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Shale bubble burst on the horizon? New report questions government's rosy forecast

A Cabot Oil and Gas rig in Susquehanna County, which sits on one of the most productive "sweet spots" in the Marcellus Shale natural gas formation.

A Cabot Oil and Gas rig in Susquehanna County, which sits on one of the most productive "sweet spots" in the Marcellus Shale natural gas formation.

Marcellus Shale production could peak in just five years, plateau, and then tail off quickly, according to new research by a team of petroleum engineers at the University of Texas. The UT forecast is significantly less optimistic than recent reports issued by the Energy Information Administration, a government agency. The research is reported today in Nature
The University of Texas forecast relies on a more detailed analysis, and accounts for a subset of wells that are large producers in each shale play. These “sweet spots” are not consistent across the board and shale gas production among the big four plays, including the Marcellus, is expected to level out in 2020. In contrast, the EIA forecasts a shale gas plateau in 2040. More from Nature:

The results are “bad news”, says Tad Patzek, head of the University of Texas at Austin’s department of petroleum and geosystems engineering, and a member of the team that is conducting the in-depth analyses. With companies trying to extract shale gas as fast as possible and export significant quantities, he argues, “we’re setting ourselves up for a major fiasco”.
That could have repercussions well beyond the United States. If US natural-gas production falls, plans to export large amounts overseas could fizzle. And nations hoping to tap their own shale formations may reconsider. “If it begins to look as if it’s going to end in tears in the United States, that would certainly have an impact on the enthusiasm in different parts of the world,” says economist Paul Stevens of Chatham House, a London-based think tank.

Bursting shale bubble predictions are not new. But the article may be the first to compare the government’s analysis of data with academic results.
“What we found surprising is that the best academic estimates that are being done today are more pessimistic than the best information used by the U.S. government,” said Rich Monastersky, an editor for Nature.
The news could put policy makers in a bind when it comes to making decisions on everything from projected state revenue to Philadelphia’s plans to become the East coast “energy hub.”
“What this article shows is there’s a considerable amount of uncertainty in how much natural gas will be produced in the future in U.S. shale formations,” said Monastersky.
The research was funded by the Alfred P. Sloan Foundation, and the oil company Shell.  Tad Patzek is a researcher on the project, and chair of the petroleum and geosystems engineering department at the University of Texas. Patzek says he and his research partners have conducted the most detailed analysis of shale gas production in the world. And he says policy makers should be wary of converting coal burning plants to natural gas, and approving exports.
“It’s crazy,” he said. “It’s crazy to export natural gas. Someone will make more money for a short period of time. But the U.S. will suffer as a country and we will have to import the same expensive natural gas from the Middle East.”
Patzek says he is confident in the results.
“This is as good as it gets,” Patzek told StateImpact. “We’ve analysed tens of thousands of wells. But predictions are always uncertain as they pertain to the future.”
Patzek says it’s unfair to criticize the Energy Information Administration, which he says is underfunded.
“EIA has done as fine a job as they possibly can given their work force and their budget,” said Patzek. “They use county-wide averaging and statistics and we use physical modeling of each well. So we are looking at it through a telescope while they are using the naked eye.”
And he says industry players have been surprised by the research.
“The industry disbanded the research about 20 years ago. It’s a rude awakening for America. So it takes a bunch of crazy professors and students who are using very little money to do such a thing.”
But one Pennsylvania sweet spot will continue to make investors happy.
“And in fact some of the northeast [Pennsylvania sweet spots] is the best shale I have seen in my life,” said Patzek. “It’s really good. But these spots are limited geographically and the quality declines as you go away from them. In fact they’re not even uniform north-south. So while the rock quality is superb, they’re not uniform. It’s not all equal stuff.”
Patzek says that is why he hasn’t extrapolated by county, as other forecasters like the EIA have done. Instead, he says using a method that is more like a magnifying glass, gives a more realistic picture.
The University of Texas figures, if accurate, could also forecast a shale oil and shale gas bubble.
“The U.S. will never be Saudi Arabia on anything,” said Patzek. “It’s just not in the geology.”

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