Another “Peak” Performance

It’d be easy to analogize the small group of analysts who continue to believe the world is imminently running out of oil and natural gas to the stranded Imperial Japanese soldiers who, upon being discovered in the jungles of Guam and Indonesia in the 1970s, refused to accept that the second World War had decades earlier come to a close.

Easy – but not entirely accurate. One of the key differences between these two groups is that the media actually take seriously the serial skepticism of the first, often parroting with QED-certainty the notion that America has only “three percent” of the world’s oil, for example, notwithstanding a growing and increasingly definitive body of evidence indicative of an American resource base of enormous, potentially even singular proportions.

But if you take a closer look at the arguments that undergird the peak-oil philosophy, you find an interesting and under-reported aspect that lies at its core: In most cases, these folks don’t actually argue that the world is physically short on oil and natural gas. They argue that these resources, even if they do in fact exist, can’t be produced economically over the long-term. Of course, whether the energy isn’t there or is — and just can’t be developed under a reasonable cost scenario – the skeptics often arrive at the same conclusions: we’re running out of the stuff, they say — at least the “easy” stuff — and thus need to restructure our entire economy in anticipation of that crash.

Thanks to the emergence of “tight” oil and natural gas reserves as an important source of U.S. fossil energy, though, the peak energy community finds itself today back on the defensive side of the ball. Plainly put, these guys simply weren’t prepared (in truth, were any of us?) for what would become possible virtually overnight, with plays such as the Haynesville going from a daily yield of precisely zero BCF in 2007 to more than 5.5 BCF a day today. In 2005, Pennsylvania produced less than 0.5 BCF a day despite drilling 3,600 new wells. In 2011, only 2,800 new wells were drilled – and only about half of them were actually brought online. And despite all that, the state produced more than 3.0 BCF a day of natural gas in 2011. Six times the volume of 2005, with 23 percent fewer wells drilled – all thanks to the Marcellus.

Of course, you won’t find any of this data in the article that appeared this week on The thesis of that piece, written by peak-oil exponent Chris Nelder – co-author of an entire book on all the great investment opportunities that will exist someday soon in a world without oil — is that projections of abundance associated with the development of natural gas from shale are overblown. In support of that position, he borrows heavily from the playbook of peak-oil analyst Arthur Berman, someone well known within the industry prior to this year, but whose status got a major boost this summer after The New York Times ran his research (and his quotes) on its front-page.

If you’ve never seen Mr. Berman present on this subject before, you don’t know what you’re missing. We had the privilege to sit right alongside him in a forum on shale organized last April by Cornell’s law school – and as this video will confirm (start at hour three), he’s very good at what he does. After his piece hit in the Times, we also had a chance to chat with him on the phone. He’s a good guy, and a smart guy. We think he’s wrong about shale. But the good news is: we won’t have to wait but two or three years to figure out who’s right.

As far as Berman’s argument goes, it tends to look a little like this: Data collected from the Barnett over the past 15 years suggests that not all shale wells are created equal; that some produce well-below their expected ultimate recovery (EUR) rates; and that optimistic projections about shale’s future contributions to U.S. energy supply will never be realized, in part because of the clash between low natural gas prices and high drilling and completion costs, and in part because the wells themselves, he argues, tend to peter-out after the first few years of production. Paradoxically, Mr. Berman appears to argue both that new shale wells won’t be productive, and that natural gas prices will remain at their historic lows. How both can be true, we’re not entirely certain of.

Unfortunately for the peak-oil crowd, these arguments tend to unravel pretty quickly when the scope of inquiry is broadened out to account for the performance of other shale plays (which isn’t to pay short shrift to the Barnett, which, at 5.0 BCF a day, is currently averaging more natural gas per month than at any point in its history). Notable in his article, Nelder flatly ignores the volumes currently being produced in the Haynesville and Marcellus regions – suggesting that these plays aren’t sufficiently “mature,” and thus shouldn’t be included in his analysis.

But Art Berman hasn’t ignored the Haynesville. And to his credit, he’s been good enough to admit that his initial assessments of the play weren’t quite right, sort of. In April 2009, Berman wrote that it was “difficult to imagine that the Haynesville Shale can become commercial.” Only two months later, in June, Berman had changed his tune, saying that “I now think that the Haynesville Shale reserve estimates that I presented previously were too low.” Still, in a 2010 article, Berman suggested the Haynesville numbers were “disappointing.” In March 2011, the Haynesville became the top-producing onshore natural gas field in the United States, and now stands among the top five producing fields in the entire world. What a disappointment.

Despite holding firm to a less-than-sanguine view on the potential abundance of natural gas from shale, Nedler writes in his piece this week that “I am not anti-gas; neither is Berman.” And on that, we take a man at his word. Indeed, Berman wrote an entire post this summer laying out the reasons he supports the continued deployment of hydraulic fracturing.

But hey, it certainly didn’t escape our notice that this year’s annual conference of ASPO-USA (the trade association for peak-oil enthusiasts) in November hosted a panel discussion — moderated by Berman himself — featuring a who’s who line-up of anti-shale activists, including NRDC’s Amy Mall, Rob Jackson from Duke, and Tony Ingraffea and Bob Howarth from Cornell. ASPO member Roger Bezdek also presented at that conference; we had the pleasure of debating him in Miami back in Dec. 2010 (note: December in Miami > December in Washington). Peak oil guys like to say they’re not “anti-gas” – but Bezdek’s presentation, found on page 52 of this document, certainly seems to suggest otherwise, wouldn’t you say?!

Here’s the thing:  There’s nothing wrong with being a contrarian. Nothing wrong, or nefarious, or illegitimate, with offering up an alternative view on what the history might hold for shale. But there’s a big difference between forecasting that something won’t happen and actively working to ensure it doesn’t.

For those who continue to advance the view that natural gas from shale won’t pan-out as planned, professional reputations are at stake. To “win” this particular argument, peak energy proponents need the geology to turn out bad (that is, for oil and natural gas not to exist), or for the oil and natural gas that does exist to remain right where it is in the ground.

If these folks were confident of the first outcome, they wouldn’t need to involve themselves in the second. But they’re not. Which may be why you’re starting to see folks like Art Berman, a climate change skeptic, appear alongside environmentalist activists committed to stopping the development of shale wherever it’s being considered. At first glance, it would appear an unlikely association. But though the philosophies may differ, the end-goal of both groups is the same. To environmentalists, abundant natural gas from shale is a threat to renewables. And for the peakers, it’s a threat to the credibility of their prognostications. It’s really as simple as that.

So: Will the experts’ projections on shale end up translating into the type of real-world abundance that could help our country create thousands of family-supporting jobs, generate billions in taxpayer revenue, and deliver significant annual cost-savings to consumers? We hope it does, but we don’t know. Some in the peak energy community, it can be assumed, hope it doesn’t. But they don’t know either. If the point of the Slate article is to confirm this uncertainty, mission accomplished. But weren’t we all aware of that before the piece even ran?


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