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Reports: Fracking, Aided by Wall Street, Causing New Housing Bubble

11:10 am in Uncategorized by Steve Horn

Cross-Posted from DeSmogBlog

Fracking Rig

Fracking and Wall Street Creating a New Housing Bubble

Two long-awaited reports were published today at ShaleBubble.org by the Post Carbon Institute (PCI) and the Energy Policy Forum (EPF).

Together, the reports conclude that the hydraulic fracturing (“fracking”) boom could lead to a “bubble burst” akin to the housing bubble burst of 2008.

While most media attention towards fracking has focused on the threats to drinking water and health in communities throughout North America and the world, there is an even larger threat looming.  The fracking industry has the ability – paralleling the housing bubble burst that served as a precursor to the 2008 economic crisis – to tank the global economy.

Playing the role of Cassandra, the reports conclude that “the so-called shale revolution is nothing more than a bubble, driven by record levels of drilling, speculative lease & flip practices on the part of shale energy companies, fee-driven promotion by the same investment banks that fomented the housing bubble…” a summary details. “Geological and economic constraints – not to mention the very serious environmental and health impacts of drilling – mean that shale gas and shale oil (tight oil) are far from the solution to our energy woes.”

PCI’s report is titled “Drill Baby, Drill,” authored by PCI Fellow and former oil and gas industry geoscientist J. Dave Hughes, while EPF’s report is titled “Shale Gas and Wall Street,” authored by EPF Director and former Wall Street financial analyst Deborah Rogers.

“100 Years of Natural Gas”? Uh huh…

In President Barack Obama’s 2012 State of the Union address, he repeated the fracking industry’s favorite mantra: there are “100 years” of natural gassitting beneath us.

“We have a supply of natural gas that can last America nearly 100 years, and my administration will take every possible action to safely develop this energy,” he stated.

Hughes concludes that the “100 years” trope serves as a disinformation smokescreen and at current production rates, there are – at best – 25 years under the surface.

Industry proponents rely on a figure known as “technically recoverable reserves” when they promote the potential of shale basins. The figure that actually matters though, is production rates, or what the wells actually pull out of the reserves when fracked.

In the case of U.S. shale gas, the booked reserves are operating on what Hughes coins a “drilling treadmill,” suffering from the law of “diminishing returns.”

Hughes analyzed the industry’s production data for 65,000 wells from 31 shale basins nationwide utilizing the DI Desktop/HPDI database, widely used both by the industry and the U.S. government. He sums up the quagmire he discovered in doing so, writing,

Wells experience severe rates of depletion…This steep rate of depletion requires a frenetic pace of drilling…to offset declines. Roughly 7,200 new shale gas wells need to be drilled each year at a cost of over $42 billion simply to maintain current levels of production. And as the most productive well locations are drilled first, it’s likely that drilling rates and costs will only increase as time goes on.

The reality, he explains, is that five shale gas basins currently produce 80 percent of the U.S. shale gas bounty and those five are all in steep production rate decline.

And shale oil? More of the same.

Over 80 percent of the oil produced and marketed comes from two basins: Texas’ Eagle Ford Shale and North Dakota’s Bakken Shale, both of which are visible from outer space satellites.

“[T]aken together shale gas and tight oil require about 8,600 wells per year at a cost of over $48 billion to offset declines,” Hughes writes. “Tight oil production is projected to…peak in 2017 at 2.3 million barrels per day [and be tapped by about 2025]…In short, tight oil production from these plays will be a bubble of about ten years’ duration.”

At current production rates, Hughes concludes, there is 5 billion barrels of shale oil located underneath the Bakken and Eagle Ford, which equates to ameasly ten months worth of oil at current runaway climate change-causing U.S. oil consumption rates.

PCI accompanied Hughes’ report with 43 charts and graphs and a digital U.S. map with the production data of all 65,000 fracking wells in the lower 48.

Wall Street’s Complicity

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Smoke and Mirrors: Obama DOE Fracked Gas Export Study Contractor’s Tobacco Industry Roots

4:19 pm in Uncategorized by Steve Horn

Cross-Posted from DeSmogBlog

At first, it was kept secret for months, cryptically referred to only as an “unidentified third-party contractor.”

Finally, in November 2012, Reuters revealed the name of the corporate consulting firm the U.S. Department of Energy (DOE) hired to produce a study on the prospective economic impacts of liquefied natural gas (LNG) exports.

LNG is the super-chilled final product of gas obtained – predominatly in today’s context – via the controversial hydraulic fracturing (“fracking”) process taking place within shale deposits located throughout the U.S. This “prize” is shipped from the multitude of domestic shale basins in pipelines to various coastal LNG terminals, and then sent on LNG tankers to the global market.

The firm: National Economic Research Associates (NERA) Economic Consulting, has a long history of pushing for deregulation. Its claim to fame: the deregulation “studies” it publishes on behalf of the nuclear, coal, and oil/gas industry – and as it turns out, Big Tobacco, too.

Alfred E. Kahn, the late “Father of Deregulation,” founded NERA in 1961 along with Irwin Stelzer, now a senior fellow and director of the right-wing Hudson Institute’s Center for Economic Policy. 

The NERA/Obama DOE LNG export economic impact study, released in early-December 2012, concluded that exporting the U.S. shale gas bounty is in the best economic interest of the country. 

This conclusion drew metaphorical hisses from many analysts, including prominent shale gas market economist and former Wall Street investor Deborah Rogers, who now maintains the blog Energy Policy Forum. Her critique cut straight to the very foundation of the study itself, stating that “economic model[s] are only as good as their inputs.”

She proceeded to explain,

In fact, it is neither difficult nor unusual for models to be designed to favor one outcome over another. In other words, models can be essentially reverse engineered. This is especially true when the models have been commissioned by industries that stand to gain significantly in monetary terms. Or government agencies which are perhaps pushing a political agenda.

Beyond its history working as a hired gun for the fossil fuel industry, NERA also has deeper historical roots producing “smoke and mirrors” studies on behalf of the tobacco industry. The long view of the firm’s past is something NERA would likely rather see “go up in smoke,” forever buried in the historical annals. But that would be a disservice to U.S. taxpayers since NERA continues to receive government contracts to produce tobacco-era disinformation to this day. 

NERA and the “Tobacco Playbook”

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