The Challenges Facing Shale Gas

OilPrice:

Leaving aside issues of what all the fracking for gas might be doing to our drinking water and the accumulation of greenhouse gases in the atmosphere, there is no question that fracking-for-gas has increased our supplies rapidly in the last few years. However, like all good things the rate of growth in our natural gas production is slowing rapidly and may even stop growing long before most expect. U.S. natural gas production grew by seven percent in 2011 and five percent in 2012, but only by one percent in 2013. Some 75 percent of the growth in U.S. natural gas production is now coming from the Marcellus Shale in Pennsylvania and West Virginia. Nearly everywhere else in the country, production is flat or declining.
The gas industry’s underlying problem in recent years has been overproduction, which has kept market prices below the costs of production in many areas. Some gas fields produce “wet” gas, which contains valuable liquids that can be sold to offset the loss of producing gas alone. Unfortunately the most productive region of the Marcellus shale gas field is largely “dry” gas, so that many areas drillers are losing money on every well drilled but are forced to keep drilling and fracking to meet contractual obligations.
Another factor having a major impact on growing our gas supply is that when one strikes gas in the hills of Pennsylvania, there is no easy way to get it to market. While pipelines are being built or upgraded, many wells are shut-in or are forced to sell their gas locally at a steep discount to the prevailing national price. Until recently Wall Street has been happy to finance the billions being spent on drilling and fracking money-losing wells. Loans to money-losing natural gas projects presumably were made in hopes that natural gas prices would soon rise to profitable levels and the money would be paid back. However, basic economics is starting to kick in and it seems as if drilling-at-a-loss may not have much of a future. If this happens, it clearly will not be good for refilling our gas caverns for the winters ahead. The whole issue is murky at the minute. The number of rigs drilling in the Marcellus shale has fallen in recent years, but the industry says it has gotten so much better at drilling and fracking gas wells that the lost drilling rigs were no longer needed. The issue is further muddied by some recent natural gas production reports from the Department of Energy that conflict with other reporting suggesting that some of our gains in natural gas production may be optimistic estimates rather than fact.

The article focuses on the challenges of adding to gas storage caverns before winter comes.  This previous winter shows how extreme weather stresses an energy system that is nearly maxed out, with little in the way of margin for error.  That is the biggest reason that eternal growth is unattainable.  The economic challenges of the past 40 years can be traced to the energy crisis of the early '70s.  Other factors have played a role, too, but the transition from cheap energy to more expensive energy has been very bumpy.  I anticipate it will get worse, and that in the not-too-distant future.