New Fracking Reports: Gas Bubble About to Bust

Two new fracking reports came out earlier this week, and they reveal some serious new cracks in the booming natural gas industry. Fracking, the drilling method that involves pumping a chemical brine underground, has been already been linked to the risk of water contamination, significant methane gas leakage and even earthquakes. The two reports add another angle of risk, making the case that the gas boom hides a financial bubble that is headed for a bust of epic proportions.

What We Know About Fracking

For those of you who are new to the issue, anecdotal evidence of fracking impacts is becoming plentiful, but establishing a direct connection in specific cases is difficult because the gas industry is exempt from federal Clean Water Act disclosure regulations.

Under the Obama Administration, the U.S. EPA has been slowly but steadily prying out information about the hundreds of different ingredients in fracking brines. That includes a national fracking study designed to address the impact on water resources.

A report on the study’s progress was released last December, with a final report due out in 2014.

In the meantime, the aforementioned episodes of water contamination and earthquakes are piling up. A Cornell research team has also produced a study showing significant amounts “fugitive methane” escaping into the atmosphere from gas fields, and a new University of Pennsylvania study has raised concerns over the potential for bringing ancient brine containing traces of barium and radium to the surface.

New Fracking Reports Reveal Financial Risk

Environmental and public health risks aside, if the gas boom turns out to be a bubble  there will be devastating results when it pops.

Last year, Rolling Stone ran an in-depth story on the precarious financial footing of the natural gas industry, focusing on industry leader Chesapeake Energy Corp.

More recently, The Wall Street Journal has been charting Chesapeake’s travails and taking note of persistent weakness in the natural gas market.

New York State Attorney General Eric Schneiderman has also been investigating Chesapeake and other gas companies, to assess the accuracy of their calculations about the long term profitability of gas wells.

The two new reports, “Drill, Baby, Drill” and “Shale Gas and Wall Street,” are available on shalebubble.org (a project of Earthworks, Energy Policy Forum and Post Carbon Institute).

“Drill, Baby, Drill” analyzes shale oil (not to be confused with oil shale) and tar sands in addition to shale gas, and here is the money quote:

“Shale gas production has grown explosively to account for nearly 40 percent of U.S. natural gas production; nevertheless production has been on a plateau since December 201–80 percent of shale gas production comes from five plays, several of which are in decline.”

Now add this piece of insight from “Shale Gas and Wall Street:”

“In 2011, shale mergers and acquisitions (M&A) accounted for $46.5B in deals and became one of the largest profit centers for some Wall Street investment banks. This anomaly bears scrutiny since shale wells were considerably underperforming in dollar terms during this time.”

Basically, the two reports build on the concerns of regulators, laying out evidence that between the furious pace of natural gas drilling has not been driven by demand, but by the need for gas companies to maintain profitability in the face of a natural gas glut and a steep decline in recovery rates for existing wells.

Don’t Hold Your Breath on that Bubble Thing

That bubble might be a long time in coming, though. The natural gas glut in the U.S. won’t last long if more of that gas could make it into overseas markets.

In that regard, it’s little wonder that U.S. representatives from several states have already been lobbying hard for the Obama Administration to approve more natural gas exports.

Approval would be great news for the gas industry, its investors and its workforce, but not so great for everybody else. With the export market wide open, gas prices in the U.S. will increase, and with no let-up in drilling the risk of serious negative impacts will continue to grow.

Image: Bubble by mjtmail (tiggy)

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