Does shale development make economic sense?

[OddTrader]

Why the shale gas fracking fad is the new dotcom bubble

"
US shale gas production could be headed for a serious slump. Photo: Bloomberg

Public opinion has been divided very starkly indeed by the government’s invitation to energy companies to apply for licences to develop shale gas across a broad swathe of the United Kingdom.

On the one hand, many environmental and conservation groups are bitterly opposed to shale development.

Faced with such rates of decline, the only way to keep production rates up and to keep investors on side is to drill yet more wells.

Ranged against them are those within and beyond the energy industry who believe that the exploitation of shale gas can prove not only vital but hugely positive for the British economy.

Rather oddly, hardly anyone seems to have asked the one question which is surely fundamental: does shale development make economic sense?

My conclusion is that it does not.

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What do you think?

 

[AAAintheBeltway]

In the Bakken it usually only takes a year or less for a well to pay for itself. Yes, there is rapid falloff in production, but even a severely depleted well is generating a couple of million a year in revenues.

The concept that the rapid depletion of shale wells makes them uneconomic has been disproved in my view.

How good an investment the E&P companies are is a somewhat different issue.

 

[convexx]

From Forbes:

You’d think that with drillers getting better, honing techniques and driving down costs, that a 20% increase in investment would bring about a more than commensurate increase in oil and gas production volumes, right? And yet according to Ernst & Young, total U.S. oil and gas production was up “just” 13% on the year.

It’s bad enough to be spending more and more to generate ever less growth. It’s worse when that growth doesn’t even translate into profits. Oil and gas companies have spent hundreds of billions acquiring acreage, drilling wells, booking reserves, boosting supplies, but in 2012 they proved too good at their job, found too much gas and cratered the gas price. That made vast shale fields uneconomic to drill at all. In 2012 those 50 biggest companies recorded $26 billion in asset impairment charges. That basically means that natural gas reserves that were worth $26 billion the previous year became worthless because it cost too much to drill them. This led to a 58% decline in after-tax profits in 2012 over 2011.

Watch the price of WTI. Trading near its 3 month low.

 

[Brighton]

^ There have been a number of articles and reports about recent global E&P expenditures vs. production. It's not pretty.

In the US shale plays, if most of the product is oil or 'wet gas' the companies can do OK and better than OK if the product is nearly all oil. It's the dry gas wells that have people scratching their heads and wondering how long investors and lenders will keep pumping money down those holes.

Somewhat related: Take a look at Carbo Ceramics today (CRR). They lost a big ceramic proppant customer to sand and the stock is tanking.

 

[Turveyd]

^ There have been a number of articles and reports about recent global E&P expenditures vs. production. It's not pretty.

In the US shale plays, if most of the product is oil or 'wet gas' the companies can do OK and better than OK if the product is nearly all oil. It's the dry gas wells that have people scratching their heads and wondering how long investors and lenders will keep pumping money down those holes.

Somewhat related: Take a look at Carbo Ceramics today (CRR). They lost a big ceramic proppant customer to sand and the stock is tanking.

Might not be viable currently, but as prices increase which they will, they'll become more viable.

Need to switch from extracting oil to growing it with Algea farms.

 

[convexx]

The industry recognizes that there is likely $650B in recoverable oil in the Bakken. That assumes an average price of $90 for WTI and excluding costs associated with recovery. The industry has invested $200B in the field. Do the math.

 

[convexx]

The OP is talking about NATURAL GAS not CRUDE OIL you fucking cunts

Well the NG mkt has imploded. So let's talk about the mkt that's actually still in business. They're flaring 1/3 of the gas in the Bakken due to oil recovery.

 

[loyek590]

Might not be viable currently, but as prices increase which they will, they'll become more viable.

Need to switch from extracting oil to growing it with Algea farms.

no kidding, algea gets laughed at, but it has incredible potential. Bad for global warming, but good for diesel. It can be produced anywhere there is sunlight and just a little bit of water. Even in the desert. So every state could produce their own algea diesel locally.

 

[Brighton]

no kidding, algea gets laughed at, but it has incredible potential. Bad for global warming, but good for diesel. It can be produced anywhere there is sunlight and just a little bit of water. Even in the desert. So every state could produce their own algea diesel locally.

Maybe someday, but Solazyme seems further along than most (all?) in commercializing, and they're doing it in closed tanks and providing 'sunlight' via sugar (corn in Iowa and cane in Brasil). They don't talk a lot about biodiesel at the present time; it's all about $100/oz cosmetics, food ingredients and, ironically, a fluid used in fracturing fossil fuel wells.

I'm by no means well informed on the subject of algae, but I've been reading up on Solazyme and it seems like they are a long way off from being a competitive producer of liquid transportation fuels.

 

[Turveyd]

no kidding, algea gets laughed at, but it has incredible potential. Bad for global warming, but good for diesel. It can be produced anywhere there is sunlight and just a little bit of water. Even in the desert. So every state could produce their own algea diesel locally.

Bad for global warming ?? it's carbon neutral, it eats it to grow then spits it out when used, fine.

Better off building huge farms in the desert, enclosed ofcourse to stop evaporation.

They've started already, small scale trials so far all over the world.