Shale Gas Investment Opportunities

THIS Could Kill America's Shale Boom

By
Monday, November 19th, 2012

Shale Gas.

It's become our savior... the great American treasure hidden beneath our feet that will power our nation for the next hundred years.

It'll heat our homes, power our trucks and buses, and even provide some pretty big paydays for those who will ultimately export it to nations willing to pay small fortunes to get it.

It's going to pick up where coal leaves off... It will provide the perfect bridge and storage applications for renewables...

And it'll continue to make early investors insanely rich.

I've certainly been taking full advantage of this nation's shale gas boom — and I will do so for many years to come. There's no doubt about it: Consumers and investors are beyond enthusiastic about shale gas. After all, what's better than a hundred-year supply of cheap fuel?

But what if we wake up in a few years to find our enthusiasm quickly extinguished?

What if we wake up one day only to realize the great American shale gas boom... is a bust?

The Contrarian Viewpoint

Although I remain bullish on natural gas, it's in my nature to be a skeptic. And I've never denied the fact that I'm often drawn to contrarian viewpoints. In fact, I credit contrarianism to my early success in the alternative energy game — and my continued success today in the domestic oil and gas boom.

Needless to say, when presented with a contrarian viewpoint, I don't just quickly write it off...

For instance, last week I read an interview with investment guru Bill Powers.

In this interview, Powers claimed the importance of shale gas has been overstated — and that the U.S. doesn't have anywhere near a 100-year supply.

He goes on to say the whole shale gas boom is a myth that's been perpetuated by self-interested industry, media, and politicians.

At at time when most folks look at shale gas as the “great white hope” for the United States, this is a pretty bold declaration.

But is Powers right?

A Shale Gas Folly?

Powers has a book due out next year that takes a closer look at the shale gas boom in the United States, so I understand that he's doing some early promotion for the book...

Still, in this recent interview he offers an early preview into some of his research, particularly as it relates to decline rates...

There is production decline in the Haynesville and Barnett shales. Output is declining in the Woodford Shale in Oklahoma. Some of the older shale plays, such as the Fayetteville Shale, are starting to roll over. As these shale plays reverse direction and the Marcellus Shale slows down its production growth, overall U.S. production will fall.

At the same time, Canadian production is falling. And Canada has historically been the main natural gas import source for the U.S. In fact, Canada has already experienced a significant decline in gas production — about 25%, since a peak in 2002 — and has dramatically slowed its exports to the United States.

Now, this isn't the first time we've heard counterarguments to the enthusiastic shale bulls...

In 2011, petroleum geologist Arthur Berman published a report in which he found that industry reserves had been overstated by at least 100% based on detailed review of both individual well and group decline profiles for Barnett, Fayetteville, and Haynesville Shale plays.

And just last month, energy and Peak Oil expert Chris Nelder wrote:

 ... the decline rates of shale gas wells are steep. They vary widely from play to play, but the output of shale gas wells commonly falls by 50% to 60% or more in the first year of production. This is why I have called it a treadmill: you have to keep drilling furiously to maintain flat output.

In the U.S., the aggregate decline of natural gas production from both conventional and unconventional sources is now 32% per year, so 22 bcf/d of new production must be added every year to keep overall production flat, according to Canadian geologist David Hughes. That's close to the total output of U.S. shale gas, after nearly a decade of its development. It will require thousands more shale gas and tight oil wells to keep domestic gas production flat.

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So, what do you think?

Could Berman, Powers, and Nelder be the voice of reason in an otherwise overly-exuberant shale gas folly? Or are they simply sounding a false alarm?

Certainly, I don't pretend to know the answer to this question, but I would love to hear your thoughts on this.

And if you have any of your own data that you'd like to share, please feel free to do so in the comments section below.

To a new way of life and a new generation of wealth...

Jeff Siegel Signature

Jeff Siegel

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Jeff is the managing editor of Energy and Capital and contributing analyst for the Energy Investor, an independent investment research service focusing primarily on stocks in the oil & gas, modern energy and infrastructure markets.  He has been a featured guest on Fox, CNBC, and Bloomberg Asia, and is the author of the best-selling book, Investing in Renewable Energy: Making Money on Green Chip Stocks. For more on Jeff, go to his editor's page.


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