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The New York Times Shale Gas Saga Continues

by Michael Levi
August 1, 2011

I’ve been wary of wading back into the brouhaha over Ian Urbina’s New York Times shale gas series – after all, I’m a policy analyst, not a media critic. But a couple pieces about natural gas published in the Times over the weekend make it impossible to resist.

This past Sunday saw a second hard-hitting piece from the newspaper’s public editor, this time about a June 27 story that claimed to document disturbing dissension (and potential conflict of interest) within the U.S. government regarding its bullish take on the prospects of shale gas. Short version of the problem revealed by the public editor: the Times story relied heavily on redacted emails, but the redactions turn out to be severely misleading. The most prominent source in the article was variously an intern and a junior staffer when he wrote the emails that the story quoted; he was identified in three different ways in the article, making it appear that comments were coming from three different sources, when if fact they were all from the same guy; and parts of some emails that were relatively favorable to shale gas were redacted too, without explanation. The story editors, as they did two weeks ago, don’t see anything wrong with what they did. This, more than anything else, is what disturbs me.

Why? Because the series continues – as do its problems. This past Saturday, the Times published the first new installment since the problematic June articles. The latest story is mostly about how the SEC is asking several shale gas companies to document their resource estimates. That’s a perfectly responsible thing for a regulator to do, and for a newspaper to report, though as former Pennsylvania DEP Secretary John Hanger notes, the article could have done with less self-congratulation. My problem is with the last part of the story, which ominously reports that “federal agencies have also begun discussing concerns about the long-term productivity of shale gas wells”, and cites a recent National Energy Technology Laboratory (NETL) newsletter to back that up. The story doesn’t link to the newsletter, but here it is. A careful look makes clear that the story has distorted what that newsletter says. It’s been a long time since I properly fisked an article, but here goes (all quotes from the Times; I haven’t skipped anything):

“Some federal agencies have also begun discussing concerns about the long-term productivity of shale gas wells.”

This is not news. The NETL newsletter is mostly a summary of technical research being sponsored by the lab. But federal research agencies have (rightly) been discussing concerns about the long-term productivity of shale gas wells for as long as they’ve been involved in funding fracking research, i.e. for a very long time. Contrary to the insinuation in the Times article, they haven’t just “begun” discussing these things, and they aren’t doing this because they’re afraid that shale gas is a mirage – they’re doing it, as the newsletter makes clear, because they believe that public R&D funding can help make gas extraction cheaper and more environmentally acceptable. As a corollary, one shouldn’t expect the USG to revise its shale gas projections downward as a result.

“For example, the 2011 summer newsletter of the National Energy Technology Laboratory, a research arm of the Department of Energy, says that technology needs to improve in the Barnett shale in Texas, and in other shale gas areas, for these shale gas wells to be more economically viable.”

Fine. This is almost tautological. It shouldn’t surprise anyone that lots of wells that are drilled will turn out to be losers. Nor is it news that better technology will move some wells from the loser column to the winner one. There is no indication in the newsletter that NETL means anything more than that.

“Shale gas wells often decline sharply after their first year, but many in the industry had remained optimistic about the wells’ ability to produce at a slow but steady rate for decades. Others have doubted these assumptions, which may not be holding up.

‘A crucial challenge for the industry today,’ the newsletter said, is that only a ‘fraction’ — a third or less — of wells show “sustained long-term production,” which makes it difficult for companies to make money on this drilling.”

Gadzooks – it’s the smoking gun! NETL is worried that high decline rates “make it difficult for companies to make money on this drilling”! Except… the newsletter never says that. Take a look at the relevant research abstract, which runs from page 15 to 17 of the newsletter. Yes, it points out that single well productivity is a crucial challenge facing the industry, and it claims that only a minority of wells to date appear to show sustained long term production. (There isn’t enough detail in the research abstract – in particular, the sample is not specified – to interpret exactly what that means.) But there is absolutely no claim offered as to whether it’s easy or hard for companies to make money as a result. The economic judgment is purely Urbina’s — though that’s pretty much impossible for Times readers to tell.

(UPDATE: So that I’m being fair to readers, I’ll take a cue from one of the commenters, and quote this passage from the NETL newsletter: “A crucial challenge for the industry today is that play economic viability depends on total field production and only a fraction (~30%) of shale gas wells show sustained long term production.” I read this as a frame for the research that doesn’t make a net assessment one way or the other. I suppose some can read it as saying that companies can’t make money. Also: counter to the impression that this is a current assessment, it turns out that this is basically reproduced from a grant application that was approved in 2009.]

“The newsletter added that many of the wells produce poorly and others drop in production sharply after an early period of heavy production.”

I don’t doubt it. Why anyone thinks this is news is another question. If Urbina means to imply that these factors haven’t been recognized in the serious estimates of shale gas potential that are out there, he’s mistaken. Take a look, for example, at page 12 of the recent MIT “Future of Natural Gas” study: there’s a big chart showing that well productivity varies wildly, and that many wells in fact produce poorly. MIT – and others – come to their upbeat assessments of shale gas in spite of the challenges that resource faces, not ignorant of them.

Post a Comment 6 Comments

  • Posted by Nick Grealy

    An especially disturbing trend, judging by the comments is the vehemence of the anti-fracking tendency towards the Times editor. Similarly, even an institution like MIT is dismissed as being in the pocket of the gas industry. The leave all gas in the ground tendency are at one time dissolving into unseemly paranoia while rejecting any science that disagrees with their echo chamber as tainted.
    Ironic, considering that they insist that climate change science is unassailable. It makes those like me who believe in CC and a safe and green shale industry battling both sides for no logical reason.

  • Posted by pjc

    Wow, great comment by Nick.

    The very same people (a) refer to scientific consensus with re: to climate change, and pretend that people who disagree with them are pre-scientific Neanderthalls. (b) completely ignore scientific consensus when it comes to shale gas drilling, and pretend that MIT (of all institutions) is incapable of preparing an accurate scientific survey paper.

  • Posted by Roger Jackson

    I think it actually is news that less than a third of shale gas wells can sustain long term production, according to NETL. The MIT study talks about variation in initial productivity rates and variation between shale gas plays. Those stats are indeed well known.

    [ML: It's not clear to me what the grant abstract (not NETL, which isn't actually saying anything here) says about LT productivity. There's no specification of what the figure means. Would be great to get more detail.]

    But I have never seen statistics on how widespread long-term well performance problems are. If the vast majority of wells (ie 70 percent) can’t sustain long term production, but companies are using decline curves that predict several decades of production in their investor presentations, that does indeed strike me as a big deal.

    [ML: I still think we've got two different issues here. One is whether individual companies are overhyping their reserves. The other is whether impartial analysts are severely overestimating the resource. It's quite possible for the first to be the case but the second not to be.]

    And, I hate to be contrary, but I think you’re mistaken when you say “But there is absolutely no claim offered as to whether it’s easy or hard for companies to make money as a result.” The full quote from the NETL newsletter does reference the economics of shale gas. On page 15, it says “A crucial challenge for the industry today is that play economic viability depends on total field production and only a fraction (~30%) of shale gas wells show sustained long term production.” Seem pretty clear to me that they’re saying the economic viability of shale plays depend on the total amount of gas you can tap and it looks like only a fraction of wells are holding up over the long run. That sounds like a description of a pretty crucial challenge for the economics of the industry, coming from NETL, not The Times.

    [ML: Contrary is great! That said, I guess you and I just read this differently. I don't read this as nearly as strong a claim as you do. So that I'm fair, I'll make sure that the full quote from the newsletter is in the main body of my post.]

  • Posted by Roger Jackson

    Thanks Michael for posting the full quote and for clarifying. But unless I’m missing something, the 2009 document you cited to show that NETL research is old news doesn’t seem to say anything at all about what percentage of the wells can sustain long term performance and what percentage cannot.

    It does say “Current operational experience in gas shale reservoirs indicates that retention of productive fracture area and conductivity are major economic issues in these plays, literally ‘a billion dollar problem that needs resolution for deep plays to be economically viable.’” But I don’t see anything in the 2009 document about the proportion of wells that can sustain long term performance. This is a key statistic because it goes right to the heart of the problems that are emerging with shale gas wells. Maybe this is an issue that affects some plays more than others. You’re right that it’s not clear from the research abstracts, and, especially given how high the numbers are, I agree it would be good to know more about how those figures were reached. But I still think they’re new statistics that potentially fill an important gap.

    Anyways, you make a good point about the distinction between reserves and resources. Resources refer to the amount of gas that’s trapped in the shale, and there’s clearly tons of it. By contrast, reserves are supposed to take costs into account. The first Urbina article put the distinction this way: “There is undoubtedly a vast amount of gas in the formations. The question remains how affordably it can be extracted.” That’s why its important to focus on whether companies are indeed, as you put it, overhyping their reserves. If companies used aggressive and unjustified decline curves they’ll ultimately face reserves write-downs, or even SEC investigations (which, as you note, may have begun). But in the meantime, I think that it’s important to take a good close look at how individual shale gas wells live up to production predictions, especially if there are signs that a large proportion die out sooner than hoped.

  • Posted by Hans Nicolaisen

    Just a few comments…. This morning’s mail from EnergyBiz linked to this article, Big Oil Betting on Shale Gas. Hope the URL works.

    http://www.energybiz.com/article/11/07/big-oil-betting-shale-gas&utm_medium=eNL&utm_campaign=EB_DAILY2&utm_term=Original-Magazine

    What are we to think of this? It would seem if they’re putting in all that money, there must be something there – like a profit. On the other hand, oil companies are doing quite well these days. Is there a chance this is a tax reduction strategy and, if shale doesn’t work out, losses can be declared? I don’t want to be cynical, but it’s a consideration.

    There are also those, like Berman, who insist that shale isn’t profitable at today’s gas prices. Then why are so many shale wells being developed? We’ve heard all kinds of reasons for this from anti-shale people, but has anyone taken a close look at related income and balance sheets to see what’s happening?

    Roger is right on resources and reserves. There’s a big difference between estimates of resources and what will come out of the ground. It now seems that whether it’s Marcellus, Barnett, etc. there are “sweet spots” and that’s where gas can be produced. Lots of resources elsewhere in the deposits, but it’s only in a few places where gas is being extracted.

    So far as depletion rates, I think it’ll take a while before the data is in. But, if big oil is getting into this it can’t be all bad – unless they’re looking for write-offs.

    Just my 2 cents.

  • Posted by J

    So what are we supposed to be making of this as we think Urbina’s thoughts after him? Having lied about the number of his sources, deliberately misled his readers regarding the position of the faked sources, and repeatedly editing sources to make them his sockpuppets–after all this he wants to just herd us along to the next prefabricated objection to shale gas exploration.

    “Oh, well, it’s no big deal if your legislators fold under pressure and regulate shale gas exploration out of existence! It’s not making money anyway!”

    I mean, is this the sort of argument that befits the pages of the New York Times? Is this supposed to sway anyone’s opinion? Frankly, I don’t get it. This is one of the least coherent series of articles I have ever read in the Times, and I am genuinely scratching my head. There is clearly an argument being made by Urbina, who wants very badly to make us believe his narrative, but for the life of me I can’t fathom how the Times thought his efforts were the least bit compelling.

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