Marcellus Shale

Natural Gas Critic Refuses to See What’s Before Her Eyes

Dr. Scott Cline
PhD, Petroleum Engineering

Part I in a series entitled “Mother of All Spin” about Deborah Rogers’ New York speaking tour.

One of my pet peeves in the shale gas debate is people going around lecturing on topics in which they have no expertise and the media blindly labeling them as experts without checking their “facts”. I see this time and again:

  • where a PhD biologist, as part of the lecture, begins talking about fracture stimulation and theorizes how it could open pathways to the surface to communicate with groundwater,
  • chemistry professors lecturing on horizontal drilling and fracture stimulation technology
  • even lawyers speaking to communities about well construction cementing and casing!

Good grief, apparently having a PhD in anything, gathering non-expert information at anti-natural gas meetings and surfing the Internet now makes a subject matter expert. In this ways myths and falsehoods are endlessly spread and perpetuated.

We can all debate the local benefits vs. the risks and inconveniences of natural gas development, and we do so vigorously here in New York, but we should not mask our “feelings”, or in this case apparently “hurt feelings”, under the guise of expertise meant to misinform the public. This distracts from making important decisions with the best possible information.

A Lack of Understanding Disguised as Expertise

Deborah Rogers

Deborah Rogers

When a media proclaimed “expert” visited the NY Finger Lakes area, and was billed by a local newspaper as “Expert to Discuss Fracking Economics,” I suspected another snookering. So, I attended two of Deborah Rogers “expert” lectures. They were different, but both factually flawed.  Within the first minute of each, I was aghast at the total lack of understanding on her primary topic of oil and gas reserves and economics as well as the anti-natural gas bias and falsehoods. The day of her first lecture I found this piece which explained a lot.

I wondered why  someone would go out into the public so often to speak on a subject they likely knew nothing about. Well, the speaker gave us the answer at the end of the question and answer session. She stated she had an ongoing feud with an Oklahoma City based oil and gas company regarding their shale gas activities adjacent to her 45 acre farm in the Fort Worth, Texas area.

She said her experience “turned me into an activist!” Now that might be a story worth sharing as long as both sides of the story was told. But, instead, she inexplicably concentrated on natural gas reserves and economics.  She embarrassed herself in front of those who knew better and likely deceived many in the audience who didn’t. Her presentation can best be characterized as a collection of out-of-context, unexplained and incomplete clips from the news and her own misunderstood conversations with some in the industry.  It was all very much in the style of, and often taken from the outrageously inaccurate  New York Times article entitled “Insiders Sound an Alarm Amid a Natural Gas Rush” which has been thoroughly discredited.

It seemed her dominant, and underlying, theme is that there is a conspiracy to scam investors by lying about natural gas abundance and making America dependent on natural gas by driving down prices temporarily and coercing us to convert new uses for natural gas.  She supposes then, when the overestimated wells “fall on their face,” prices will rise and we will all have to pay up to the evil companies and be left with an environmental wasteland. She never addresses the conflict this presents with her other idea that exports, which would require vast abundance to justify infrastructure, have always been the gas company’s “end game.”

Ms Rogers complained bitterly at the first meeting that she has been unfairly discredited by many in the oil and gas industry and such unfair accusations were more an attack on her character, and background, than they were substantive criticisms of her work.  I don’t think that’s true but, in the spirit of fairness, let me examine Ms. Rogers’s presentation content and comment based on my 30 years of experience in the oil and gas business as a geologist, geophysicist, petroleum engineer, finance professor, financial analyst and valuation professional.  There are just so many things to correct in what she had to say.

Falling Prices or Failing Facts?

There is no doubt natural gas prices dipping to $2.20 per thousand cubic feet (mcf), have limited the pace of new exploration in many shale plays. But, to infer prior exploration was a scam of some sort is disingenuous at best. I don’t know of anyone that could have predicted this price collapse and it does not infer anything about wells developed in the past during higher gas prices or the overstating the resource abundance.

Ms. Rogers starts out by saying recent USGS and EIA resource estimates show the industry is inflating reserves and points to the fact the Energy Information Administration (EIA) lowered its Marcellus resource estimates to 141 trillion cubic feet (TCF) based on an August, 2011, announcement that USGS Marcellus resource estimates were 84 trillion cubic feet TCF. She claims this means that industry Marcellus estimates of 400+ TCF are overinflated.

This may sound good on the surface but it’s not the whole story and someone experienced would know that. First of all, USGS resource estimates, although less than EIA and industry, were increased from their prior estimates of only 1.9 TCF.  Furthermore, it is commonly accepted that USGS resource estimates are far too low. I wrote a criticism and explanation of this in the Independent Oil and Gas Association of New York’s spring newsletter pointing out that USGS just doesn’t have sufficient data to work with and is always using data that is already out-of-date by the time they publish their results.

Dr. Terry Engelder, Penn State professor and widely recognized as the most knowledgeable Marcellus scientist was also quoted in the January 28, 2012 New York Times editorial entitled “New Report by Agency Lowers Estimates of Natural Gas” as saying he stood behind his previous 489 TCF P-50 estimates.  And, just this past week, two studies were released at a Penn State conference confirming resource estimates far above USGS amounts.

I think it is fair to say the natural gas industry doesn’t take USGS estimates seriously and is moving forward with plans based on its own assessment of the enormous resource potential and ever improving extraction technology.

All the Gas Down There?

It doesn’t appear Ms. Rogers even understands what a resource estimate means. When talking about the difference between reserves and resource estimates, she stated, at the first meeting I attended, that resource estimates were “all of the gas down there.”

This is totally false and I corrected her. When USGS spoke about resource estimates they were talking about recoverable natural gas with existing technology.  In fact, shale gas resource estimates typically back into volumetric calculations of only 10-20% of gas in place. This is a very conservative assessment and it is virtually certain to increase dramatically over time with increasing technology.  Extraction ability is continually increasing and a primary reason the reservoir engineering profession coined the term “reserve creep” or the prevalent tendency for reserves to increase over time.

When I mentioned this to Ms. Rogers she simply dismissed it by saying industry “always says that.” Well, they say it because it’s true!  One simply needs to compare the decline curves for shale gas wells drilled a few years ago to the ones drilled today!  I’ve seen the evidence myself and it’s clear that dramatic increases in ultimate recoveries over time are occurring. Readers can see some examples for themselves by visiting the websites of many companies that have published decline curves showing this increasing reserve trend over time. For an example, here’s an illustration of the dramatic year-over-year increase in productivity of Range’s shale gas wells from  2006-2010. This is remarkable and getting better all the time!

Natural Gas Yield Curves Improve Over Time

Natural Gas Yield Curves Improve Over Time

That there is vast abundance of shale gas resource, with a multi-generational supply, is not even a debatable issue. The question whether or not we have a 100 year supply (at current rates) of total domestic natural gas resources may soon turn to whether or not our total domestic natural gas resource is instead a 200 year supply as extraction technology knowledge improves and as we find new promising geologic formations as we drill the shale wells. Here’s a little secret – we already have!  More to come …

Dr. Cline holds s a BS in geological science from Penn State, and both MS and PhD in petroleum engineering from University of Oklahoma and an MBA. He began his career in 1976 for Gulf Oil Corporation (now Chevron) and later worked as geophysicist, geologist, petroleum engineer, and senior manager for several other oil and gas companies based in Houston and Oklahoma City. He currently lives in the Finger Lakes region of NY and consults to the oil and gas industry. He also teaches corporate finance and is an accredited business valuation specialist. He was involved in the early study and implementation of horizontal drilling , published on a wide range of oil and gas topics and his research interests include horizontal drilling in fractured reservoirs, well construction and design, reservoir simulation, fluid flow in porous media, oil and gas valuation, reserve and resource estimation, and unitization matters. His PhD dissertation was on decline curve analysis of horizontal and vertical wells in fractured reservoirs. He has recently served as subject matter expert at the US EPA technical sessions on well construction and hydraulic fracturing in Arlington, VA, the Quebec’s Office of Public Hearings on the Environment (BAPE) in regard to formulating oil and gas regulation in Quebec and testified before the NY State Assembly Energy and Environmental Committees on hydraulic fracturing. 

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