Saturday, July 18, 2009

Brewskie Wins the Shale Gas War

(Fair warning: another long one, but stay true. The peakers' shale gas argument has been buried into the peak oil landfill of failed prophecies)

Anybody who follows shale gas knows who this man is. If you don't, his name is George P. Mitchell, not to be confused with Middle East special envoy George J. Mitchell. If you see this person, you're going to run up to him and kiss him on both cheeks; the next time you hear him talk, you're going to break out in joyous tears. Why? He is the real deal. This man founded Mitchell Energy Development (now part of Devon); him and his stable of engineers pioneered modern shale gas drilling techniques, "hydraulic fracturing,"or simply, "fracing." Nobel Peace Prize, anyone?

Forbes has a great interview with the shale gas godfather. Why is this relevant? Because this man fired the final volley, the final strike, the last shot into the hearts of skeptics who say shale gas is too expensive; he vindicated Brewskie's prophecy. In a matter of months, the Barnett Shale will be cheap to produce. If the costs of Barnett can be made cheap, the cost of other shale plays can be made frugal, too.

Here's the coup de grace, peakers:

Any advice?

You've got to get your costs down. The drilling costs got out of sight. Fracturing costs got out of sight; you've got to have $4 gas to go 8,000 feet [in the Barnett]; Haynesville is more than that. ... We think we can get down from $4 to $2.50.

How long is that going to take?

I would say within eight months. I know that Devon right now is working very hard to get their costs down from $4 because a lot of their wells have to be horizontal.
Let's not forget my previously linked Robert Auilra interview, one of shale gas's most foremost experts, giving an appraisal of acceptable production costs:

ET: Speaking of prices, what is a sustainable price for natural gas? I ask because I’ve heard some producers insist that shale gas wouldn’t be profitable when prices are under $8. Now, I’m hearing $5. What’s your take on the relationship between the relatively high cost of drilling for tight gas and the market price which has been so volatile lately?

RA: My take is that $5 to $6 will work in most cases and will make most shale plays competitive.

So there you have it. Shale gas production costs are expected to come down to manageable levels, just like I prophesied. Within eight months, Barnett's production is expected to be profitable even in the current $3-something per mcf environment. This guts the peakers' final stand-by of "shale gas is too expensive." If they can slash Barnett's price-support, they can do it elsewhere. It turns out, in fact, Petrohawk was making a profit with its Haynesville wells (which Mitchell says is more costly than Barnett) at $4 mcf.

The peaktards are out of ammunition. They blew a WWII arsenal of emotion and devotion on Natural Gas Purgatory. For a trip down memory lane, let's reminiscent the Oil Drum's failed prophecies...

Here's the Drum firing the warning shot back in 2006:

Simply put, by 2010 Conventional Gas production can be half of what is today in worth America, falling from 20 Tcf/a to 10 Tcf/a. Jean doesn't hesitate to say that shortages will soon occur in this part of the world. Production already peaked in 2001, declining 5% up to 2005, so a downward trend is already there, but will that cliff unfold? Unconventional Gas production has been rising too slowly to avoid the peak, can it avoid the cliff?

Here's the Drum telling us last year, "Don't ditch the Amish farm, kid, shale gas is a false hope."

But until some solid, repeatable well data emerges, the Haynesville will remain more diamond in the rough than diamond ring.


So there you have a brief explanation of how the new technology is slowing, though it won’t stop, the declining gas reserve in the United States.

Later in the year, news of shale gas's contributions, its assistance of increasing America's natural gas production by 9% (the biggest since the late 1950s) hit the newswire. The Drum ghouls admitted their goof-up (but only a month after Nate Hagens ignorantly proclaimed increased drilling wouldn't increase gas production much):

My analysis indicates that NCI is correct in some respects. There is indeed a great deal of unconventional natural gas resources in the United States, and recent improvements in technology point to the possibility of significantly greater production.


EIA has recently reported a big increase in US natural gas production (8.8%, comparing the first five months of 2008 with the first five months of 2007). Some have suggested that the EIA numbers must be wrong. It seems to me that what we may be seeing is the effect of a recent technological breakthrough.

It's over, peakers. You've lost. You could "drum boot" me out of the Drum's forums, you could censor my now vindicated gas prophecies, you could incinerate my proclamations of shale gas's impact and how it would become cheaper to produce, you could atomize my heads' up of the gas glut (something I spoke of weeks before the mainstream press), but you cannot censor the right hand of reality. Take in the wise words of a fellow colleague, Robert Rapier: "we have enough natural gas available that civilization isn't going to end any time soon due to lack of energy supplies."

Isn't this picture beautiful?

Added: an older post, "Drum Goonies Stooged on Shale Gas," is number four on a Google search of "Oil Drum Shale Gas." Common sense is prevailing over the Oil Drum's propaganda machination.

- Brewskie


  1. A little snarky today are we? :D I like it ;).

    Keep the amazing job, Bewskie. You're one of my favorite feeds.

  2. Nicely done. I'd love to hear Kunstler try to make sense of this.

  3. Two thumbs up. And I'll second Anon in wanting to hear what Kunstler would say, ever-wrong and whining as he is. It would be amusing. You would think after Y2K, he would've buttoned his lip permanently.

    Here's a brief look into his surname:

    German, Czech (Kun┼ít), and Jewish (Ashkenazic): from Middle High German kunst ‘wisdom’, ‘skill’, in German-speaking communities a nickname for a knowledgeable or skillful person. Among Jewish communities, this was adopted as an ornamental name in the sense ‘knowledge’, ‘wisdom’, ‘dexterity’, or ‘art’. In Slavic regions, the word acquired negative connotations, ‘trickery’, ‘sleight of hand’, and hence ‘ridicule’, ‘scorn’, or ‘mockery’.

    I'll go with the Slavic interpretation: ‘trickery’, ‘sleight of hand’, and hence ‘ridicule’, ‘scorn’, or ‘mockery’.

  4. I have opposable thumbs (unlike doomsters), and put them both up for this post. Yes, this Mitchell deserves a Nobel Prize, and every other kind of prize we can think of. I say let's build of statue of him somewhere.
    Motor vehicles can run on natural gas.
    So, what is the doom scenario now?
    We all fall down and cry?
    Jeez, I have another scenario: Gluts and more gluts of fossil fuels, for another generation at least. B Cole

  5. Barba,

    But that's only because the fans deserve the best.


    Village idiot has to be in there somewhere...

    B. Cole,

    We can build a statue anywhere, but only platinum will suffice. Anything less deserves to be tossed back in the scrap yard, and gnawed on by scrappy junkyard dogs.

  6. They’re ignoring shale gas completely now on the Oil Drum, and arguing that methane hydrates won’t work instead!

  7. Yogi,

    They're also focusing on Europe's "upcoming gas Armageddon." "Don't pay attention to the Nubucco Pipeline, don't pay attention to Europe's shale gas formations or developments. Panic alert! Panic alert! Pakistani village resorts to cannibalism on goat shortage. We're screwed..."

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