It didn't take long for the natural gas industry and energy insiders to react to a New York Times (NYT) story on Sunday, which cited unnamed industry and government sources describing the shale gas industry as a "Ponzi" scheme with a future similar to Enron Corp. and the bursting of the dot.com bubble.
Reporter Ian Urbina, who was taken to task in February following a series of NYT stories about hydraulic fracturing based on questionable "facts" (see Shale Daily, March 1), followed up with a front page story in its Sunday, June 26 issue that questioned the economics of shale gas and suggested some improprieties between companies and government officials. The Times posted 487 e-mails obtained through open records requests or anonymously provided to the newspaper by people who "believe that the public perception of shale gas does not match reality."
The Sunday article and a follow-up published by the NYT on Monday indicated that the federal government, including the Energy Information Administration (EIA), was relying on industry input to complete its gas reserves reports and that industry was fraudulently doctoring its reports. Over a six-month period, the story claimed, "thousands of pages of documents related to shale gas, including hundreds of industry e-mails, internal agency documents and reports by analysts" were reviewed. However, "names and identifying information have been redacted to protect the confidentiality of sources, many of whom were not authorized by their employers to communicate with the Times."
In one e-mail, apparently written by an unnamed analyst with industry researcher IHS Drilling Data, "the word in the world of independents is that the shale plays are just giant Ponzi schemes and the economics just do not work." A "retired geologist" was said to have written in an e-mail in February that "these corporate giants are having an Enron moment...They want to bend light from the truth." The e-mails cited in the Times articles were mainly opinions with no specific facts.
In response the American Petroleum Institute's Kyle Isakower, vice president of regulatory and economic policy, said the industry organization was doing some "fact checking" of the article.
"Our members are very astute business people," Isakower said. "They don't invest billions of dollars in nonprofitable ventures. The resource estimates that have been used come from the government. I can't see any reason that EIA would not have any incentive to not give their very best estimate."
Chesapeake Energy Corp. CEO Aubrey McClendon, whose company was accused of exaggerating shale gas well productivity and industry reserve estimates, fired back at the "inaccurate and misleading" reporting first in a company posting on Facebook, followed by a statement on Monday. He noted that the U.S. shale industry had drawn the interest of the best of the best: Anadarko Petroleum Corp., BG Group, BHP Billiton, BP plc, Chevron Corp., CNOOC, ConocoPhillips, Devon Energy Corp., Encana Corp., ENI, EOG Resources Inc., ExxonMobil Corp., KNOC, Marathon Oil Co., Mitsubishi, Mitsui Ltd., PetroChina, Reliance, Royal Dutch Shell plc, Statoil ASA, Talisman Energy Inc. and Total, among others.
"Consider whether it could really be possible that all of these well-respected energy leaders, with a combined market cap of almost $2 trillion, know less about the economics of shale gas production than a single New York Times reporter, a few environmental activists and a handful of shale gas doubters?" he asked.
"The Times story was obviously motivated by an anti-natural gas agenda. It is telling that the reporter chose not to interview a single reliable source and instead selectively quoted e-mails from unnamed sources or well-known industry critics dating back to as early as 2007 to invent a series of inaccurate and misleading allegations.
"If the Times was interested in reporting the facts and advancing the debate about the prospective benefits of natural gas usage to energy consumers, it could easily have contacted respected independent reservoir evaluation and consulting firms that annually provide reserve certifications to the U.S. Securities and Exchange Commission or contacted experts at the U.S. Energy Information Administration, the Colorado School of Mines' Potential Gas Committee, the Massachusetts Institute of Technology, Navigant Consulting and others who would gladly have gone on record to confirm the abundant resources" from shale gas drilling in formations all across the U.S.
The Chesapeake chief said it was "also absurd to conclude that shale gas wells are underperforming while America is awash in natural gas and consumers are benefiting from natural gas prices less than half of what they averaged in 2008...I also note that Chesapeake and other shale gas producers are routinely beating natural gas production forecasts...Today shale gas production represents approximately 25% of total U.S. natural gas production."
Production "doesn't lie," said the analyst team at Tudor, Pickering, Holt & Co. (TPH). The article used "selected e-mails from peripheral industry observers (not shale gas experts)...Saying shale gas is not easy/cheap to extract is a cheap shot with no back-up info and rehashing discredited arguments. But calling it Enron? Better back it up with more than this article does. Remember, Barnett Shale production is currently at record levels, even with the rig count one-half of peak levels. Shale gas is real. Disregard this as an unsubstantiated NYT hit piece."
Because it was the first shale play with "considerable production onshore U.S., the Barnett provides a good amount of history," said the TPH analysts. "Production doesn't lie...natural gas production from the Barnett is now higher (at 5.6 Bcf/d) than it was in 2008 (previous peak was 5.3 Bcf/d in 2008) despite rig count being more than cut in half. If wells are declining faster than expected, the Barnett would not be at record production with reduced rig count."
The NYT has been consistent in its "distaste for shale gas from their fear mongering about hydraulic fracture contamination of groundwater (no basis) to concerns about water disposal in the Marcellus (an issue identified three years ago and [which] is being addressed). We are sure the industry is touched by the NYT's newfound concern for well economics and industry profitability. No doubt the NYT is no fan of shale gas...maybe they hate shale gas because the resulting cheap gas prices are a roadblock to widespread adoption of alternatives...We are now leaving our soapbox."
John Hanger, the former chief of the Pennsylvania Department of Environmental Protection, took objection to Urbina's stories earlier this year about fracking and he wasted no words in criticizing the latest stories. Referring to the Barnett data, Hanger said, "Remember, the drill rig count is down half so the alleged Ponzi schemers are not just drilling more holes. Sounds like each gas well drilled in Barnett is producing more than was the case -- the opposite of a Ponzi scheme...The scandal remains the NYT reporter who has a track record of sensational, false stories designed to attack natural gas that sacrifice fairness and truth."
Michael Levy, who is the David M. Rubenstein Senior Fellow for Energy and the Environment at the Council on Foreign Relations, said Monday the stories were "on the whole...pretty poor quality." Urbina "was clearly looking for negative views of shale gas and no problem finding them. Given the massive size of the industry, and the number of financial bets being placed upon the sector, that shouldn't be a surprise. What is a surprise is that Urbina hasn't done much to put them in context."
Some of the e-mails are "ridiculous," said Levi. One from an investor, for example, "notes that his e-mails to producers have gone unanswered and concludes that they must have something to hide..." The story "conflates several issues," and many of the e-mails are from 2008 and 2009 "when shale gas was still a much murkier industry...Lots of the technical debates that are played out in those e-mails have come a long way since..."
Democratic Reps. Ed Markey of Massachusetts and Maurice Hinchey of New York called for investigations. Hinchey wants the Securities and Exchange Commission to investigate shale gas drilling companies, which he too accused of using "Enron-like" practices to cover up financial shortcomings. And in a letter to EIA Administrator Richard Newell, Markey demanded that the government agency provide the methods and supporting materials used to estimate U.S. shale gas reserves. He also asked EIA for a list of outside contractors used to determine estimated shale gas reserves.