd and conservative as people think. The CEO did not simply decide to buy XTO, he decided to buy XTO after about 100 geological, engineering, commercial, legal and economic experts studied the problem for a year or more and told him it was a good deal.

If shale gas production were so difficult then why is the price of gas so low? If it were so difficult then production would not be in excess of demand.

Many G+G (geology and geophysics) types do not like working on Shale gas. Shale gas is more of an engineerng thing and the G+G types get sidelined. They are more comfortable with conventional hydrocarbons.

I have talked to shale gas people within my own company. They say it works. So either there is a massive conspiricy or it does work.

SEC reserves are unlikely to be overstated as they are based on conservative engineering practices (this is open to argument since it involves a decline curve decades long and no one has that data yet although there are analogues in tight gas sands). However, the figure thrown around that there is a 100 year supply are likely overstated. As always, industry starts with the low hanging fruit. Many estimates extrapolate this to all shale giving inflated estimates of a resource in place, but gives little information about what is economically producable.

My gut feeling is that costs are underestimated. Currently activity is declining because money cannot be made in marginal projects. Costs are only bound to increase as requirements on people and equipment increase as well as the quality of the shales declines.

Shale gas is likely in our future, but I don't believe it is as rosey as people would like to believe.

buck smith said...

Not quite there, when you says costs are under-estimated you mean 10 to 30%, right? If they are underestimated by a factor of two or three then Exxon made a big error with XTO. if costs are under-estimated by 10% to 30% then shale gas is still the most important innovation in the energy markets in this young century. And a good way to make money is to find ways to expand use of gas as an energy source.

Shrimppop said...

The sweet spot of the Marcellus is smack in the headwaters of both the Delaware and Chesapeake watersheds, as well as two main NYC drinking water reservoirs. This is the primary reason for a popular rejection of fracking in the Marcellus, not that the upper middle classes are concerned about their "playground."

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