With all the conspiracy theories surrounding OPEC’s November decision not cut production, is it really not just a case of simple economics? The U.S. shale boom has seen huge hype but the numbers speak for themselves and such overflowing optimism may have been unwarranted. When discussing harsh truths in energy, no sector is in greater need of a reality check than renewable energy.
In a third exclusive interview with James Stafford of Oilprice.com, energy expert Arthur Berman explores:
- How the oil price situation came about and what was really behind OPEC’s decision
- What the future really holds in store for U.S. shale
- Why the U.S. oil exports debate is nonsensical for many reasons
- What lessons can be learnt from the U.S. shale boom
- Why technology doesn’t have as much of an influence on oil prices as you might think
- How the global energy mix is likely to change but not in the way many might have hoped
OP: The Current Oil Situation - What is your assessment?
Arthur Berman: The current situation with oil price is really very simple. Demand is down because of a high price for too long. Supply is up because of U.S. shale oil and the return of Libya’s production. Decreased demand and increased supply equals low price.....
Why trees are the solution LNG will never be.
By Arnold Bercov, Eoin Madden and Torrance Coste, Today, TheTyee.ca
Dr Mae-Wan Ho Institute of Science in Society 1/05/15
The US fracking boom“We have a supply of natural gas that can last America nearly 100 years,” said President Obama in his 2012 State of the Union address . “Experts believe this will support more than 600 000 jobs by the end of the decade.” Obama was talking about shale gas - natural gas trapped in shale formations - obtained by ‘hydraulic fracturing’, or ‘fracking’  (see Box), a process used to produce oil and methane gas from coal beds for decades, but relatively new to the shale gas production that inaugurated the recent ‘fracking boom’. Chief economist of the US Energy Information Administration (IEA) said in his 2013 annual outlook : “By around 2020, the US is projected to become the largest global oil producer. The result is a continued fall in US oil import to the extent that North America becomes a net oil exporter around 2030.” Over the next two decades, hundreds of billions will be invested into new power plants run on natural gas, and billions more on constructing export facilities for shipping US liquefied natural gas to Europe, Asia, and South America . US gas production will expand for decades, “all the way out to 2o4o”, according to the official forecasts from EIA. Other countries including the UK are looking to replicating US’ fracking boom to lift them out of the persistent economic doldrums.
Fracking a threat to health and the environmentFracking involves drilling a wellbore down into the shale formation, and injecting fluids (usually chemicals and sand suspended in water) at high pressure into the bore to create cracks in the deep-rock formations through which the natural gas and oil trapped in the formation can flow and become extracted . Horizontal drilling involves wellbores with a terminal drillhole as a lateral that extends parallel with the rock layer containing the gas and oil to be extracted. Typical components of oil shale gas are methane, hydrogen, carbon monoxide, carbon dioxide, nitrogen, and different hydrocarbons such as ethylene. It may also contain hydrogen sulphide and other impurities.
Fracking is highly controversial due to its environmental impacts including contamination of ground water, depletion of fresh water, air emissions (especially of methane a potent greenhouse gas), potential triggering of earthquakes, noise pollution, surface pollution and risks to health and the environment .
Fracking uses between 4 500 and 13 200 m3 water per well, with large projects using up to 19 000 m3. Additional water is used when wells are refractured. An average well consumes 11 000 to 30 000 m3 of water over its lifetime. Greater volumes of fracturing fluids are needed in Europe as the shale depths average 1.5 times those in the US. Impact on agriculture has already been found in North America. In some regions of the US vulnerable to droughts, farmers are now competing with fracking industry for the use of water resources. In the Barnett Shale region in Texas and New Mexico, drinking water wells have dried up due to withdrawal of water for fracking, and water has been taken from an aquifer used by residents and farmers.
Fracking fluids include proppants, radionuclide tracers and other chemicals. Out of 2 500 fracking products, more than 650 contained known or possible human carcinogens. Between 2005 and 2009, 279 products had at least one component listed “proprietary” or “trade secret” on their Occupational Safety and health Administration material safety data sheet.
Surface water may be contaminated through spillage and inadequately built and maintained waste pits, and ground water can be contaminated if the fluid escapes the formation or by the returning fluid (the produced water) which contains not only the chemicals that were poured into the well but also others such as benzene and radon which were safely deep under the ground and are now being brought to the surface.
Many incidents of contamination have been reported, but numerous exemptions of fracking from major federal environmental laws make regulation ineffective.
Fracking routinely produce microseismic events too weak to be detected except by very sensitive instruments. However, a 2012 US Geological Survey study reported a “remarkable” increase in the rate of M≥ 3 earthquakes in the US midcontinent, a 5-fold increase over 20th century levels in 2011. The overall increase was tied to a few specific areas: the Raton Basin of southern Colorado (site of coalbed methane activity), and gas-producing areas in central and southern Oklahoma, and central Arkansas. The increased earthquakes were said to be most likely caused by increased injection of gas-well wastewater into disposal wells.
About 3.6 ha of land are needed per drill pad for surface installations, and these sites need to be remediated after the wells are exhausted. Each well pad (average of 10 wells per pad) requires 800 to 2 500 days of noisy preparatory activity that affect both residents and wildlife. In addition, there is noise from continuous truck traffic during fracking.
Methane emissions from wells are a major concern for global warming. Other emissions include volatile organic compound and ozone. Elevated levels of disulphides, benzene, xylenes and naphthalene have also been detected.
A review written by 7 environmental scientists from Stanford University synthesizing 165 academic studies and government databases concluded : “Unconventional energy generates income and, done well, can reduce air pollution and even water use compared with other fossil fuels. Alternatively, it could slow the adoption of renewables and, done poorly, release toxic chemicals into water and air. Primary threats to water resources include surface spills, wastewater disposal, and drinking-water contamination through poor well integrity. An increase in volatile organic compounds and air toxics locally are potential health threats, but the switch from coal to natural gas for electricity generation will reduce sulfur, nitrogen, mercury, and particulate air pollution.”
On water use in fracking, it is rising quickly at a time when much of US is suffering from drought. It compares most unfavourably with photovoltaic solar and wind power, which use almost no water. However, fracking requires less than 1/100 the water of corn ethanol per unit of energy.
A dose of realism injected by fine grain analysesThe EIA forecasts are based on coarse-grained studies of major shale formations. When researchers began analyzing those formations in greater detail (at a resolution 20 times finer), they came up with much more conservative forecasts, which led to a news feature in a December 2014 issue of the Journal Nature entitled, “The fracking fallacy” . The reason is that the major shale formations have relatively few ‘sweet spots’ where gas extraction will be profitable. The EIA’s model so far assumes that future wells will be at least as productive as past wells in the same country, thereby leading to forecasts that are far too optimistic.
The results are “bad news”, says Tad Patzek, head of University of Texas at Austin’s department of petroleum and geosystems engineering, and a member of the research team conducting the detailed analyses, “we’re setting ourselves up for a major fiasco”.
The findings may also impact on nations, like the UK, which hope to exploit their own shale gas reserves, says economist Paul Stevens of Chatham House, a London-based think tank.
Much of the US shale gas boom is credited to the Marcellus shale formation that stretches across West Virginia Pennsylvania and New York, where companies have sunk more than 8 000 wells in several years beneath thickly forested rolling hills, and adding about 100 every month. The Marcellus now supplies 385 million cubic metres of gas per day, more than enough for half the gas currently burnt in US power plants. Three other shale plays supply a substantial portion of the rest: the Barnett in Texas, the Fayetteville in Arkansas and the Haynesville straddling the Louisiana-Texas border.
Together they have sunk more than 30 000 wells, which produce two-thirds of current US shale-gas output.
According to the EIA, production from the big four plays will continue rising quickly until 2020 then plateau for at least 20 years. Other shale-gas plays would keep the boom going until 2040. Petroleum-industry analysts create their own shale-gas forecasts, which are close to those of the EIA. However, the details behind their forecasts are rarely released.
To provide rigorous and transparent forecasts, a team of a dozen geoscientsts, petroleum engineers and economists at the University of Texas Austin spent more than 3 years on a systematic series of studies funded by a 1.5 million grant from the Alfred P. Sloan Foundation. Their results have been appearing in academic journals and conference presentations. That work is the “most authoritative” in the area so far, says Ruud Weijermars, a geoscientist at Texas A & M University in College Station.
If natural gas prices were to follow the same trajectory used by the EIA in its 2014 annual report, the Texas team forecast production from the big four plays would peak in 2020 and decline from then on. By 2030, those plays would be producing only about half as much as forecast by EIA.
Insiders impressedSome industry insiders are impressed by the Texas analyses. Oil and gas analyst Richard Nehring at Nehring Associates in Colorado Springs says the team’s approach is “how unconventional resource assessment should be done.”
In a working paper published online 14 October 2014 , two EIA analysts acknowledge problems with the agency’s methods so far. They point to analyses of the Texas team as an example of how such models could improve forecasts by drawing upon higher resolution geological maps and identifying sweet spots.
Implications for the rest of the worldIf forecasting is difficult for the US with tens of thousands of wells drilled in production, the uncertainty of estimates for the rest of the world is even greater . The EIA has commissioned estimates for world shale gas potential from Advanced Resources International (ARI), a consultancy in Washington DC. ARI concluded in 2013 that shale formations worldwide are likely to hold a total of 220 trillion m3 of recoverable natural gas. At current consumption rates, with natural gas supplying one-quarter of global energy, that would last 65 years. The ARI report does not state a range of uncertainly on its estimates, nor how much gas might be economical to extract.
Stevens regards such figures “extremely dubious”, and recalls ARI’s assessments of Poland, estimated to have the largest shale-gas resources in Europe. But between 2011 and 2013, the ARI reduced the estimate for Poland’s most promising areas by one-third as some test wells yielded less than expected. The Polish geological Institute did its own study, which indicated that the same regions held less than one-tenth of the gas in ARI’s initial estimate.
UK’s own fracking fallacyAccording to the industry group Shale Gas Europe, the UK is rich in shale gas reserves with significant deposits in the East Midlands, the northwest and south of England, Wales and Scotland .
The volume of shale gas estimated in the Bowland and Hodder Shales in the north of England is 37.6 trillion m3, but the amount of gas that is economically and technically recoverable will only be determined once exploration drilling begins.
The full size of the UK’s resources is still to be determined. The US EIA’s initial estimate is that the UK holds 736 billon m3 of technically recoverable shale gas resources, equivalent to 10 years supply, which is modest by any standard.
However, the UK government is “going all out for shale”  despite stiff opposition from environmental groups and local communities. Prime Minister David Cameron has already announced that councils will be entitled to keep 100 % of business rates raised from fracking sites in a deal expected to generate millions of pounds for local authorities. In the latest move, he wants to change the law so fracking companies can drill under homes without permission .
Chemical giant Ineos said it would invest £640 million to launch a fracking revolution in Britain. The company, notorious for moving its tax domicile from Britain to Switzerland, has already acquired two exploration licenses, but has applied for others in Scotland and the north of England .
Prof Jim Watson, UK Energy Research Centre research director, told the Guardian: “It is very frustrating to keep hearing that shale gas is going to solve our energy problems – there is no evidence for that whatsoever, it’s hype.”
The British Geological Survey has estimated that the Midland valley in Scotland could contain about 80 trillion cubic feet of gas and 6 bn barrels of oil. But “the relatively complex geology and limited amount of good-quality constraining data result in a higher degree of uncertainty to resource estimation than [in England].” Scotland’s shale reserves were modest compared with England’s, BGS said.
The debate came to a head in November 2014 when a chapter in the annual report produced by UK’s chief scientist Mark Walport argued that history holds many examples of innovations that were adopted hastily and later had serious negative environmental and health impacts, for example, asbestos, benzene, thalidomide, dioxins, lead in petrol, tobacco, many pesticides, mercury, chlorine and endocrine-disrupting compounds. And fracking provides a potentially similar example today, it warns .
The chapter was written by Prof Andrew Stirling at University of Sussex, who also argued that the UK and the world could tackle climate change with energy efficiency and renewable energy alone, but vested interests in industry stand in the way. Among the most potent of the political obstructions are the “claims from partisan interests –such as the incumbent nuclear or fossil fuel industries – that there is no alternative to their favoured innovations and policies.”
Mark Walport himself says the Guardian article linking fracking with thalidomide and asbestos misrepresented both the report and the evidence paper (by Stirling). The report entitled Innovation: Managing Risk, Not Avoiding It, “is accompanied by a series of evidence papers and case studies that provides a variety of viewpoints, which are those of the individual authors”.
Still, the new findings on the future of fracking in the US cannot be ignored; nor indeed, the unstoppable rise of renewables in the US and elsewhere. In his 2012 State of the Union address, Obama had also said : “Now, what’s true for natural gas is just as true for clean energy. In three years, our partnership with the private sector has already positioned America to be the world’s leading manufacturer of high-tech batteries. Because of federal investments, renewable energy use has nearly doubled, and thousands of Americans have jobs because of it.”
Three years later today, so much progress has been made that even big power companies in the US are investing in grid energy storage at all levels as ideal companion to renewables (see  Distributed Grid Energy Storage Comes of Age with Renewables, SiS 65), replacing the need for costly infrastructure investments such as ‘peaker’ natural-gas power stations. Other countries including Germany, Italy, UK, Canada, South Korea, China, India, and Japan are investing in similar grid energy storage and grid transformation to varying degrees.
The recent plummeting world prices of crude oil will lead to “a slowdown in US shale oil [and gas] production”, according to Goldman Sachs analysts . In the longer term, falling prices would mean even less economically recoverable reserves, thereby hastening the end of the shale-gas boom, especially as the prices of natural gas has also been falling sharply simultaneously . In 2013, 27 % of electricity was produced from natural gas in the US, and EIA predicts that by 2035, natural gas will surpass coal as the largest source of US electricity generation. Falling prices of natural gas and oil could spell disaster indeed on the EIA trajectory.
In contrast, the renewable energy market is minimally affected. Historically, lower fossil fuel prices had adversely impacted renewables, as in the 1980s and 1990s, when the newly developing solar, wind and geothermal markets in California collapsed as North America suddenly found itself with a glut of cheap oil and natural gas. But energy markets have changed considerably in the 21st century. Diesel and other petroleum-based fuels account for only 5 % of global electricity generation today compared to 25 % in 1973. Diesel is even less relevant in the US power markets, where it makes up only 1 % of generation. “As far as solar and wind go, the [impact] from lower oil prices is zero in North America and Europe, where power prices do not have any link to oil”, Pavel Mochanov, a senior research analyst at Raymond James Financial told the Guardian . In some emerging markets for wind and solar such as the Middle East and North Africa, and even in some established markets such as Japan, diesel does still play a more substantial role, but not enough to matter much.
At best, fracking for shale gas is a small stop gap measure. At worst, it is a serious environmental and health hazard, and diverts investments away from truly clean and safe renewables.
Reposted with permission. A fully referenced version of this report is posted on ISIS members website and otherwise available for download here