Snake Oil: How Fracking's False Promise of Plenty Imperils Our Future (10 page)

In the United States, public opposition to fracking has been attenuated by the system of private ownership of mineral rights. Households that stand to gain thousands, perhaps even a few million dollars, from leasing drilling rights and from subsequent production royalties are often willing not just to overlook environmental problems, but to actively oppose other members of their communities who seek to enact drilling moratoria or bans. In most other nations, the government owns all mineral rights. Local environmental problems that ensue from fracking are therefore likely to provoke much more local opposition outside the United States.

While large shale gas and tight oil reserves numbers are often touted for other nations, those numbers are highly speculative. According to a 2011 US Energy Information Administration estimate, Poland has Europe’s largest recoverable reserves of shale gas—187 trillion cubic feet, a third more than those of the Marcellus shale. However, this is a fairly meaningless statistic: the Polish Geological Institute estimates the nation’s reserves at 27 trillion cubic feet, only about one-seventh the EIA figure. Until many wells have been drilled and are in production, both numbers are mere guesses. Currently, nearly 1,200 drilling rigs are busy perforating America’s shale beds; Poland so far deploys only half a dozen rigs.

Hence another problem with the worldwide deployment of fracking: the lack of technology. The oil and gas industry got its start in the United States, and America has always enjoyed a technological edge when it comes to drilling. Most of the world’s oil services companies, which pioneered nearly all of the important innovations in drilling during the past century and a half, are headquartered in Texas. The United States has half the world’s drilling rigs, and American colleges and universities still turn out the bulk of the world’s petroleum geologists and engineers. Other countries—China comes quickly to mind—could make the enormous investments required to develop the needed technology, build the rigs, and train the experts. But it would still take time.

Water can also be a limiting factor. Saudi Arabia has plenty of gas-bearing shales, but little of the water that would be necessary to hydrofracture them. As climate change brings more extreme periodic drought conditions to nations like Australia and China, high water demands may make hydrofracturing problematic-to-impossible in those countries as well.
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Geology is a problem too. As we’ve seen, not all US shale plays are created equal, and even in the best of them only localized “core areas” are actually profitable to drill. The same principle holds for the rest of the world. China’s shale gas resources are purported to be the world’s largest, beating even those of the United States. But the Chinese formations are more complex than those in the United States, many having a high clay content, which makes them more pliable and less apt to fracture. Also, many Chinese shale plays are deeper, requiring higher per-well investment in drilling. Compounding these problems, China lacks means for compiling, assessing, and sharing geological data comparable to those developed during the past century in the United States.
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Financial factors also constrain non-US development of shale gas and tight oil. In the United States, the fracking boom was driven by small companies willing to take on substantial financial risk. The industry was also buoyed by investor capital funneled by Wall Street, which tirelessly hyped the nation’s prospects for a century’s worth of cheap gas and oil. In many other countries, state-owned companies do the drilling, and investment decisions are made by risk-averse bureaucrats rather than risk-seeking, hype-driven capitalists.

Altogether, the evidence suggests that other nations
are
working to develop the means to extract shale gas and tight oil resources, and that they
will
eventually have some success. But the process will take years, and there is no nation in which the oil and gas industry is likely to fully repeat the performance of the independent companies operating in Texas, North Dakota, Pennsylvania, Louisiana, and Arkansas.

Why Do Official Agencies So Often Get It Wrong?

The picture we’ve been painting in this chapter is radically different from the one that fracking boosters portray. But it differs also from the forecasts of official agencies—principally, the International Energy Agency and the US Energy Information Administration—and from those of oil industry sources such as BP’s annual “Statistical Review of World Energy.” Reading David Hughes’s “Drill, Baby, Drill” report, one encounters statements like these:

The IEA’s suggestion that these costs will not escalate further over the next 23 years, as assumed in its $10 trillion upstream oil forecast, seems wishful thinking indeed. (p. 26)

The growth in shale/tight oil production in this projection is very aggressive, requiring the consumption of 26 billion barrels, or 78%, of the EIA’s estimated unproved technically recoverable shale/tight oil resource by 2040. The likelihood of this happening is remote. (p. 34)

Why should we believe Hughes but not the EIA? Does the agency ever get its numbers wrong? Yes, as a matter of fact, it frequently does. Hughes provides a graphic of 12 EIA forecasts for world oil production going back to 2000, noting, “Compared to actual 2011 production, these projections invariably overestimated world oil production levels. The 2002 projection, for example, overestimated 2011 production by 13%, or 11 [million barrels per day]—and that was only nine years out.”
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Figure 23. EIA World Oil Production Estimates Compared to Actual Production, 2000–2011.
Most cases overestimated actual 2011 production.

Source: J. David Hughes, “Drill, Baby, Drill,” Figure 25. Data from Energy Information Administration.

In March 2012, the EIA published an “Annual Energy Outlook Retrospective Review: Evaluation of 2011 and Prior Reference Case Projections,” in which it found that during the past dozen years it had underestimated oil prices and overestimated oil production most of the time. (More specifically, the agency found that it had overestimated crude oil production 62% of the time and overestimated natural gas production 70.8% of the time.)
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There is evidence to suggest that this pattern of poor forecasting is ongoing. Roger Blanchard, author of
The Future of Global Oil Production: Facts, Figures, Trends and Projections by Region,
notes that recent EIA reports assume that US offshore oil production will continue to increase over time. However, the agency’s own data show that total Gulf of Mexico oil production achieved its highest level in 2009 and has declined every year since then.

Table. U.S. Offshore Oil Production, Energy Information Administration Estimates Versus Actual, 2009–2012.
Estimates are from
Annual Energy Outlook 2010
.

** Data through October 2012.

Source: Roger D. Blanchard, “Commentary: US DOE/EIA Forecast Estimates Face Reality,” ASPO–USA (website), January 14, 2013, http://aspousa.org/2013/01/commentary-us-doeeia-forecast-estimates-face-reality/.

The IEA has a record that’s no better. The 2000 IEA forecast for the price of oil a decade hence, adjusted for inflation to the 2000 dollar, was $28.25. The actual price in 2010 was $79.61, roughly
three times
the forecast price (and that was in the wake of the Great Recession). Also in 2000, the IEA forecast that total world liquid fuels production would reach 95.8 million barrels per day in 2010. The actual figure was 87.1 mb/d.

More examples could easily be cited—including ones from BP’s annual “Statistical Review of World Energy.” The natural question: Why have these agencies apparently adopted a bias toward overestimating production and underestimating prices? Longtime observers tend to agree that the agencies do not intend to deceive; they are merely producing demand-driven forecasts arrived at by assuming continuous GDP growth and a corresponding increased requirement for energy. Geological limits and the need for capital investment play a minor role in these calculations.

In 2009, the
Guardian
reported that a senior IEA official accused the agency of deliberately underplaying a looming world oil shortage for fear of triggering panic buying. “The senior official claims,” according to the story, that “the US has played an influential role in encouraging the watchdog to underplay the rate of decline from existing oil fields while overplaying the chances of finding new reserves.”
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The International Energy Agency, set up in the 1970s to warn the world’s industrialized nations about future oil shocks, evidently bows to pressure from the United States. Meanwhile, the US Department of Energy’s Energy Information Administration appears to make its forecasts of future oil production conform to politically comfortable assumptions about economic growth.

During the past decade, there has been one notable exception to the agencies’ tendency toward over-optimism: in the years prior to 2009, the EIA and IEA failed to foresee the substantial increase in US natural gas and oil production resulting from the application of hydrofracturing and horizontal drilling. But as soon as the new trend of growing production in Texas, North Dakota, and Pennsylvania became apparent, the agencies appear to have overcompensated. They quickly reverted to their usual pattern of overestimating future supplies and underestimating future prices.
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The Bottom Line on Fracking’s Potential to Revolutionize Oil and Gas Production

Raymond Pierrehumbert, Professor of Geophysical Sciences at the University of Chicago, recently summarized the situation with crystalline brevity: “Oil production technology is giving us ever more expensive oil with ever-diminishing returns for the ever-increasing effort that needs to be invested.”
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The numbers tell the story: in the decade between 1994 and 2004, roughly $2.4 trillion in oil industry capital expenditures buoyed the worldwide rate of oil production by 12 million barrels per day. Yet a similar $2.4 trillion in capital expenditures spent from 2005 to 2010 failed to stem the tide of declining production in the world’s older, supergiant oil fields. Global oil production during those five years
declined
by two hundred thousand barrels per day.
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The ongoing substitution of conventional, cheap oil with expensive, technology-intensive, unconventional oil sources can be compared to the human body’s use of internal energy resources in the absence of sufficient food. If one doesn’t eat for a few days, the body starts burning stored fat, then muscle, and finally tissues surrounding internal organs. Each next step in the process reduces overall health but is necessary to maintain life. Similarly, the global economy naturally prefers to burn regular, conventional, cheap petroleum. But as supplies dwindle, markets prioritize the use of functionally similar fuels, even though their extraction requires much higher rates of drilling, is therefore more expensive (thus impacting oil prices and the global economy), and is more environmentally risky.

Fracking gives our current energy system a brief, fragile reprieve. New extraction technology cannot return us to the bygone era of cheap energy and easy economic growth. The best it can do is to buy us a few years of relative economic stability in which to develop alternative energy sources and build low-energy transport and food systems.

But instead of embarking on that needed project, our political leaders have unquestioningly seized on exaggerated claims from oil industry hucksters promising a century of cheap natural gas and soaring oil production rates. The result is an “all of the above” energy policy with no clear direction, and a dangerous complacency about the fate of essential but highly vulnerable food and transport systems designed during past decades of hydrocarbon abundance.

Rather than a century of plenty, we face the likely recommencement of declines in US oil and gas production
before 2020
. We’ve purchased a few years of respite from the relentless and inevitable erosion of our nation’s oil and gas production rates, but at what cost?