Shale Gas Hype

SUBHEAD: The view from Russia of USA's public relations campaign on fracking American gas abundance. By Dmitry Orlov on 8 May 2012 for Club Orlov - (http://cluborlov.blogspot.com/2012/05/shale-gas-view-from-russia.html) Image above: Tower for drilling horizontally into the Marcellus Shale Formation for natural gas, from Rt 118 in Lycoming County, Pennsylvania. From (http://en.wikipedia.org/wiki/File:Marcellus_Shale_Gas_Drilling_Tower_1_crop.jpg). The official shale gas story goes something like this: recent technological breakthroughs by US energy companies have made it possible to tap an abundant but previously inaccessible source of clean, environmentally friendly natural gas. This has enabled the US to become the world leader in natural gas production, overtaking Russia, and getting ready to end of Russia's gas monopoly in Europe. Moreover, this new shale gas is found in many parts of the world, and will, in due course, enable the majority of the world's countries to achieve independence from traditional gas producers. Consequently, the ability of those countries with the largest natural gas reserves—Russia and Iran—to control the market for natural gas will be reduced, along with their overall geopolitical influence.

If this were the case, then we should expect the Kremlin, along with Gazprom, to be quaking in their boots. But are they? Here is what Gazprom's chairman, Alexei Miller, recently told Süddeutsche Zeitung: “Shale gas is a well-organized global PR-campaign. There are many of them: global cooling, biofuels.” He pointed out that the technology for producing gas from shale is many decades old, and suggested the US turned to it out of desperation. He dismissed it as an energy alternative for Europe. Is this just the other's sides propaganda, or could Miller be simply stating the obvious? Let's explore. I will base my exploration on Russian sources, which is why all the numbers are in metric units. If you want to convert to Imperial, 1 m³ = 35 cubic feet, 1 km² = .38 square miles, 1 tonne = 1.1 short tons).

The best-developed shale gas basin is Barnett in Texas, responsible for 70% of all shale gas produced to date. By “developed” I mean drilled and drilled and drilled, and then drilled some more: just in 2006 there were about as many wells drilled into Barnett shale as are currently producing in all of Russia. This is because the average Barnett well yields only around 6.35 million m³ of gas, over its entire lifetime, which corresponds to the average monthly yield of a typical Russian well that continues to produce over a 15-20 year period, meaning that the yield of a typical shale gas well is at least 200 times smaller. This hectic activity cannot stop once a well has been drilled: in order to continue yielding even these meager quantities, the wells have to be regularly subjected to hydraulic fracturing, or "fracked": to produce each thousand m³ of gas, 100 kg of sand and 2 tonnes of water, combined with a proprietary chemical cocktail, have to be pumped into the well at high pressure. Half the water comes back up and has to be processed to remove the chemicals. Yearly fracking requirements for the Barnett basin run around 7.1 million tonnes of sand and 47.2 million tonnes of water, but the real numbers are probably lower, as many wells spend much of the time standing idle.

In spite of the frantic drilling/fracking activity, this is all small potatoes by Russian standards. Russia's proven reserves of natural gas amount to 43.3 trillion m³, which is about a third of the world's total. At current consumption rates, that's enough to last 72 years. Russian gas production is constrained by demand, not by supply; it is currently down simply because Eurozone is in the midst of an economic crisis. Meanwhile, US production has surged ahead, for no adequately explored reason, crashing the price and making much of it unprofitable.

Let's compare: Gazprom's price at the wellhead runs from US$3 to $50 per thousand m³, depending on the region. Compare that to shale gas in the US, which runs from $80 to $320 per thousand m³. At this price, the US cannot afford to sell shale gas on the European market. Moreover, the overall volume of shale gas being produced in the US, even given the feverish drilling rate of the past couple of years, if cleaned up, liquified, and shipped to Europe in LNG tankers, would not be enough to book up just the LNG terminal in Gdańsk, Poland, which is currently standing idle. It seems that Gazprom has little to worry about.

The US, on the other hand, does have plenty to worry about. There has been much talk already about groundwater pollution and other forms of environmental destruction that accompanies the production of shale gas, so I will not address these here. Instead, I will focus on two aspects that are just as important but have received scarcely any attention.

First, what is shale gas? Ask this question, and you will be told: “Shut up, it's methane.” But is it really? The composition of shale gas is something of a state secret in the US, but information about the gas produced from the nine Polish shale gas test projects did leak out, and it's not pretty: Polish shale gas turned out to be so high in nitrogen that it does not even burn. Technology exists to clean up gas that is, say, 6% nitrogen, but Polish shale gas is closer to 50% nitrogen, and, given high production costs, low yields, rapid depletion and low wellhead pressure, cleaning it up to bring it up to spec (which is 1% nitrogen) would most likely result in a net waste of energy.

Even if shale gas is low enough in nitrogen to burn, the problems do not end there. It may also contain hydrogen sulfide, which is toxic and corrosive and has to be removed before the gas can be stored or injected into a pipeline. It probably contains toluene and other organic solvents—ingredients in the fracking cocktails—which are carcinogenic. Lastly, it may be radioactive. All clays are mildly radioactive, and shale is a sort of heat-treated clay. While Barnett shale is not particularly radioactive, Marcellus shale, which has recently been the focus of frantic drilling activity, is. Thanks to Marcellus shale gas, radioactive radon gas is being delivered directly to your kitchen, via the burners of your stove, or to a power plant smokestack upwind from where you live. This is expected to result in increased lung cancer rates in the coming years.

Second, why is shale gas being produced at all? Natural gas prices have fallen through the roof, and are currently around $2 per thousand cubic feet. This works out to around $70 per thousand m³. If shale gas costs from $80 to $320 per thousand m³ to produce, it is unclear how one might make any money with it. But perhaps making money with it is not the point. What if shale gas is just a PR campaign (with horrific environmental side effects)? Going back to what Alexei Miller said, what if the entire point of the exercise was to increase the capitalization of shale gas exploration and production companies? The number one company in shale gas is Chesapeake Energy, the owner of the Barnett basin and a major player in the Marcellus basin. This company almost went bankrupt in 2009, but then managed to claw its way back to profitability in 2010 and 2011 by drilling, and drilling, and drilling, and then drilling some more. Sixty percent of their revenue is from drilling operations. And now there is a scandal involving Chesapeake Energy's (former?) chairman, Aubrey K. McClendon, who apparently awarded himself a stake in each well his company drilled, used them as collateral for billions in loans, and used the loans to bet that natural gas prices will go up (they haven't). In the meantime, natural gas drilling rig count has dropped to a ten-year low. Given that shale gas wells deplete very quickly, it looks like the shale gas boom is over.

But now that it's over, what was it, exactly? It appears to have been something like the dot-com bubble: companies with no conceivable way of turning a profit using hype to attract investment and drive up their valuations. Since 2008, various kinds of hype-based market manipulations have become the staple of economic life in the US, and so this is nothing new or different. One interesting question is, What sort of bubble will the US attempt to blow next, if any? There is the Facebook IPO coming up. Facebook is a ridiculous time-waster and, as such, seems a bit overpriced. Are we going to attempt blowing up another dot-com bubble? Another round of subprime mortgages does not seem to be in the works. What's a bubble boy to do? If there are no more bubbles to blow, then it's back to just plain printing money.

So this whole shale gas thing didn't work out as planned, did it? But could it have? Had it turned out to be much better in every way, could it have swung geopolitical influence away from Russia and Iran and back toward the US? Alas, no.

You see, there is no such thing as a global natural gas market. Yes, there are some LNG tankers sailing about, but that is very much a point-to-point trade. There is a closed North American market, a European market, and another market in the Asia-Pacific region. These markets do not interact. The North American market and the European market could have potentially shared just one producer: Qatar. Qatar once wanted to export LNG to the US, but then decided to export it to Europe instead, generating less of a loss, because European gas prices are substantially higher. And the reason Qatar is dumping natural gas in Europe is because it has gas to dump: its northern gas field is a very “wet” field, with a substantial percentage of natural gas condensate. Qatar's OPEC quota is 36-37 million tonnes of oil per year, but natural gas condensate is not considered to be oil and is not covered by OPEC quotas. Exploiting the condensate loophole allows Qatar to export 65.7 million tonnes: 77% over quota. The LNG is just concomitant production, and Qatar can afford to export LNG to Europe at a loss. This is a juicy bit of trivia, but really something of a footnote: an exception that proves the general case: there is no global natural gas market.

There is still, however, a global American disinformation and PR hype market, although this too is changing. The view from Russia is that it is pretty clear what this was all along: American propaganda and financial shenanigns. Nothing to see here, people, keep moving.

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No Virginia there is no Santa

SUBHEAD: North Carolina lawmaker's 3rd grade daughter writes him letter to protest education cuts. By AP Staff on 6 June 2011 in Huffington Post - (http://www.huffingtonpost.com/2011/06/06/north-carolina-mike-stone-education-budget_n_872250.html) Image above: A pixilated press photo of Rep. Mike Stone. From (http://www.ncpolicywatch.com/2011/02/14/jones-street-quote-of-the-week/). A North Carolina lawmaker doesn't think it was right for his daughter and her third-grade class to write to him and other elected officials protesting possible cuts in state education spending.

Republican state Rep. Mike Stone says his daughter asked in her note to "please raise the budget, dad" and help keep two teacher assistants employed.

Republican lawmakers and Democratic Gov. Beverly Perdue are at odds over the budget that is on her desk to either sign or veto.Some in education say the proposed spending plan could eliminate 9,300 positions in the public schools. Republicans have said those numbers are exaggerated.

Lee County Schools Superintendent Jeff Moss told WRAL-TV he didn't see the writing exercise as a problem.

Moss said students in other schools wrote to lawmakers and Perdue.

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GOP opposes Elizabeth Warren

SUBHEAD: Republicans criticizing Elizabeth Warren's lack of transparency, but had no problems with Dick Cheney as energy Czar.

Image above: Elizabeth Warren to set up Consumer Financial Protection Bureau. From (http://www.fastcompany.com/100/2010/03/elizabeth-warren).

By Peter Goodman on 24 November 2010 in Huffington Post - (http://www.huffingtonpost.com/2010/11/23/elizabeth-warren-dick-cheney-executive_n_787848.html)

Recently enough that you may still recall it, a secretive, paranoid man who had previously headed a major multinational energy company found himself vice president of the United States. This man deliberated privately with the heads of major oil companies as his administration set up a new energy policy that, perhaps coincidentally, wound up being strikingly generous to oil companies. The same man played a crucial role in leading the nation into a disastrous and costly war in a country that -- again, perhaps coincidentally -- held the world's second-largest oil reserves.

When, at the time, a few annoying sticklers for detail suggested there were problems with this flavor of policymaking, that perhaps it would have been better to hold deliberations in public so that people other than the heads of giant energy companies could have a say in the nation's handling of energy, they were derided by this man and members of his party as naive and idealistic. Why clutter up the proceedings with citizens, journalists and other nudges who do not know how to get oil out of the ground? Leave things to the experts, we were told.

So it is nothing short of astonishing to absorb the current spectacle. Republican members of the House -- the same people who defended national troglodyte Dick Cheney in his effort to block public scrutiny on oil policy -- are now criticizing the way Elizabeth Warren is making preparations for a Consumer Financial Protection Bureau, as if it were some sinister plot to destroy the republic.

The White House's appointment of Warren "circumvented the advice-and-consent process and undermined one of the key checks and balances in our Constitution," declared Rep. Spencer Bachus (R-Ala.), the ranking member of the House Financial Services Committee, and Rep. Judy Biggert (R-Ill.) in a letter addressed Monday to the inspector general at the Treasury. "Treasury Department officials have provided little or no transparency with respect to their activities such as which organizations are meeting with Treasury officials."

Far be it from anyone to defend the Obama Treasury against charges that it lacks transparency. From its handling of its feckless homeowner-aid program, sold as a fix to the foreclosure crisis, to its administering of the Wall Street bailouts begun by its predecessors, this Treasury has been a maddening and combative model of misinformation, evasion and outright dishonesty. Again and again, it has sided with Wall Street over the public's right to know, protecting Goldman Sachs and Bank of America in much the same way Dick Cheney lavished his nurturing ways on Halliburton and Exxon.

But this idea that Republicans in Congress are now pursuing the public interest in challenging Warren's authority, trying to derail her devious plot to make the world safe for people with credit cards and bank accounts, is nothing short of hilarious. It is a brazen exercise in what regular people call balls, one that must be admired for its sheer, breathtaking nature.

Vice President Cheney, you will recall, had previously run Halliburton, a company that makes its money helping multinational energy firms extract more precious black liquid from the earth. This gave him an Oklahoma-sized conflict of interest when it came to deliberating on energy policy. It was fair to assume he would not be a particularly aggressive proponent of tighter energy-efficiency standards or an advocate for capping carbon emissions to limit climate change. He also played a central role in the nation's national-security apparatus just as the deliberations -- and perhaps that is a generous word -- commenced on the ultimately horrible decision to invade Iraq.

Cheney not only had personal truck with the heads of the oil majors, a clubby relationship with people who had every financial incentive to push for greater consumption of oil, but also the reasonable expectation of financial enrichment himself on the other side. Much as Larry Summers and Robert Rubin used their time at the Clinton Treasury to open up fresh profit-making opportunities for high finance in ways contrary to the public interest before landing on Wall Street, where they made enough to live like Maharajahs, Cheney could certainly have set himself up for a lucrative return trip to the oil patch.

In short, the less-than-transparent way he handled energy policy could reasonably have been expected to hide some sweet goodies for powerful companies whose interest might have deviated from the public's.

Elizabeth Warren, the woman tasked with creating the CFPB, on the other hand, is a longtime law professor, an author of respected books on the breakdown of the American middle class, and a darling of consumer advocates. Are Republicans suggesting that she is using her current position to set up a consumer protection bureau that is so to the liking of consumer advocates that she could some day cash in with a plum job at, say, the National Consumer Law Center? Are they intimating that she stands to benefit in some way by using her new agency to damage the public interest?

And how to square the Republican demands to know where she is drawing counsel with the Bush administration's stonewalling on efforts to glean Treasury Secretary Hank Paulson's conversational partners as he was crafting plans to send $700 billion in bailout funds to his old compadres on Wall Street?

In the most generous reading, the Republicans really believe the rhetoric in their broadside and are clinging to a cultish reverence for free markets, one so extreme that they are adamant that the same bankers who brought the economy to its knees should enjoy the freedom to try it again.

But don't bet on that reading. The demands for transparency from a party that has only recently regained an appreciation for constitutional jurisprudence is merely the latest example of its oppose-everything mantra, a dynamic we are stuck with right up until the next presidential election.

It is a cynical ploy premised on the belief that American memories run short -- so short that we have already forgotten how today's ardent protectors of due process are the same people who allowed Dick Cheney to run energy policy like an elaborate Christmas morning for oil companies.

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