Wednesday, March 14, 2012

Natural Gas Bubble? Last month price plunges to lowest in decade !

Eagle Ford Shale Boom: Just a Texas-sized tall tale?


A line of oil and gas industry insiders speaking at the sold-out Eagle Ford Consortium's inaugural conference this month in San Antonio praised the potential of the South Texas shale with near-prophetic ecstasy. Prospects in the oil- and gas-bearing shale formation crossing beneath 24 South Texas counties known as the Eagle Ford are "unprecedented," "extraordinary," and "game-changing," said David Blackmon, Texas state lead for the industry lobby America's Natural Gas Alliance. Laredo Energy CEO Glenn Hart named the Eagle Ford the "king of the hill" of shale plays, a region key to ushering in "the shale gas revolution" and "a stronger America."

But while it borders on the heretical to say it aloud, judging from very recent shale plays elsewhere in the country — like the Marcellus, the Barnett, the Fayetteville — ours may not go down as the century of natural gas, after all. Critics contend the promise of decades-long growth doesn't match what's been seen elsewhere, that the eventual Eagle Ford bust could come sooner than industry promises suggest — though some lucky landowners, local governments, and oil and gas companies flipping mineral leases will still be all the richer for it.

The study hit just as industry insiders spilled hundreds of internal emails and documents to The New York Times that appeared to show energy execs, geologists, and market analysts worrying whether shale-heavy companies were intentionally — maybe even illegally — overstating well productivity and the size of their reserves. Actual reserves, Berman contends, appear to be about half what industry claims. So where did that promise of 100-year natural gas reserves originate? Nelder's Slate piece tracked it back to a spring 2011 report by the Potential Gas Committee, an organization of petroleum engineers and geoscientists out of the industry-friendly Colorado School of Mines. The group's president works with Third Day Energy, LLC, an Austin-based outfit buying and exploiting oil and gas properties along the Texas Gulf Coast, while its chairman also serves as vice president for a Denver natural gas production, processing, and marketing company.

The disconnect raises serious questions about energy investments on the horizon, says Houston-based energy consultant Arthur Berman, particularly as industry and public officials start to advocate for the conversion of public transit and 18-wheelers into natural-gas powered fleets, or dumping dirty coal-fired power plants for those that run on natural gas (which produce half the greenhouse gas emissions). "Is it 11 years or 100 years? Which is it?" Berman asked. "Policy makers believe what they're told and make policy based on that, so if it turns out to be otherwise, well then shoot, we'll have a problem."

In fact, companies have been losing money producing natural gas. On an averaged annual basis, shale gas has been unprofitable for four years, When the price of natural gas started its nosedive, from about $13 per thousand cubic feet down to this month's decade-low price around $2.30. Securities and Exchange Commission filings, Berman said, indicate that for most companies the break-even price would have to be somewhere around $7 per thousand cubic feet. "So if you make some investment, a personal or corporate investment or even a municipal investment in natural gas powered vehicles, and you think the price is going to stay what it is today, you're going to be pissed," Berman said.


  1. Capitalism is great. While the producer is seeing less profit, the consumer is getting a good deal.

    I just wish this president understood that supply and demand are the basic priciples of our economy.

  2. Perhaps but it appears the EFS is being fueled by speculation and will soon burst.


  3. Speculation is part of a capitalist society. Taking chances is what drives our growth.