Why The Debate Over The Fracking Fallacy Is A Big Deal

The debate about “The Fracking Fallacy” is a big deal because EPA’s* plan to regulate coal out of existence is based on EIA’s* forecast of abundant and cheap shale gas for decades.   If U.S. natural gas production is in decline by the early 2020s as described in the Nature article, there won’t be enough electric power supply without more, rather than less, coal. And power will cost more. In addition, DOE’s* approvals for natural gas export to Asia, Europe and Mexico may now become truly awful and misinformed decisions.

The magazine Nature published “Natural gas: The fracking fallacy” on December 3, 2014.  The article’s author Mason Inman described how the expectation of decades of abundant natural gas in the United States might be wishful thinking. He compared the Bureau of Economic Geology (BEG) and EIA gas supply forecasts in the nearby figure.   The BEG forecast has U.S. gas production peaking in about 2020 and then, declining sharply.  The EIA prediction is for gas supply to continue increasing into the mid-2020s and then, to remain strong into the 2030s.

Source:  Bureau of Economic Geology (click the figure to enlarge)

Both the EIA and BEG wrote letters to Nature last week stating that Inman’s article was misleading and biased.  More importantly, both letters emphasized that there really isn’t any disagreement between the two forecasts but that there are many differing scenarios that each group has developed because of the many variables and uncertainties involved with supply forecasting.

The Nature article has succeeded in casting doubt for the first time on the beautiful dream that fracking shale reservoirs can restore youth to an ageing American energy industry.  For years, a few industry insiders like me have urged caution about the jubilant projections for U.S. shale gas abundance coming out of EIA, the research departments of investment banks, and industry consultancies.  Things that sound too good to be true often are.

Why did the EIA and BEG jump into the fray when they might have chosen to say nothing and assume that this too would pass as, for instance, the New York Times “Drilling Down” series did in 2011? 

First, because the BEG is recognized as a major force in institutional and academic research with close ties to the oil and gas industry.  The BEG evaluated the performance of every individual well in all of the major U.S. shale gas plays.  Their work is the authoritative standard in my view.

And second, because of timing:  EPA air quality regulations go into effect in April 2015 that will greatly reduce the role of coal in electric power generation as shown in the nearby figure.  Resulting retirement of more than 60 coal-fired plants in 2015 would increase demand for natural gas as the substitute fuel.  Coal plant retirements will continue though 2025 and have been ongoing for several years already in anticipation of the new regulations. 

Source:  GAO (click the figure to enlarge)

EIA’s gas supply and price forecast formed the technical basis that justified EPA’s regulations that did not require congressional approval.  If BEG’s forecast is correct, U.S. gas supply will have peaked before the last coal plants are retired and after the majority have been shuttered.  What will the U.S. do for electric power if gas production is in serious decline?  The only options are to revert to more coal, quickly build nuclear power plants or somehow greatly accelerate development of wind and solar installations (but what to do about the necessary natural gas backup generators?).

Moreover, EPA regulations have relied on EIA gas price projections to further justify coal plant retirements.  These price forecasts say that gas will continue to be inexpensive for decades because of the abundant supply.  If that supply begins to decline, the price will increase meaning higher costs for U.S. homes and businesses.

To make matters worse, DOE has already given approval for natural gas exports by pipeline to Mexico and in the form of liquefied natural gas (LNG) to Asia and Europe.  

Source:  SENER and EIA  (click the figure to enlarge)

These contracts were also approved based on EIA supply and price projections.  Many industry advocates have stridently opposed these approvals arguing that gas export will increase their costs and diminish competitive advantage over foreign manufacturers.

Add it all up and it’s potentially a huge mess.  Interestingly, EIA Administrator Adam Sieminski did not sign the EIA letter to Nature.  We can only speculate why.

*EPA:  United States Environmental Protection Agency

*EIA:  Energy Information Administration, part of the U.S. Department of Energy.

*DOE:  United States Department of Energy

Nature Responds To EIA and BEG Denial Letters

Today, Nature responded to letters earlier this week from the EIA (Energy Information Administration) and BEG (Bureau of Economic Geology, University of Texas at Austin) claiming that Mason Inman's article "The Fracking Fallacy" published on December 4, 2014 was flawed.

The EIA Denial Letter

The BEG Denial Letter

Nature stands by Inman's article and, interestingly, revealed that EIA was asked some questions by Inman while he was working on the article but they did not reply.

It is also interesting that the EIA denial letter was not signed by the EIA Administrator Adam Sieminski but by Deputy Administrator Howard Gruenspecht.

Let's get a few things straight as people attempt to sort through this bit of energy theater.

First, Allen Brooks has documented the events and facts of this story in two issues of Musings From The Oil Patch:

Could The U.S. LNG Market Be Derailed Before It Starts?

Debate Grows Over Illusion of 100-Year Gas Supply Scenario

Allen showed many of BEG Director Scott Tinker's slides that set off the debate in the first of these articles but the key chart in my view is the following:

(Click The Figure To Enlarge)

Despite denial of any differences by both the EIA and BEG, the obvious truth is that the BEG Sloan studies of the major shale gas plays in the United States forecast lower EUR (estimated ultimate recovery), a shorter life-cycle, an earlier and steeper decline and a lower contribution to total gas supply than does the EIA.

Period.

Denying that there is any discrepancy between EIA and BEG is false.  This difference does not disappear by accusing Inman and Nature of misrepresentation and bias.  Attempts by both agencies to discredit Tad Patzek or minimize his role in the BEG studies--more about that a bit later in my comments--are factually incorrect and shameful.

The BEG studies confirm what many "shale gas skeptics" (including me) have said for many years:  The shale gas phenomenon is real, it has contributed a significant volume of gas that nobody thought was available, and there is a lot less of it than some people believe.  I add that it also costs more than represented to produce although that is not part of the immediate debate among EIA, BEG and Nature.

The EIA published 2013 proven reserves of shale gas earlier this month.  Shale gas will provide about 6 years of supply at present consumption.  We can debate about the various classes of reserves and speculate about resources from now until we run out of gas but the plain and simple truth is what Inman and the BEG studies concluded:  there is less gas than many people thought and certainly less than EIA has represented in its natural gas forecasts (do the EIA people who do the gas forecasts talk to the people who do the reserve accounting?).

(Click The Figure To Enlarge)

Much of the EIA's position stated in Gruenspecht's letter (and interpreted by me)  is that uncertainty exists and the EIA represents multiple scenarios and should not be held to account for one or, in fact, any of them.  That sounds good but, as someone pointed out to me, applications for LNG export to the Department of Energy are based on the EIA base case.

Tad Patzek was quoted often in the Nature article and was shamelessly "thrown under the bus" by the EIA and BEG in both denial letters.  

Tad is Professor and Chairman of the Petroleum Eng. & Geosystems Department at the University of Texas at Austin and a lead researcher in the BEG Sloan studies on U.S. shale gas plays.

Despite comments in both letters saying that Tad's role was relatively minor in those studies, I dispute those statements as distortions of fact.  The work done by Tad and his engineering team addressed the determination of individual well EUR which, in my view, is the core of the studies.  

I believe that the BEG Sloan studies represent a monumental achievement and demonstrate an unparalleled level of comprehensive and integrated analysis on the important subject of shale gas. I fully support the technical analysis and Tad Patzek and his team provided the credible core of that work.


Please see the papers following for proof of this.

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1.     Patzek, T.W. Male, F., and Marder, M.,“A simple model of gas production from hydrofractured horizontal wells in shales,” AAPG Bulletin, v. 98, no. 12 (December 2014), pp. 2507–2529.

2.     Patzek, T. W., Male, F. and Marder, M. "Gas production in the Barnett Shale obeys a simple scaling theory,"  PNAS, doi:10.1073/pnas.1313380110, November 18, 2013. Awarded with the Cozzarelli Prize by the National Academy of Sciences for the best paper in engineering in 2013.

3.      Patzek, T. W., Male, F. and Marder, M. "Supporting Materials to: Gas production in the Barnett Shale obeys a simple scaling theory,"  PNAS, doi:10.1073/pnas.1313380110, November 18, 2013.

4.     John Browning, Katie Smye, Scott W. Tinker, Susan Horvath, Svetlana Ikonnikova, Tad Patzek Gürcan Gülen, , Frank Male, Eric Potter, Forrest Roberts , and Qilong Fu, “Study develops Fayetteville shale reserves, production forecast, OGJ, 01/06/2014.

5.     John Browning, Scott W. Tinker, Svetlana Ikonnikova, Gürcan Gülen, Eric Potter, Qilong Fu, Susan Horvath, Tad Patzek, Frank Male, William Fisher, Forrest Roberts and Ken Medlock, III, "BARNETT SHALE MODEL-2 (Conclusion): Barnett study determines full-field reserves, production forecast," OGJ, September 9, 2013.

6.     John Browning, Scott W. Tinker, Svetlana Ikonnikova, Gürcan Gülen, Eric Potter, Qilong Fu, Susan Horvath, Tad Patzek, Frank Male, William Fisher, Forrest Roberts and Ken Medlock, III, "BARNETT SHALE MODEL-1: Barnett study determines full-field reserves, production forecast," OGJ, p. 62, August 5, 2013.

7.     Frank Male, Akand W. Islam, Tad W. Patzek, Michael P. Marder, Paper SPE168993-MS: "Analysis of Gas Production From Hydraulically Fractured Wells In The Haynesville Shale Using Scaling Methods," presented at the SPE Unconventional Resources Conference – USA, held in The Woodlands, Texas, USA, 1-3 April 2014.

8.     Frank Male, Akand W. Islam, Tad W. Patzek, Svetlana Ikonnikova, John Browning and Michael P. Marder,  "Analysis of gas production from hydraulically fractured wells in the Haynesville shale using scaling methods," submitted to the Journal of Unconventional Oil and Gas Resources, 2014 (now in revision to be send back to the editor).