Snake Oil: How Fracking's False Promise of Plenty Imperils Our Future (2 page)

Figure 5. US Marketed Natural Gas Production by Region, 1998–2012.
Oil prices started surging past historic highs just prior to 2005.

Source: J. David Hughes, “Drill, Baby, Drill,” Figure 18; data from Energy Information Administration, December 2012, fitted with 12-month centered moving average. Note that marketed production is wet gas and includes gas used for pipeline distribution and at gas plants and leases that is not available to end consumers.

Not only did supplies of natural gas grow, but prices plummeted. In the pre-fracking years of 2001 to 2006, gas prices had shot up from their 1990s level of $2 per million Btu to over $12. But after 2007, as the hydrofracturing boom saturated gas markets, prices plummeted back to a low of $1.82 in April 2012. Gas was suddenly so cheap that utilities found it economic to use in place of coal for generating base-load electricity. The natural gas industry began to promote the ideas of exporting gas (even though the United States remained a net natural gas importer), and of using natural gas to power cars and trucks. Again, Peakists had completely failed to forecast these developments. Point Cornucopians.

Figure 6. US Natural Gas Production and Prices, 2000–2012.

Source: Adapted from J. David Hughes, “Drill, Baby, Drill,” Figure 34; data from Energy Information Administration, December 2012. Production data fitted with 12-month centered moving average.

Then, using the same hydrofracturing technology, the industry began to go after deposits of oil in tight (low-porosity) rocks. In Texas and North Dakota, US oil production began growing. It was an astonishing achievement, especially since the nation’s oil production had generally been declining since 1970. Suddenly there was serious discussion in energy policy circles of America soon producing more oil than Saudi Arabia. None of us Peakists had predicted this. Point Cornucopians.

Figure 7. US Crude Oil Production, 2000–2013.
US oil production reversed decades of decline in 2008 and then surged in late 2011.

Source: Energy Information Administration, May 2013. Data include lease condensates and exclude natural gas plant liquids, refinery process gain, and biofuels.

That brings us to the present. As of 2013, the game is tied and headed into overtime. Cornucopians have the momentum and the historic advantage, so they’ve been quick to claim victory. Meanwhile, at least one prominent Peakist has publicly conceded defeat: in a widely circulated essay, British environmental writer George Monbiot recently proclaimed that “We were wrong on peak oil.”
4

It doesn’t look good for my team. It appears to most people that the “Shale Revolution” (the tapping of shale gas and tight oil, thanks to advanced drilling techniques) has changed the game for good. Is it time for us to exit the playing field, heads bowed, shoulders slumped?

* * *

As you’ve probably guessed from the title of this book, the pages that follow are not intended as a capitulation. Rather, my purpose is to alert readers to relevant and important information that is, with rare exceptions, failing to find its way into the public discussion about our energy future. Its upshot is that
the game is about to turn again
.

Almost no one who seriously thinks about the issue doubts that the Peakists will win in the end, no matter how pathetic my team’s prospects may look for the moment. After all, fossil fuels are finite, so depletion and declining production are inevitable. The debate has always been about timing: Is depletion something we should worry about now?

Readers who’ve seen articles and TV ads proclaiming America’s newfound oil and gas abundance may find it strange and surprising to learn that the official forecast from the US Energy Information Administration (EIA) is for America’s historic oil production decline to resume
within this decade
.
5

But the EIA may actually be overly optimistic. Once the peak is passed, the agency foresees a long, slow slide in production from tight oil deposits (likewise from shale gas wells). However, analysis that takes into account the remaining number of possible drilling sites, as well as the high production decline rates in typical tight oil and shale gas wells, yields a different forecast: production will indeed peak before 2020, but then it will likely fall much more rapidly than either the industry or the official agencies forecast.

There’s more—much more. This book tells an analytic story assembled from proprietary industry data on every active and potential US oil and gas play. It’s a story about shale gas wells that cost more to drill than their gas is worth at current prices; a story about Wall Street investment banks driving independent oil and gas companies to produce uneconomic resources just so brokers can collect fees; and a story about official agencies that have overestimated oil production and underestimated prices consistently for the past decade.

The book also relates a human and environmental story gathered from people who live close to the nation’s thousands of fracked oil and gas wells—a tale of spiraling impacts to drinking water, air, soil, livestock, and wildlife; about companies failing to pay agreed lease fees; about declining property values; about neighbor turned against neighbor; and about boom towns in turmoil.

Here, in briefest outline, are the findings the evidence supports:

• The oil and gas industry’s recent unexpected successes will prove to be short-lived.
  
• Their actual, long-term significance has been overstated.
  
• New unconventional sources of oil and gas production come with hidden costs (both monetary and environmental) that society cannot bear.
  

Further, these conclusions lead inevitably to one final, crucial observation:

• The oil and gas industry’s exaggerations of future supply have been motivated by short-term financial self-interest, and, to the extent that they influence national energy policy, they are a disaster for America and for future generations.
  

* * *

This book is aimed at the general public and at policy makers, who need to understand why the current received wisdom about US fossil fuel abundance is dangerously wrong.

It is especially directed toward local anti-fracking activists across the United States and throughout the world who are working hard to limit or prevent harms to water and air quality, wildlife, and human health. Bolstering environmental arguments with economic data showing the likely brevity of the fracking boom can only help win debates regarding the regulation of this dangerous technology.

The book is meant as well for the thousands of readers who learned about peak oil during the past decade, took the information seriously, and made extraordinary efforts to reduce their personal petroleum dependency and to prepare their communities for the end of the era of cheap oil—only to see their credibility erode as a result of oil and gas industry disinformation and spin. These are my people, and they need some encouragement right about now.

Finally, and perhaps most importantly, this book is directed toward anyone and everyone who cares about the fate of our planet. The only realistic way to avert catastrophic climate change is to dramatically and quickly reduce our consumption of fossil fuels. That project will pose economic and technical challenges. But politics may present the biggest obstacle of all.

There are two kinds of arguments for policies to reduce reliance on oil, coal, and gas—environmental and economic.
Environmental
arguments point to the consequences of rising greenhouse gas emissions from burning hydrocarbons, including rising sea levels, extreme weather, and likely catastrophic impacts to agriculture.
Economic
arguments highlight the inevitability of future fossil fuel scarcity as society burns these finite, nonrenewable resources in ever-greater quantities. The clear solutions in both cases: find other energy sources and reduce overall energy consumption
now
.

The fossil fuel industry has, quite understandably, fought back against both economic and the environmental arguments. Oil companies (notably ExxonMobil) have not only funded the efforts of climate-denial front groups to sow doubt about what is in fact established science (ExxonMobil now officially acknowledges the reality of human-induced climate change), they have also mounted a sustained public relations campaign to undermine the credibility of peak oil analysts. At the same time, the industry would like nothing better than to divide its opponents, and it has achieved some success in this regard: a few climate activists have mistakenly disavowed peak oil, perhaps because they see it as a distraction from, or dilution of, their own message. They often point out that if industry estimates of fossil fuel reserves are correct, burning all that oil, coal, and gas will result in environmental destruction on a scale beyond our ability to comprehend; with so much at stake, why quibble about when oil production rates will max out? Meanwhile, a few Peakists have made the foolish claim that climate change is not a serious problem because the global economy will crash due to soaring energy prices before we are able to do really serious damage to the environment.

Success in shifting energy policy depends upon
coordination of
environmental and economic arguments against continued reliance on fossil fuels. Are there enough accessible hydrocarbons to tip the world into climate chaos? Absolutely. But activists concerned about climate change would do well to embrace economic (supply constraint) arguments against fossil fuel dependency. By erroneously reinforcing industry hype about the future potential of shale gas, tight oil, and tar sands, they keep the debate exactly where the industry wants it—as a choice between environmental protection on the one hand and jobs, economic growth, and energy security on the other. It’s a false choice and a losing strategy.

* * *

Here’s what readers can expect to find in the pages ahead. After a quick overview in Chapter 1 of what the peak oil and gas discussion is all about and why it matters, we will take a close, hard look in Chapter 2 at fracking—what it is and what it means. In Chapter 3, we’ll examine key producing regions, the rates at which per-well output tends to decline over time, and trends in drilling. And we will explore the implications of those data.

We will then look at the environmental costs of unconventional oil and gas in Chapter 4, sampling reports from the front lines of the fracking fields across the United States regarding impacts to water and air quality, land, and public health. You may be surprised to learn who is fighting the drilling juggernaut—it’s not just environmentalists.

In Chapter 5, we’ll inquire who actually benefits from the fracking boom and explore Wall Street’s role in the current mania. Investment bankers make money on the way up (as bubbles inflate) and on the way down (as companies sell off assets and submit to mergers and takeovers). Therefore, it is in their interest to support drillers’ exaggerated claims for reserves and future production potential. When the fracking boom inevitably goes bust, it won’t be the banks that will take the hit; it will be the investors (including retirees) who bought shares of stock in oil and gas companies.

Finally, in Chapter 6, we will examine other unconventional fuels and fuel sources (tar sands, methane hydrates, and oil shale) to see whether they might be game changers waiting in the wings. And we will explore likely scenarios for our
real
energy future. (Just one preliminary hint: it’s time to learn how to live well with less.)

* * *

The data we will survey in the chapters ahead suggest that, through the technology of hydrofracturing, the oil and gas industry will generate
10 or fewer years of growing fuel supplies.
(In the case of shale gas, the clock started ticking roughly five years ago; for tight oil, about three years ago). Industry promises of a hundred years of cheap, abundant gas, and of domestic oil production growth making the nation self-sufficient in petroleum are unlikely to be fulfilled given what we know now about the nature of the resources and the technology being used to access them.